<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
DOLLAR TREE STORES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
VIRGINIA 54-1387365
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
------------------------
<TABLE>
<S> <C>
2555 ELLSMERE AVENUE H. RAY COMPTON
NORFOLK COMMERCE PARK DOLLAR TREE STORES, INC.
NORFOLK, VIRGINIA 23513 2555 ELLSMERE AVENUE
(757) 857-4600 NORFOLK COMMERCE PARK
(Address and telephone number of NORFOLK, VIRGINIA 23513
registrant's principal executive offices) (757) 857-4600
(Name, address and telephone number
of agent for service)
</TABLE>
------------------------
copies to:
<TABLE>
<S> <C>
WILLIAM A. OLD, JR. PATRICK J. RONDEAU
HOFHEIMER, NUSBAUM, MCPHAUL & SAMUELS, BRENT B. SILER
A PROFESSIONAL CORPORATION HALE AND DORR LLP
999 WATERSIDE DRIVE, SUITE 1700 60 STATE STREET
NORFOLK, VIRGINIA 23510 BOSTON, MASSACHUSETTS 02109
(757) 622-3366 (617) 526-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
-------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / / _______
If this Form is a post-effective amendment filed pursuant to Rule 426(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / / _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
NUMBER OF MAXIMUM MAXIMUM
SHARES OFFERING AGGREGATE AMOUNT OF
TITLES OF SHARES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
Common Stock, $0.01 Par Value............. 4,025,000 $ 47.25 $190,181,250.00 $57,630.68
<S> <C> <C> <C> <C>
</TABLE>
(1) Includes 525,000 shares to cover Underwriters' over-allotment options.
(2) Estimated pursuant to paragraph (c) of Rule 457 solely for the purpose of
calculating the registration fee, based upon the average of the reported
high and low sales prices for a share of Common Stock on June 4, 1997, as
reported on the Nasdaq National Market.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 6, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
3,500,000 SHARES
<TABLE>
<S> <C>
[LOGO] DOLLAR TREE STORES, INC.
</TABLE>
COMMON STOCK
ALL OF THE 3,500,000 SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND SELLING SHAREHOLDERS." THE COMPANY
WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING
SHAREHOLDERS. THE COMPANY'S COMMON STOCK IS TRADED ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "DLTR." ON JUNE 5, 1997, THE LAST REPORTED SALE PRICE OF THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET WAS $47.50 PER SHARE. SEE "PRICE
RANGE OF COMMON STOCK."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRICE UNDERWRITING PROCEEDS TO SELLING
TO PUBLIC DISCOUNT (1) SHAREHOLDERS (2)
<S> <C> <C> <C>
PER SHARE.............................. $ $ $
TOTAL (3).............................. $ $ $
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING ESTIMATED OFFERING EXPENSES OF $400,000, WHICH WILL BE PAID
BY THE SELLING SHAREHOLDERS.
(3) THE SELLING SHAREHOLDERS HAVE GRANTED TO THE UNDERWRITERS A 30-DAY OPTION TO
PURCHASE UP TO 525,000 ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL,
THE PRICE TO PUBLIC WILL TOTAL $ , THE UNDERWRITING DISCOUNT WILL
TOTAL $ AND THE PROCEEDS TO SELLING SHAREHOLDERS WILL TOTAL
$ . SEE "PRINCIPAL AND SELLING SHAREHOLDERS" AND "UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN WHEN, AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT
TO THEIR RIGHT TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT
DELIVERY OF THE CERTIFICATES REPRESENTING THE SHARES WILL BE MADE AGAINST
PAYMENT THEREFOR AT THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT ,
1997.
-------------------
MONTGOMERY SECURITIES
ALEX. BROWN & SONS
INCORPORATED
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
<PAGE>
, 1997
<PAGE>
[Map of Store Locations]
[External Store Photo]
[Three Internal Store Photo]
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock. Such
transactions may include stabilizing transactions and the purchase of Common
Stock to cover syndicate short positions. For a description of these activities,
see "Underwriting".
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION (INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO) INCLUDED
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN, WHICH SHOULD
BE READ IN ITS ENTIRETY. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE
"UNDERWRITING."
THE COMPANY
Dollar Tree Stores, Inc. ("Dollar Tree" or the "Company") is the leading
operator of discount variety stores offering merchandise at the $1.00 price
point. The Company's stores, which are designed to be the modern day equivalent
of the traditional variety store, offer a wide assortment of quality everyday
general merchandise in many traditional variety store categories, including
housewares, seasonal goods, food, toys, health and beauty aids, party goods,
stationery, hardware, gifts, books and other consumer items. As of March 31,
1997 the Company operated 767 stores principally in strip centers and malls in
26 states in the Southeastern, Midwestern, Mid-Atlantic, Southcentral and
Northeastern United States.
Dollar Tree has increased its net sales and operating income in each year
since its inception in 1986. During the past five years, the Company has grown
significantly, with the number of stores increasing from 186 at December 31,
1991 to 737 at December 31, 1996. The Company's net sales increased from $120.5
million in 1992 to $493.0 million in 1996, a compound annual growth rate of
42.2%. In addition, operating income increased from $12.5 million in 1992 to
$60.2 million in 1996, a compound annual growth rate of 48.2%. The Company's net
sales increased 38.6% from $85.0 million to $117.7 million, and operating income
increased 142.9% from $2.6 million to $6.2 million from the three months ended
March 31, 1996 to the three months ended March 31, 1997.
Dollar Tree believes that its ability to operate successfully in major
metropolitan areas, mid-sized cities and small towns, in both strip center and
mall based locations, its ability to concentrate multiple stores in a single
market and its attractive store level economics provide it with a wide range of
real estate opportunities and will facilitate its continued expansion. The
Company's expansion plan is to increase its presence in its existing markets and
to selectively enter new markets. Dollar Tree opened 82 new stores in 1994, 94
new stores in 1995 and 104 new stores in 1996. In addition, the Company added
136 stores through its acquisition of Dollar Bills, Inc. ("Dollar Bills") in
January 1996. The Company anticipates expanding by approximately 145 to 150
stores in 1997 (30 of which had been added as of March 31, 1997), and by
approximately 175 to 180 stores in 1998. The Company is focusing its expansion
strategy on strip center locations anchored by strong mass merchandisers such as
Wal-Mart, Target and Kmart, whose target customers management believes are
similar to those of Dollar Tree. In 1996, the average investment per new store,
including capital expenditures, initial inventory and pre-opening costs, was
approximately $162,000, while the average new store (i.e., a store for which
1996 was its first full year of operations) had net sales of approximately
$690,000. The Company's Dollar Tree stores have historically been profitable
within the first full year of operation, with an average store level operating
income of approximately $162,000 (approximately 23% of sales) for stores whose
first full year of operation was 1996. The operating performance of the
Company's stores has been very consistent, with over 90% of its stores having
store level operating income margins in excess of 15% in 1996.
Dollar Tree's management strives to exceed its customers' expectations of
the range and quality of products that can be purchased for $1.00. Management
believes that many of the items Dollar Tree sells for $1.00 are typically sold
for higher prices elsewhere. The Company supplements its wide assortment of
quality everyday core merchandise with a changing mix of new and exciting
products, including seasonal goods (such as Christmas and Easter goods) and, to
a limited extent, selected closeout merchandise. The wide variety and freshness
of merchandise and the $1.00 price point create excitement for customers, which
management believes results in "impulse" purchases and encourages consumers to
make return visits to the store.
3
<PAGE>
Dollar Tree's three executive officers each have between 18 and 28 years of
experience in the retail industry and have worked together for the past 18
years. In addition to their experience with Dollar Tree, they helped to manage
the profitable growth of K&K Toys, Incorporated ("K&K Toys") from one toy store
to a 136 store, mall based toy retailer. K&K Toys was profitable in every year
of operation from 1970 until its sale in 1991.
Dollar Tree believes that, given the Company's pricing structure,
maintaining sufficient margins and tight control over store expenses, corporate
expenses and inventories is critical to its success. Dollar Tree increased its
operating income margin from 10.4% to 12.2% from 1992 to 1996 and from 3.0% to
5.3% from the three months ended March 31, 1996 to the three months ended March
31, 1997. Dollar Tree closely manages both retail inventory shrinkage and retail
markdowns of inventory, limiting each to an average of less than 2.5% of annual
net sales over the last five years.
RECENT DEVELOPMENTS
In January, 1997, Dollar Tree purchased approximately 50 acres of land in
Chesapeake, Virginia, ten miles from its current Norfolk location, in order to
build a new Store Support Center consisting of an approximately 400,000 square
foot distribution center and an approximately 76,000 square foot headquarters
facility to replace the existing Norfolk facility. Management believes that upon
completion of the Store Support Center, the Company's capacity to service stores
will increase to approximately 1,600 stores, up from its current capacity of
approximately 1,000 stores. The Company believes that the facility will be
operational in early 1998, when it will be needed to support continued growth.
It is currently anticipated that the Store Support Center will require an
investment of approximately $34 million.
On April 30, 1997, the Company issued $30 million of unsecured Senior Notes
("Notes") due April 30, 2004. The proceeds from the issuance of the Notes were
used to pay down a portion of the Company's existing revolving credit facility,
which will enable the Company to use that credit facility to fund capital
expenditures for the new Store Support Center. The principal amount of the Notes
is payable in five equal annual installments of $6 million beginning April 2000.
Interest is payable semi-annually at a fixed rate of 7.29%.
------------------------
The Company was incorporated under the laws of Virginia in 1986 as Only One
Dollar, Inc. and changed its name to Dollar Tree Stores, Inc. on December 14,
1993. The Company's principal executive and administrative offices are located
at 2555 Ellsmere Avenue, Norfolk Commerce Park, Norfolk, Virginia 23513, and the
Company's telephone number is (757) 857-4600. References to the Company and
Dollar Tree include the Company's wholly-owned subsidiaries.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling Shareholders......... 3,500,000 shares
Common Stock to be outstanding after the offering........ 26,019,647 shares(1)
Nasdaq National Market symbol............................ DLTR
</TABLE>
- ------------------------
(1) Based on shares outstanding at June 1, 1997. Does not include up to
3,475,373 shares of Common Stock issuable upon the exercise of (i) options
to purchase 993,195 shares of Common Stock and (ii) warrants to purchase
2,482,178 shares of Common Stock outstanding at such date.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION AND CERTAIN OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SALES PER SQUARE FOOT DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................................. $ 231,601 $ 300,229 $ 493,037 $ 84,975 $ 117,746
Gross profit.............................................................. 86,120 112,677 182,137 29,070 41,291
Selling, general and administrative expenses:
Operating expenses...................................................... 54,993 70,504 111,401 24,288 32,116
Depreciation and amortization........................................... 4,186 5,468 10,527 2,212 2,932
--------- --------- --------- --------- -----------
Total............................................................... 59,179 75,972 121,928 26,500 35,048
Operating income.......................................................... 26,941 36,705 60,209 2,570 6,243
Net income................................................................ $ 12,114 $ 20,963 $ 33,835 $ 923 $ 3,563
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Net income per share(1)................................................... $ 0.44 $ 0.76 $ 1.19 $ 0.03 $ 0.12
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Weighted average number of common shares and common share equivalents
outstanding, in thousands(1)............................................ 27,262 27,589 28,327 27,795 28,775
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
SELECTED OPERATING DATA:
Number of stores open at end of period(2):
Mall.................................................................... 154 173 202 179 211
Strip center............................................................ 255 327 535 481 556
--------- --------- --------- --------- -----------
Total............................................................... 409 500 737 660 767
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
Net sales growth.......................................................... 38.1% 29.6% 64.2% 74.5% 38.6%
Comparable store net sales increase(3).................................... 9.1% 7.3% 6.2% 11.8% 10.9%
Average net sales per store(4)............................................ $ 606 $ 649 $ 691 $ 135 $ 156
Average net sales per square foot(4):
Mall.................................................................... $ 241 $ 246 $ 249 $ 49 $ 49
Strip center............................................................ $ 197 $ 209 $ 220 $ 43 $ 44
All stores.............................................................. $ 214 $ 221 $ 229 $ 45 $ 46
<CAPTION>
AS OF
MARCH 31,
1997
-----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................................................................... $ 49,547
Total assets.......................................................................................................... 192,324
Total debt............................................................................................................ 35,776
Shareholders' equity.................................................................................................. 106,339
</TABLE>
- ------------------------
(1) Net income per share has been computed by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding. All warrants and options outstanding at December 31, 1994 have
been considered outstanding for the entire year ended December 31, 1994 and
are included in the calculation of the weighted average number of common
shares and common share equivalents outstanding for net income per share
computations in accordance with the rules of the Securities and Exchange
Commission. For all periods after December 31, 1994, common share
equivalents include the weighted average number of shares subject to stock
options and warrants outstanding at the end of the period, after applying
the treasury stock method.
(2) The Company closed one store in 1994, three stores in 1995 and three stores
in 1996.
(3) Comparable store net sales increase compares net sales for stores open at
the beginning of the first of the two periods compared. The comparable store
net sales increase calculation for the three months ended March 31, 1997
includes net sales of Dollar Bills stores for the three months ended March
31, 1996 and March 31, 1997.
(4) For stores open the entire period presented. Dollar Bills stores are only
included in the calculation for the three months ended March 31, 1997. The
1996 calculation does not include the 28 stores expanded in 1996 due to
remodeling and/or relocation, which increased total square footage by
approximately 29,900 square feet. Results for the three months ended March
31, 1997 may not be indicative of full year average net sales per store or
average net sales per square foot due to seasonal fluctuations in sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Fluctuations."
5
<PAGE>
RISK FACTORS
BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY, A PROSPECTIVE
INVESTOR SHOULD CONSIDER THE SPECIFIC FACTORS SET FORTH BELOW AS WELL AS THE
OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS AND INCORPORATED HEREIN
BY REFERENCE. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "BUSINESS" FOR A DESCRIPTION OF OTHER FACTORS
AFFECTING THE BUSINESS OF THE COMPANY GENERALLY.
RISKS ASSOCIATED WITH EXPANSION PLANS
The Company has grown from its initial five stores in 1986 to 767 stores at
March 31, 1997 and its net sales have grown significantly in the past several
years. The Company intends to continue to pursue an aggressive store opening
strategy. The continued growth of the Company is dependent, in large part, upon
the Company's ability to open new stores on a timely basis and to operate them
profitably. The Company plans to expand by approximately 145 to 150 stores in
1997 (30 of which had been added as of March 31, 1997), and by approximately 175
to 180 stores in 1998. As of March 31, 1997, the Company had signed leases with
respect to 88 new stores and had reached an agreement in principle with respect
to an additional 37 new stores to open in 1997 and had signed leases with
respect to eight new stores and had reached an agreement in principle with
respect to an additional eight new stores to open in 1998. However, successful
expansion is subject to various contingencies, many of which are beyond the
Company's control. These contingencies include, among others, (i) the Company's
ability to hire, train and retain qualified managers and other personnel, and to
maintain good relations with all of its employees, (ii) the availability of
adequate inventory, capital resources and external financing, (iii) the
Company's ability to identify and secure suitable store sites on a timely basis
and on satisfactory terms and to complete any necessary construction or
refurbishment of these sites, (iv) the Company's ability to retain its current
store sites or substitute sites on satisfactory terms given that a substantial
number of the Company's store leases contain provisions prohibiting a change in
control of the Company or permitting the landlord to terminate the lease or
increase rent upon a change in control of the Company, which provisions are
arguably applicable in a substantial number of the Company's leases as a result
of the recapitalization of the Company in 1993 and may be applicable in a small
number of additional leases as a result of the Company's prior public offerings
and this offering, and given that many of the Company's leases contain
provisions with which the Company does not comply, including provisions
requiring certain insurance and advertising and prohibiting competing Company
stores within a specified radius, and (v) the successful integration of new
stores into existing operations. As a result, there can be no assurance that the
Company will be able to achieve its targets for opening new stores, that its new
stores will be profitable or achieve net sales and profitability comparable to
the Company's existing stores or that comparable store net sales increases will
continue. Furthermore, there can be no assurance that the Company will
anticipate all of the changing demands which its expanding operations will
impose on its systems and personnel. The Company's failure to expand internal
systems or to hire, train and retain qualified personnel as required by its
growth could adversely affect its future operating results.
In the remainder of 1997 and in 1998, the Company expects to expand in
existing and selected new markets in the Southeastern, Mid-Atlantic, Midwestern,
Southcentral and Northeastern United States. In some cases, stores will be
located in markets where the Company has no or only limited store operations.
The success of the Company's expansion plan is dependent upon the Company's
ability to penetrate these markets successfully. There can be no assurance that
the Company will do so. See "Business--Growth Strategy."
RISKS ASSOCIATED WITH NEW STORE SUPPORT CENTER
The Company is currently constructing a new Store Support Center consisting
of a new distribution center and headquarters facility in Chesapeake, Virginia,
to replace its Norfolk facility. Management believes the new Store Support
Center and related costs will require an investment of approximately
6
<PAGE>
$34 million. When the new Store Support Center is complete, the Company plans to
relocate to this facility from its Norfolk facility. If the Company is unable to
sublease the Norfolk facility, it would remain obligated for the rent and
pass-throughs under the lease until June 2004, at an annual cost of
approximately $744,000. The new distribution center will incorporate
sophisticated materials handling technologies, including a new automated
conveyor and sorting system. Management believes that upon completion of this
facility, the Company's capacity to service stores will increase from
approximately 1,000 to 1,600 stores. The Company also believes that the new
distribution facility will be operational in early 1998, when its increased
capacity will be necessary to support stores that are projected to be open as of
that date. There can be no assurance that delays will not be experienced in
opening the distribution center or that complications will not arise in the
operation of the distribution facility or in the smooth transition of Company
systems to the Store Support Center. Any such delays or complications could
result in significant interruption in the receipt and distribution of
merchandise or the management of the stores. Further, there can be no assurance
that the project will not experience cost overruns or that an acceptable tenant
can be found to sublease the Norfolk facility. Any of the foregoing problems
could materially adversely affect the Company's business, financial position or
results of operations. See "Risk Factors--Disruptions in Receiving and
Distribution" and "Business--Warehousing and Distribution."
RISKS ASSOCIATED WITH IMPORTS
In 1995 and 1996, the Company purchased approximately 34% and 32%,
respectively, of its merchandise based on cost and approximately 37% and 35%,
respectively, of its merchandise based on retail, directly from vendors located
abroad, primarily in Hong Kong and Taiwan (through which the Company's Chinese
imports flow), Thailand, Italy, Mexico and Indochina. The Company expects
imports to continue to account for approximately 35% to 40% of total purchases
at retail. In addition, the Company believes that a substantial portion of the
goods the Company purchases from domestic vendors are manufactured abroad. These
arrangements are subject to the risks of relying on products manufactured
abroad, including import duties and quotas, loss of "most favored nation"
("MFN") trading status, currency fluctuations, work stoppages, economic
uncertainties including inflation, foreign government regulations, lack of
compliance by foreign manufacturers with U.S. consumer protection laws (for
which Company may be responsible as the importer of record) and intellectual
property laws, political unrest and trade restrictions, including U.S.
retaliation against unfair foreign practices. While the Company believes that it
could find alternative sources of supply, an interruption or delay in supply
from China or certain of the Company's other foreign sources, or the imposition
of additional duties, taxes or other charges on these imports, could have a
material adverse effect on the Company's business and results of operations
unless and until alternative supply arrangements are secured. Moreover, products
from alternative sources may be of lesser quality and/or more expensive than
those currently purchased by the Company.
China is the source for a majority of the Company's direct imports and, the
Company believes, is also the largest source of its indirect imports. Several
trade-related and other issues have recently heightened tensions between the
governments of the United States and China. These issues include allegations of
Chinese interference in U.S. national elections, China's human rights record,
the July 1, 1997 transfer of Hong Kong from Great Britain to China, Congress'
growing concern over religious persecution in China, China's alleged sale of
weapons to Iran and Pakistan, the growing U.S. trade deficit with China and the
ongoing negotiations concerning China's accession to the World Trade
Organization.
China is currently accorded MFN status by the United States, and, as such,
products imported from China are generally subject to favorable United States
import duties. The MFN status of China is reviewed annually by the United States
government and, accordingly, extension of such status is subject to political
uncertainties. In May 1997, President Clinton transmitted his formal
recommendation to the U.S. Congress that MFN status for China be renewed.
However, various interest groups continue to urge that the United States not
renew China's trade status. The Congress now has until September 1, 1997 to
decide whether to oppose the President's recommendation. As a result of the
number of outstanding issues that
7
<PAGE>
currently exist between the United States and the Chinese government, there is
significant opposition in the U.S. Congress to the extension of MFN status for
China. Loss of China's MFN status could impose significantly higher purchasing
costs on the Company, including increased tariffs on goods, and could have a
material adverse effect on the Company's business and results of operations
unless and until alternative sources of supply were secured.
The U.S. Trade Representative ("USTR") is required under U.S. law to
determine whether the practices of foreign countries deny adequate and effective
protection of intellectual property rights or fair and equitable market access
and, if so, to take retaliatory measures, including the possible imposition of
punitive import duties. In 1995 and 1996, the United States and China were
involved in controversies over the protection in China of intellectual property
rights that caused the USTR to designate China as a "priority foreign country"
and threaten the imposition of 100% punitive import duties on selected Chinese
goods. On April 30, 1997, citing "significant progress," the USTR replaced
China's designation as a "priority foreign country" with a new designation under
Section 306 of the Trade Act of 1974, removing the threat of immediate punitive
action but signaling the need for continued improvement and stronger enforcement
of the existing intellectual property agreements. This Section 306 status
requires the USTR to monitor Chinese compliance with the agreements and
authorizes the USTR to move directly to trade sanctions, including the
possibility of punitive import duties, if such monitoring reveals slippage in
Chinese enforcement of the agreements. If the USTR decides that products that
the Company imports should be targeted for punitive import duties, the Company
expects that it would substitute similar goods from other countries or other
categories of goods, which would likely be at higher cost. The imposition of
punitive tariffs on such Chinese products could have a material adverse effect
on the Company's business and results of operations unless and until alternative
sources of supply were secured.
The Company purchases a significant amount of its direct Chinese imports
through trading companies located in Hong Kong. Importing goods from China or
through Hong Kong involves significant risk. In 1996, a Hong Kong trading
company obtained payment on a number of letters of credit issued on the
Company's behalf by falsely claiming that conforming goods had been shipped,
when, in fact, the trading company had either shipped non-conforming goods or
empty containers.
Hong Kong is currently a British Crown Colony. Sovereignty over Hong Kong
will be transferred to China on July 1, 1997. While political disagreements have
arisen over certain aspects of Hong Kong's transition from British to Chinese
sovereignty, the Company does not believe that the transfer of sovereignty will
have a material adverse effect on the Company's business. However, there can be
no assurance as to the continued stability of political, economic or commercial
conditions in Hong Kong or in China, and any instability could have an adverse
impact on the Company's business.
DISRUPTIONS IN RECEIVING AND DISTRIBUTION
Substantially all of the Company's inventory is shipped directly from
suppliers to the Company's distribution centers in Norfolk, Virginia, Memphis,
Tennessee, and Chicago, Illinois where the inventory is processed and then
distributed to stores. The Company's success depends in large part on the
orderly operation of this receiving and distribution process, which depends, in
turn, on adherence to shipping schedules (especially those from the Far East)
and effective management of the distribution centers. Although management
believes that its receiving and distribution process is efficient and well
positioned to support the Company's expansion plans, there can be no assurance
that the Company has anticipated, or will anticipate, all of the changing
demands which its expanding operations will impose on its receiving and
distribution system or that events beyond the control of the Company will not
result in delays in the delivery of merchandise to the stores. See "Risk
Factors--Risks Associated with New Store Support Center" and
"Business--Warehousing and Distribution."
8
<PAGE>
LEGAL PROCEEDINGS
On January 31, 1996, the Company bought all of the capital stock of Dollar
Bills, pursuant to a stock purchase agreement. In March and April 1996, Michael
and Pamela Alper (the "Alpers"), former shareholders of Dollar Bills, together
with a corporation they control, filed lawsuits in the state and federal courts
in Illinois, against the Company and one of its employees relating to the Dollar
Bills transaction. The lawsuits sought to recover compensatory damages of not
less than $10 million (which could be tripled under the federal antitrust law
claim described below), punitive damages, attorney's fees, costs and injunctive
and other relief.
In the lawsuits, the plaintiffs claim that the Company defrauded the Alpers
into selling the wholesale operations which were owned by Dollar Bills;
improperly obtained and misused confidential and proprietary information;
breached the provisions of a confidentiality agreement and stock purchase
agreement relating to the acquisition; intentionally or negligently
misrepresented its intentions with respect to the wholesale operations;
conspired to violate antitrust law by excluding the plaintiffs as competitors in
the wholesale business, and violated Section 10(b) of the Securities Act of 1934
and Rule 10b-5 promulgated thereunder. The Company emphatically denies the
plaintiffs' claims and continues to vigorously defend itself in this matter.
The Company filed motions to dismiss the litigation in both the Circuit
Court of Cook County, Illinois (the "State Court") and in the U.S. District
Court for the Northern District of Illinois ("Federal Court"). On June 28, 1996,
the State Court denied the Company's motion to dismiss. Plaintiffs subsequently
dismissed their suit in State Court voluntarily. The Company then appealed the
State Court's denial of its motion to dismiss, and the appeal is currently
pending.
On November 26, 1996, the Federal Court dismissed all counts of the
plaintiff's lawsuit against the Company and the co-defendant, and plaintiffs did
not appeal. Plaintiffs are now precluded from refiling their federal securities
and federal antitrust claims against the Company in the future. The Federal
Court ruling does not, however, specifically preclude plaintiffs from refiling
their state law claims in State Court in the future.
Based on management's understanding of the facts (which facts are contested
by the plaintiffs), the current procedural posture of the dispute and the advice
of its lead litigation counsel for this matter in reliance on such facts, the
Company believes it is unlikely that the plaintiffs will ultimately prevail on
the merits of this dispute. Accordingly, the Company believes that the ultimate
outcome of this matter will not have a material adverse effect on the Company's
results of operations or financial condition. Nevertheless, particularly in
light of the contested factual assertions, there can be no assurance regarding
the ultimate outcome of any future litigation or that any such litigation will
not have a material adverse effect on the Company's results of operations or
financial condition.
ADVERSE ECONOMIC FACTORS
The Company's ability to provide quality merchandise at the $1.00 price
point is subject to certain economic factors which are beyond the Company's
control, including inflation, minimum wage levels, other operating costs such as
employee health care costs, consumer confidence and general economic conditions.
There can be no assurance that such factors will remain favorable and in
particular that health care costs or other costs will remain at current levels.
The federally mandated minimum wage increased by $.50 per hour on October 1,
1996 and will increase by an additional $.40 per hour on September 1, 1997.
Unless offsetting cost savings are realized (and no assurance can be given that
they will be), an increase in inflation, minimum wage and health care or other
operating costs or a decline in consumer confidence or general economic
conditions could have a material adverse effect on the Company's business and
results of operations, especially given the constraints on the Company's ability
to pass on any incremental costs through price increases.
9
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the leadership
and performance of its senior management team, particularly J. Douglas Perry,
Chairman of the Company's Board of Directors, Macon F. Brock, Jr., the Company's
President and Chief Executive Officer, and H. Ray Compton, the Company's
Executive Vice President and Chief Financial Officer. While the Company believes
that its senior management team has significant depth, the loss of services of
any of the Company's executive officers could have a material adverse impact on
the Company. None of the executive officers is currently bound by any employment
or non-competition agreement. See "Management." In addition, the Company's
revolving credit facility provides that it is an event of default for Mr. Perry
and his wife, Mr. Brock and his wife, Mr. Compton, and trusts for the benefit of
their family members to beneficially own collectively less than 10% of the
aggregate of all voting stock in the Company and other ownership rights and
interests to such voting stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
COMPETITION
The retail industry is highly competitive. The Company's competitors include
mass merchandisers, discount stores, variety stores, closeout stores and other
$1.00 price point stores. Several of the largest operators of discount stores at
the $1.00 price point (or their parent companies) have filed for or emerged from
bankruptcy protection in U.S. bankruptcy court and have closed a number of their
stores, while others have abandoned the $1.00 price point concept and/or
reconfigured their stores. The Company may face competition in the future which
could have an adverse effect on its financial results. See "Business--
Competition."
LIMITED AVAILABILITY OF SUITABLE MERCHANDISE
The Company's success depends in large part upon its ability to select and
purchase quality merchandise at attractive prices in order to maintain a balance
of regularly available core products and a changing mix of fresh merchandise at
the $1.00 price point. The Company has no continuing contracts for the purchase
of merchandise and must continuously seek out buying opportunities from both its
existing suppliers and new sources, for which it competes with other variety,
closeout and $1.00 price point merchandisers. Although the Company believes that
its management has long-standing and satisfactory relationships with its
suppliers, there can be no assurance that the Company will be successful in
maintaining a continuing and, in light of the anticipated addition of new
stores, an increasing supply of quality merchandise at attractive prices. See
"Business--Merchandising and Store Format."
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its net sales, operating income and net
income. The highest sales periods for the Company are the Christmas and Easter
seasons. A disproportionate amount of the Company's net sales and a substantial
majority of the Company's operating income and net income are generally realized
during the fourth quarter. In anticipation of increased sales activity during
these months, the Company purchases substantial amounts of inventory and hires a
significant number of temporary employees to bolster its permanent store staff.
If for any reason the Company's net sales were below seasonal norms during the
fourth quarter, including as a result of merchandise delivery delays due to
receiving or distribution problems, the Company's annual operating results,
particularly operating and net income, could be adversely affected.
Historically, net sales, operating income and net income have been weakest
during the first quarter, and the Company expects this trend to continue. The
Company's quarterly results of operations may also fluctuate significantly as a
result of a variety of factors, including the timing of new store openings, the
net sales contributed by new stores, shifts in the timing of certain holidays
and the merchandise mix. Although the Company has experienced significant
increases in comparable store net sales historically, management expects that
any increases in comparable store net sales in the future will be smaller than
those
10
<PAGE>
experienced historically. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality and Quarterly Fluctuations."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BY-LAWS
Certain provisions of the Company's Articles of Incorporation ("Articles of
Incorporation") and By-Laws ("By-Laws") may be deemed to have anti-takeover
effects and may discourage, delay or prevent a takeover attempt that a
shareholder might consider in its best interest. These provisions, among other
things, (i) classify the Company's Board of Directors into three classes, each
of which will serve for different three year periods, (ii) provide that only the
Board of Directors, chairman or president may call special meetings of the
shareholders, (iii) establish certain advance notice procedures for nominations
of candidates for election as directors and for shareholder proposals to be
considered at shareholders' meetings, and (iv) require a vote of the holders of
more than two-thirds of the shares entitled to vote in order to remove a
director or amend the foregoing and certain other provisions of the Articles of
Incorporation and By-Laws. In addition, the Board of Directors, without further
action of the shareholders, is permitted to issue and fix the terms of preferred
stock which may have rights senior to those of the Common Stock.
EFFECTIVE CONTROL OF THE COMPANY BY EXISTING SHAREHOLDERS
Based on shares owned as of June 1, 1997 and after giving effect to this
offering, Mr. Brock and his wife, Mr. Perry and his wife, Mr. Compton and The SK
Equity Fund, L.P. (the "Fund") and certain affiliates of the Fund will own, or
otherwise control, approximately 46.3% of the Company's outstanding Common
Stock. As a result, if such shareholders act together, they would have
significant influence over, and may be able to effectively control, the election
of the Directors of the Company, the outcome of any other matter submitted to a
vote of the Company's shareholders for approval, including mergers,
consolidations or the sale of all or substantially all of the Company's assets,
and a change in control of the Company. See "Principal and Selling
Shareholders."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock, which is quoted on the
Nasdaq National Market, may be subject to significant fluctuations in response
to operating results, comparable store sales announcements, announcements by
competitors and other factors. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to the operating performance of individual companies. These
market fluctuations, as well as general economic conditions, may adversely
affect the market price of the Common Stock.
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements concerning the Company's
operations, economic performance and financial condition. Such statements may be
identified by the use of words such as "believe," "anticipate" and "expect." The
forward-looking statements concern, among other things, the Company's expansion
plans; the projected costs relating to, the opening date for, and performance of
the new Store Support Center; the subleasing of the Norfolk facility; dependence
on imports and vulnerability to import restrictions, particularly MFN, the Hong
Kong transition, and other factors relating to China; the Dollar Bills
litigation; adverse economic factors; store openings; purchasing abilities; and
capital requirements. Such forward-looking statements are subject to various
risks and uncertainties. Actual results could differ materially from those
currently anticipated due to a number of factors, including those discussed
under the caption "Risk Factors" in this Prospectus.
11
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Common
Stock in this offering.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "DLTR" since the Company's initial public offering on March 6,
1995. The following table sets forth the high and low sale prices of the
Company's Common Stock as reported on the Nasdaq National Market for the periods
indicated.
<TABLE>
<CAPTION>
1995 HIGH LOW
- ---------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First quarter (from March 6, 1995)............................................................ $ 14 $ 10 5/8
Second quarter................................................................................ 17 7/8 13 1/2
Third quarter................................................................................. 24 1/8 17 3/8
Fourth quarter................................................................................ 22 7/8 14 5/8
<CAPTION>
1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
First quarter................................................................................. 30 53/64 16 21/64
Second quarter................................................................................ 45 29
Third quarter................................................................................. 42 23
Fourth quarter................................................................................ 43 30 1/4
<CAPTION>
1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
First quarter................................................................................. 45 1/2 32 1/4
Second quarter (through June 5, 1997)......................................................... 49 1/8 35 7/16
</TABLE>
On June 5, 1997, the last reported sale price for the Company's Common Stock
on the Nasdaq National Market was $47.50 per share. As of June 1, 1997, the
Company had 394 shareholders of record.
DIVIDEND POLICY
The Company anticipates that all of its income in the foreseeable future
will be retained for the development and expansion of its business and the
repayment of indebtedness, and therefore does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The Company's credit
facilities contain financial covenants which restrict the Company's ability to
pay dividends.
12
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and total capitalization
of the Company as of March 31, 1997.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
<S> <C>
(IN THOUSANDS)
Short-term debt:
Revolving credit facility, current portion...................................................... $ 4,500
Current installments of obligations under capital leases........................................ 295
--------------
Total short-term debt........................................................................... $ 4,795
--------------
--------------
Long-term debt(1):
Revolving credit facility, excluding current portion............................................ $ 30,000
Obligations under capital leases, excluding current installments................................ 981
--------------
Total long-term debt............................................................................ 30,981
--------------
Shareholders' equity:
Common stock, $0.01 par value; 100,000,000 shares authorized; 25,959,379 shares issued and
outstanding(2)................................................................................ 260
Additional paid-in capital...................................................................... 32,740
Retained earnings............................................................................... 73,339
--------------
Total shareholders' equity...................................................................... 106,339
--------------
Total capitalization............................................................................ $ 137,320
--------------
--------------
</TABLE>
- ------------------------
(1) On April 30, 1997, the Company issued $30 million of unsecured Senior Notes
due April 30, 2004. The proceeds from the issuance of the Notes were used to
pay down a portion of the Company's existing revolving credit facility,
which will enable the Company to use that credit facility to fund capital
expenditures for the new Store Support Center. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(2) The number of outstanding shares does not include up to 3,532,315 shares of
Common Stock issuable upon the exercise of (i) options to purchase 1,050,137
shares of Common Stock and (ii) warrants to purchase 2,482,178 shares of
Common Stock outstanding as of March 31, 1997.
13
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND SALES PER SQUARE FOOT DATA)
The following table sets forth for the periods indicated selected financial
data for the Company. The selected income statement and balance sheet data
presented below for the years ended December 31, 1992, 1993, 1994, 1995 and 1996
have been derived from the Company's financial statements that have been audited
by KPMG Peat Marwick LLP, independent accountants. The selected income statement
and balance sheet data presented below for the three months ended March 31, 1996
and 1997 have been derived from the unaudited financial statements of the
Company which, in the opinion of management, have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, which management considers
necessary for a fair presentation of the financial data shown. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the entire year ending December 31,
1997. This information should be read in conjunction with the financial
statements and the notes thereto incorporated herein by reference and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Prospectus. The pro forma data have not been
audited but, in the opinion of management, include all adjustments necessary to
present fairly the information set forth therein including the matters referred
to in footnotes 4 and 5 below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................. $ 120,542 $ 167,753 $ 231,601 $ 300,229 $ 493,037 $ 84,975 $ 117,746
Cost of sales......................................... 76,434 106,318 145,481 187,552 310,900 55,905 76,455
--------- --------- --------- --------- --------- --------- ---------
Gross profit.......................................... 44,108 61,435 86,120 112,677 182,137 29,070 41,291
--------- --------- --------- --------- --------- --------- ---------
Selling, general and administrative expenses:
Operating expenses.................................. 29,546 39,559 54,993 70,504 111,401 24,288 32,116
Depreciation and amortization....................... 2,075 3,054 4,186 5,468 10,527 2,212 2,932
Recapitalization expenses(1)........................ -- 4,387 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total........................................... 31,621 47,000 59,179 75,972 121,928 26,500 35,048
--------- --------- --------- --------- --------- --------- ---------
Operating income...................................... 12,487 14,435 26,941 36,705 60,209 2,570 6,243
Interest expense...................................... 1,138 1,837 4,028 2,617 5,193 1,069 450
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and extraordinary loss..... 11,349 12,598 22,913 34,088 55,016 1,501 5,793
Provision for income taxes............................ 503 3,152 9,546 13,125 21,181 578 2,230
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary loss...................... 10,846 9,446 13,367 20,963 33,835 923 3,563
Extraordinary loss, net of income tax(2).............. -- -- 1,253 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income............................................ $ 10,846 $ 9,446 $ 12,114 $ 20,963 $ 33,835 $ 923 $ 3,563
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
INCOME PER SHARE DATA(3):
Income before extraordinary loss per share............ $ 0.49
Extraordinary loss per share.......................... 0.05
---------
Net income per share.................................. $ 0.44 $ 0.76 $ 1.19 $ 0.03 $ 0.12
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PRO FORMA DATA:
Net income............................................ $ 10,846 $ 9,446
Pro forma adjustment for C corporation income
taxes(4)............................................ 3,992 1,838
--------- ---------
Pro forma net income(4)............................... $ 6,854 $ 7,608
--------- ---------
--------- ---------
Pro forma net income per share(5)..................... $ 0.25 $ 0.28
--------- ---------
--------- ---------
Weighted average number of common shares
and common share equivalents outstanding,
in thousands(3 and 5)............................... 27,262 27,262 27,262 27,589 28,327 27,795 28,775
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
SELECTED OPERATING DATA:
Number of stores open at end of period(6):
Mall................................................ 145 145 154 173 202 179 211
Strip center........................................ 111 183 255 327 535 481 556
--------- --------- --------- --------- --------- --------- ---------
Total........................................... 256 328 409 500 737 660 767
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Net sales growth...................................... 72.7% 39.2% 38.1% 29.6% 64.2% 74.5% 38.6%
Comparable store net sales increase(7)................ 24.1% 6.9% 9.1% 7.3% 6.2% 11.8% 10.9%
Average net sales per store(8)........................ $ 520 $ 555 $ 606 $ 649 $ 691 $ 135 $ 156
Average net sales per square foot(8):
Mall................................................ $ 214 $ 224 $ 241 $ 246 $ 249 $ 49 $ 49
Strip center........................................ $ 201 $ 188 $ 197 $ 209 $ 220 $ 43 $ 44
All stores.......................................... $ 210 $ 206 $ 214 $ 221 $ 229 $ 45 $ 46
<CAPTION>
AS OF
DECEMBER 31, AS OF
----------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $10,457 $ 7,742 $14,334 $29,133 $ 23,488 $ 49,547
Total assets.......................................... 32,077 42,188 60,688 91,621 171,099 192,324
Total debt............................................ 3,316 17,768 14,205 14,518 4,353 35,776
Shareholders' equity.................................. 17,499 3,660 17,274 39,087 101,590 106,339
</TABLE>
- ------------------------------
(1)Represents recapitalization expenses of $4.4 million incurred in connection
with the 1993 Recapitalization, comprised of $3.6 million of management
incentive expenses and $0.8 million of transaction expenses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
(2) Represents redemption premiums of approximately $1.3 million plus write off
of original issue discount financing costs of $0.9 million (net of income
tax benefit of approximately $0.9 million) on the early retirement of the
Company's 12% Senior Subordinated Notes and 12% Junior Subordinated Notes.
(3) Income per share data have been computed by dividing its components by the
weighted average number of common shares and common share equivalents
outstanding. All warrants and options outstanding at December 31, 1994 have
been considered outstanding for the entire year ended December 31, 1994 and
are included in the calculation of the weighted average number of common
shares and common share equivalents outstanding for net income per share
computations in accordance with the rules of the Securities and Exchange
Commission. For all periods after December 31, 1994, common share
equivalents include the weighted average number of shares subject to stock
options and warrants outstanding at the end of the period, after applying
the treasury stock method.
(4) Prior to September 30, 1993, the Company was treated as a subchapter S
corporation for Federal and certain state income tax purposes. As such,
income of the Company for that period was taxable to the individual
shareholders rather than to the Company. Accordingly, the provision for
income taxes for the year ended December 31, 1992 and the nine months ended
September 29, 1993, represents corporate level state income taxes on income
earned in those states that do not recognize subchapter S corporation
status. On September 30, 1993, the Company converted to a subchapter C
corporation. Accordingly, income since September 30, 1993 was taxable to the
Company. Pro forma net income reflects a provision for income taxes as if
the Company were a C corporation for all years presented at an assumed
effective tax rate of approximately 40%.
(5) Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of common shares and common share
equivalents outstanding. Common share equivalents include all outstanding
stock options and warrants after applying the treasury stock method. All
warrants and options outstanding at December 31, 1994 have been considered
outstanding for years ended December 31, 1992 and 1993, and are included in
the calculation of the weighted average number of common shares and common
share equivalents outstanding for pro forma net income per share
computations in accordance with the rules of the Securities and Exchange
Commission.
(6) The Company closed three stores in 1992, two stores in 1993, one store in
1994, three stores in 1995 and three stores in 1996.
(7) Comparable store net sales increase compares net sales for stores open at
the beginning of the first of the two periods compared. The comparable store
net sales increase calculation for the three months ended March 31, 1997
includes net sales of Dollar Bills stores for the three months ended March
31, 1996 and March 31, 1997.
(8) For stores open the entire period presented. Dollar Bills stores are only
included in the calculation for March 31, 1997. The 1996 calculation does
not include the 28 stores expanded in 1996 due to remodeling and/or
relocation, which increased total square footage by approximately 29,900
square feet. Results for the three months ended March 31, 1997 may not be
indicative of full year average net sales per store or average net sales per
square foot due to seasonal fluctuations in sales. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Fluctuations."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto incorporated by reference in this Prospectus.
OVERVIEW
Dollar Tree was established by J. Douglas Perry, the Company's Chairman,
Macon F. Brock, Jr., the Company's President and Chief Executive Officer, and H.
Ray Compton, the Company's Executive Vice President and Chief Financial Officer
(the "Founders"), in November 1986 with the opening of its first five stores in
Virginia, Georgia and Tennessee. From November 1986 through October 1991, the
Company's shareholders also owned a substantial portion of the outstanding stock
of K&K Toys, Incorporated ("K&K Toys"), a 136 store, mall based toy retailer
managed by the Founders. During this period, Dollar Tree grew to 171 stores and
shared certain management and distribution services and facilities with K&K Toys
for which it paid a fee to K&K Toys.
In October 1991, K&K Toys was acquired by a subsidiary of Melville
Corporation. Following the sale of K&K Toys, the Founders focused their
attention solely on Dollar Tree and effected a number of strategic changes,
including (i) shifting the Company's merchandising focus away from closeout
merchandise and towards its current emphasis on providing selection and value in
traditional variety store categories, (ii) focusing its expansion strategy on
strip center locations, (iii) accelerating its expansion program and (iv)
improving the depth of the management team and breadth of operational controls.
Since the sale of K&K Toys, Dollar Tree has grown from 171 stores to 737 stores
as of December 31, 1996, and net sales and operating income have increased from
$71.1 million and $5.2 million, respectively, for the twelve months ended
January 31, 1992 to $493.0 million and $60.2 million, respectively, in calendar
1996. Since December 31, 1996, Dollar Tree has grown from 737 stores to 767
stores as of March 31, 1997. The Company's net sales increased 38.6% from $85.0
million to $117.7 million, and operating income increased 142.9% from $2.6
million to $6.2 million from the three months ended March 31, 1996 to the three
months ended March 31, 1997.
On September 30, 1993, the Company effected a recapitalization including a
stock split and reclassification (the "1993 Recapitalization"), pursuant to
which (i) J. Douglas Perry, Chairman of the Company's Board of Directors, his
wife, Patricia W. Perry, Macon F. Brock, Jr., the Company's President and Chief
Executive Officer, his wife, Joan P. Brock, and H. Ray Compton, the Company's
Executive Vice President and Chief Financial Officer (the "Original
Shareholders") sold to The SK Equity Fund, L.P. (the "Fund") and four
individuals affiliated with the Fund (collectively, the "Co-Investors") 50% of
the outstanding stock of the Company for an aggregate purchase price of $23.6
million, (ii) the Fund and the Co-Investors purchased from the Company $7.0
million face amount senior subordinated notes for $6.5 million (the "12% Senior
Subordinated Notes") and purchased for $500,000 warrants to purchase 1,241,090
shares of Common Stock and (iii) on February 22, 1994 pursuant to a commitment
entered into September 30, 1993, the Original Shareholders purchased from the
Company $7.0 million face amount junior subordinated notes for $6.5 million (the
"12% Junior Subordinated Notes") and purchased for $500,000 warrants to purchase
1,241,088 shares. On December 31, 1994, the Company redeemed and extinguished
the 12% Senior Subordinated Notes and the 12% Junior Subordinated Notes
(collectively, the "12% Notes"). As part of this transaction, the Company paid a
redemption premium of approximately $1.3 million and issued an aggregate of
$14.0 million principal amount of 9% Senior Subordinated Notes and 9% Junior
Subordinated Notes (collectively, the "9% Notes") to the previous holders of the
12% Notes. The 9% Notes were paid in full in June 1996.
On January 31, 1996, the Company acquired all of the stock of Dollar Bills,
formerly known as Terrific Promotions, Inc., and subsequently merged Dollar
Bills into the Company. At the time of the acquisition, Dollar Bills owned and
operated 136 discount variety stores in 16 states, offering merchandise
primarily at
16
<PAGE>
the $1.00 price point under the name Dollar Bill$, a modern 250,000 square foot
distribution center in the Chicago area and a wholesale division, all of which
the Company currently operates. The Company paid approximately $52.6 million in
cash and $2.0 million in merchandise inventory for 100% of the stock of Dollar
Bills and has accounted for the acquisition as a purchase. In connection with
the acquisition, the Company recognized goodwill of $48.2 million, which it is
amortizing over a 25 year period.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
income statement data as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................................... 62.8 62.5 63.1 65.8 64.9
--------- --------- --------- --------- ---------
Gross profit.............................................. 37.2 37.5 36.9 34.2 35.1
Selling, general and administrative expenses:
Operating expenses........................................ 23.8 23.5 22.6 28.6 27.3
Depreciation and amortization............................. 1.8 1.8 2.1 2.6 2.5
--------- --------- --------- --------- ---------
Total................................................... 25.6 25.3 24.7 31.2 29.8
--------- --------- --------- --------- ---------
Operating income............................................ 11.6 12.2 12.2 3.0 5.3
Interest expense............................................ 1.7 0.9 1.1 1.2 0.4
--------- --------- --------- --------- ---------
Income before income taxes and extraordinary loss........... 9.9 11.3 11.1 1.8 4.9
Provision for income taxes.................................. 4.1 4.4 4.3 0.7 1.9
--------- --------- --------- --------- ---------
Income before extraordinary loss............................ 5.8 6.9 6.8 1.1 3.0
Extraordinary loss, net of income tax....................... 0.6 -- -- -- --
--------- --------- --------- --------- ---------
Net income.................................................. 5.2% 6.9% 6.8% 1.1% 3.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996
Net sales increased $32.8 million, or 38.6%, to $117.7 million for the three
months ended March 31, 1997, from $85.0 million for the three months ended March
31, 1996. Of this increase, (i) approximately 50.2%, or $16.5 million, was
attributable to stores opened in 1996 and 1997, which are not included in the
Company's comparable store net sales calculation, (ii) approximately 29.5%, or
$9.7 million, was attributable to the addition of 136 Dollar Bills stores on
January 31, 1996, and (iii) approximately 20.3%, or $6.6 million, was
attributable to comparable store net sales growth, which represented a 10.9%
increase over comparable store net sales in the first quarter of 1996. The
comparable stores net sales increase for March 31, 1997 includes sales of Dollar
Bills stores for the three months ended March 31, 1996 and March 31, 1997.
Because substantially all the Company's products sell for $1.00, the increase in
comparable store net sales was a direct result of increased unit volume.
Comparable store net sales were driven primarily by an earlier Easter shopping
season and a strong in-stock position on seasonal and general merchandise at
year-end and throughout the quarter. The Company opened 30 new stores during the
first quarter of 1997, compared to 24 new stores opened during the first quarter
of 1996 (excluding the addition of 136 Dollar Bills stores in January, 1996).
Management anticipates that the primary source of future sales growth will
be new store openings and, to a lesser degree, sales increases from expanded and
relocated stores and comparable store net sales increases. Although the Company
has historically experienced significant increases in comparable store net sales
and average net sales per square foot, management expects that any future
increases in comparable
17
<PAGE>
store net sales and average net sales per square foot will be smaller than those
experienced historically.
See "--Seasonality and Quarterly Fluctuations."
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $12.2 million, or 42.0%, to
$41.3 million in the first quarter of 1997 from $29.1 million in the first
quarter of 1996. As a percentage of net sales, gross profit increased to 35.1%
from 34.2%, primarily due to improved merchandise costs (including freight) and
improved occupancy and markdown costs as a percentage of net sales, offset by an
increase in distribution costs as a percentage of net sales. Merchandise costs
improved in part due to the change in merchandise mix, year over year, in the
Dollar Bills stores, which were still operating with a heavier consumable
product emphasis in the first quarter of 1996. Throughout 1996, the merchandise
mix at Dollar Bills stores was changed to more closely resemble the mix at
Dollar Tree stores. Therefore, management does not anticipate this level of
improvement in merchandise costs in the future. Distribution costs increased as
a result of start-up costs inherent in the installation of the Company's new
Warehouse Management System. This new materials handling technology was
installed in all three distribution centers during the first quarter, causing
some slight disruption in merchandise flow. Management expects some minor
disruption to continue into the second quarter, but believes it will not
materially affect the Company's results of operations.
Selling, general and administrative expenses, which include operating
expenses and depreciation and amortization, increased $8.5 million, or 32.3%, to
$35.0 million in the first quarter of 1997 from $26.5 million in the first
quarter of 1996, and decreased as a percentage of net sales to 29.8% from 31.2%
during the same period. This decrease, as a percentage of net sales, resulted
primarily from reduced payroll costs due to the strong comparable store net
sales increase. In addition, the decrease in selling, general and administrative
expenses is partially due to approximately $1.3 million in non-recurring
expenses incurred in the first quarter of 1996 related to the acquisition of
Dollar Bills. Amortization of goodwill relating to the acquisition amounted to
$500,000 for the first quarter of 1997.
Operating income increased $3.7 million, or 142.9%, to $6.2 million for the
first quarter of 1997 from $2.6 million for the comparable period in 1996, and
increased as a percentage of net sales to 5.3% from 3.0% during the same period
for the reasons noted above.
Interest expense decreased $600,000 in the first quarter of 1997 compared to
the first quarter of 1996 to $500,000 from $1.1 million during the same period.
This decrease is primarily a result of lower levels of debt in 1997 compared to
the comparable period in 1996, when the Company had increased borrowings related
to the purchase of Dollar Bills.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales increased $192.8 million, or 64.2%, to $493.0 million for 1996,
from $300.2 million for 1995. Of this increase, (i) approximately 54.3%, or
$104.7 million, was attributable to the 136 Dollar Bills stores added as of
February 1, 1996, (ii) approximately 37.2%, or $71.8 million, was attributable
to 198 stores opened in 1995 and 1996, which are not included in the Company's
comparable store net sales calculation, and (iii) approximately 8.5%, or $16.3
million, was attributable to comparable store net sales growth, which
represented a 6.2% increase over comparable store net sales for 1995. Dollar
Bills stores are not included in the comparable store net sales calculations.
Because substantially all the Company's products sell for $1.00, the increase in
comparable store net sales was a direct result of increased unit volume.
Management believes that this increase in volume resulted from strong holiday
selling seasons in 1996, increased inventory levels compared to the preceding
year, and continued improvements in the quality and variety of merchandise
offered. The Company opened 104 new stores (in addition to the 136 Dollar Bills
stores added on January 31, 1996), and closed three stores during 1996 compared
to opening 94 new stores and closing three stores during 1995.
Gross profit increased $69.5 million, or 61.6%. As a percentage of net
sales, gross profit decreased to 36.9% from 37.5%, reflecting, as a percentage
of net sales, decreased merchandise margin (gross profit
18
<PAGE>
before inventory shrinkage, markdowns, and distribution and occupancy costs) and
a slight increase in inventory shrinkage, partially offset by lower inbound
freight costs and lower store occupancy costs. The decrease in merchandise
margin as a percentage of net sales is a result of increased sales of
domestically purchased products which generally carry a lower gross margin than
imported merchandise. The increase in inventory shrinkage is due largely to
higher shrinkage experienced at the Dollar Bills stores. The decrease in inbound
freight arose primarily from more favorable terms negotiated with shippers and
consolidators. The decrease in store occupancy costs as a percentage of net
sales is a result of the comparable store net sales growth.
As a result of the Dollar Bills acquisition in 1996, there was a shift in
overall merchandise mix toward higher levels of domestic, consumable merchandise
(for instance, food and health and beauty aids), which generally carry a higher
merchandise cost. Management believes that changes in the overall merchandise
mix arising from the acquisition are substantially complete and that the Company
will continue to carry somewhat higher levels of domestic, consumable
merchandise than in prior years. However, the Company expects imports to
continue to account for approximately 35% to 40% of total purchases at retail.
Selling, general and administrative expenses increased $46.0 million, or
60.5%, but decreased as a percentage of net sales to 24.7% from 25.3% during the
same period. The decrease is due primarily to strengthened cost controls
relating to hourly payroll at the store level. Management does not expect
similar payroll cost savings in the future due to federally mandated increases
in the minimum wage. During 1996, the Company's operating expenses incurred in
connection with the Dollar Bills acquisition and litigation amounted to
approximately $2.5 million. Depreciation and amortization expense increased $5.0
million, increasing as a percentage of net sales to 2.1% from 1.8% for 1995. Of
this increase, $1.8 million related to the amortization of goodwill recognized
in connection with the acquisition of Dollar Bills.
Operating income increased $23.5 million, or 64.0%, to $60.2 million for
1996 from $36.7 million for 1995 and remained constant as a percentage of net
sales at 12.2%.
Interest expense increased $2.6 million to $5.2 million in 1996 compared to
$2.6 million in 1995. This increase is a result of increased borrowing incurred
in connection with Dollar Bills acquisition. The development facility used for
the acquisition was repaid prior to year end. In addition, the Company redeemed
and extinguished its 9% Subordinated Notes in June 1996.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales increased $68.6 million, or 29.6%, to $300.2 million for 1995,
from $231.6 million for 1994. Of this increase, (i) approximately 79.0%, or
$54.2 million, was attributable to a net increase of 176 stores opened in 1994
and 1995, which are not included in the Company's comparable store net sales
calculation, and (ii) approximately 21.0%, or $14.4 million, was attributable to
comparable store net sales growth, which represented a 7.3% increase over
comparable store net sales for 1994. Because substantially all the Company's
products sell for $1.00, the increase in comparable store net sales was a direct
result of increased unit volume. This increase in volume resulted from strong
holiday selling seasons, increased inventory levels early in the year compared
to the preceding year, and new promotional efforts which grouped like items into
theme displays for more convenient shopping. The Company opened 94 new stores
and closed three stores during 1995 compared to opening 82 new stores and
closing one store during 1994.
Gross profit increased $26.5 million, or 30.8%. As a percentage of net
sales, gross profit increased to 37.5% from 37.2%, reflecting, as a percentage
of net sales, lower inbound freight costs, lower store occupancy costs and
distribution costs, and a slight decrease in markdowns, partially offset by
lower merchandise margin. The decrease in store occupancy costs and distribution
costs as a percentage of net sales is a result of the comparable store net sales
growth. The decrease in merchandise margin as a percentage of net sales is a
result of increased sales of domestically purchased products which generally
carry a lower gross margin than imported merchandise. During the fourth quarter
of 1995, the Company took advantage of the opportunity to purchase domestic
product under attractive terms, while the receiving
19
<PAGE>
of some imported goods was delayed. This resulted in a decrease in imports as a
percentage of total purchases. While fluctuations between imported and domestic
merchandise occur throughout the year, the Company does not foresee any
significant changes in the overall mix of imports and domestic purchases and
expects imports to continue to account for approximately 35% to 40% of total
purchases at cost.
Selling, general and administrative expenses increased $16.8 million, or
28.4%, from 1994 to 1995, but decreased as a percentage of net sales to 25.3%
from 25.6%. The decrease is due primarily to the recognition in 1994 of $1.0
million of costs associated with the grant of stock options and the comparable
store net sales growth. Excluding the stock option costs, selling, general and
administrative costs increased as a percentage of net sales to 25.3% from 25.1%
during the period. This increase is primarily due to a slight increase in store
payroll costs arising from efforts focused on strengthening store appearance and
merchandise presentation as well as increasing inventory levels, predominantly
in the third quarter of 1995. Depreciation and amortization expense increased
$1.3 million but remained constant as a percentage of net sales at 1.8% for 1995
and 1994.
Operating income increased $9.8 million, or 36.2%, to $36.7 million for 1995
from $26.9 million for 1994 and increased as a percentage of net sales to 12.2%
from 11.6% for the reasons noted above. Excluding stock option costs incurred in
1994, operating income increased as a percentage of net sales to 12.2% for 1995
from 12.1% for 1994.
Interest expense decreased $1.4 million to $2.6 million in 1995 compared to
1994. The Company was able to delay the use of its credit lines because of
increased cash flows and a higher cash balance at the beginning of the year. The
Company also redeemed and extinguished its 12% Notes and issued 9% Subordinated
Notes, and wrote off the related discount and deferred financing costs at the
end of 1994, resulting in no amortization expense in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements result primarily from capital
expenditures related to new store openings and working capital requirements
related to new and existing stores. The Company's working capital requirements
for existing stores are seasonal in nature and typically reach their peak near
the end of the third and beginning of the fourth quarter of the year.
Historically, the Company has met its seasonal working capital requirements for
existing stores and funded its store expansion program from internally generated
funds and borrowings under its credit facilities.
During 1994, 1995 and 1996 and the first three months of 1997, net cash
provided by (used in) operations was $17.5 million, $27.2 million, $39.2 million
and ($20.7) million, respectively. The net cash used in operations during the
first three months of 1997 was used primarily to build inventory levels and
compares to net cash used in operations of ($17.2) million during the comparable
period of 1996. Net cash used in investing activities during the same periods
was $6.9 million, $11.6 million, $68.7 million, and $9.2 million, respectively.
During 1994 and 1995, net cash used in investing activities consisted primarily
of capital expenditures relating to new store expansion. During 1996, $52.2
million (net of cash acquired) was used for the purchase of Dollar Bills, funded
with borrowings under the Company's credit facility, in addition to capital
expenditures relating to new store expansion. During the first three months of
1997, net cash used in investing activities consisted primarily of capital
expenditures relating to new store expansions. Net cash provided by (used in)
financing activities during the same periods was ($5.5) million, $0.8 million,
$10.1 million and $31.3 million, respectively. In 1994, these funds were
primarily used for the extinguishment of debt. In 1995, the funds provided were
primarily a result of the exercise of stock options granted under the Company's
Stock Option Plan. In 1996, the funds provided were primarily a result of the
issuance of 750,000 shares of common stock in a public offering completed in
June and the exercise of stock options granted under the employee stock
compensation plans, reduced by the repayment of subordinated debt and notes
payable to banks. During the first three months of 1997, net funds provided by
financing activities were primarily used to fund seasonal working capital needs.
The Company expects to expand by approximately 145 to 150 stores during
1997, and by approximately 175 to 180 stores during 1998. In 1996, the average
investment per new store, including capital
20
<PAGE>
expenditures, initial inventory and pre-opening costs, was approximately
$162,000 per store. The Company's cash needs for opening new stores in 1997 are
expected to total approximately $25.0 million, $14.6 million of which is
budgeted for capital expenditures and $10.4 million of which is budgeted for
initial inventory and pre-opening costs. The Company's total planned capital
expenditures for 1997 are approximately $59 million, including approximately $34
million relating to the new distribution center and headquarters facility, and
including planned expenditures for expanded and relocated stores, additional
equipment for the distribution centers and computer system upgrades.
On September 27, 1996, the Company entered into an amended and restated
credit agreement with its banks which provides for a $135 million unsecured
revolving credit facility to be used for working capital, letters of credit, and
development needs, bearing interest at the agent bank's prime rate or LIBOR plus
a spread, at the Company's option. As of June 1, 1997, the interest rate was
approximately 6.6%. The credit agreement, among other things, requires the
maintenance of certain specified ratios, restricts the amount of capital
expenditures, restricts the payments of cash dividends and other distributions,
limits the amount of debt, prohibits a change in control of the Company, and
establishes certain minimum beneficial ownership requirements of the founding
shareholders. The maturity date of the facility is May 31, 2000. The facility
must be paid down to a specified amount for at least 30 consecutive days at any
time between December 1 and March 1 of each year. For 30 days during the period
from December 1, 1997, to March 1, 1998, the facility must be paid down to $30
million.
On April 30, 1997, the Company issued $30 million of 7.29% unsecured Senior
Notes. The proceeds from the issuance of the Notes were used to pay down a
portion of the revolving credit facility, which will enable the Company to use
that credit facility to fund capital expenditures for the new Store Support
Center. The Company will pay interest on the Notes semi-annually on April 30 and
October 30 each year and will pay principal in five equal annual installments of
$6 million beginning April 30, 2000. The Note holders have the right to require
the Company to prepay the Notes in full without premium upon a change of control
or upon certain asset dispositions or certain other transactions by the Company.
The Note agreements, among other things, prohibit certain mergers and
consolidations, require the maintenance of certain specified ratios, require
that the Notes rank pari passu with the Company's other debt, and limit the
amount of Company debt. In the event of default or a prepayment at the option of
the Company, the Company is required to pay a prepayment penalty equal to a
make-whole amount.
The Company believes that it can adequately fund its planned capital
expenditures and working capital requirements for the next several years from
net cash provided by operations and availability under its credit facilities.
The use of a portion of the Company's debt capacity in the construction of its
new Store Support Center is not expected to affect the Company's ability to fund
operations and expenditures. The Company expects to capitalize a substantial
portion of the interest incurred in connection with the construction of the new
facility and therefore does not anticipate a significant increase in interest
charges in 1997.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its net sales, operating income and net
income. The highest sales periods for the Company are the Christmas and Easter
seasons. A disproportionate amount of the Company's net sales and a substantial
majority of the Company's operating and net income are generally realized during
the fourth quarter. In anticipation of increased sales activity during these
months, the Company purchases substantial amounts of inventory and hires a
significant number of temporary employees to bolster its permanent store staff.
If for
21
<PAGE>
any reason the Company's net sales were below seasonal norms during the fourth
quarter, including as a result of merchandise delivery delays due to receiving
or distribution problems, the Company's annual operating results, particularly
operating and net income, could be adversely affected. Historically, net sales,
operating income and net income have been weakest during the first quarter, and
the Company expects this trend to continue. The Company's quarterly results of
operations may also fluctuate significantly as a result of a variety of factors,
including the timing of new store openings, the net sales contributed by new
stores and the merchandise mix.
Shifts in the timing of certain holidays may also have an effect on
quarterly results. The Company believes that the change in the timing of the
Easter holiday from April 16 in 1995 to April 7 in 1996 shifted a substantial
amount of Easter sales from the second quarter in 1995 to the first quarter in
1996. The Company believes that the change in the timing of the Easter holiday
from April 7 in 1996 to March 30 in 1997 further shifted Easter sales from
second quarter in 1996 to first quarter in 1997, potentially lowering comparable
store net sales in the second quarter of 1997.
The following table sets forth certain unaudited results of operations for
each quarter of 1995 and 1996 and the first quarter of 1997. The unaudited
information has been prepared on the same basis as the audited consolidated
financial statements incorporated herein by reference and includes all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the financial data shown. The
operating results for any quarter are not necessarily indicative of results for
any future period. Although the Company has experienced significant increases in
comparable store net sales increases historically, management expects that any
increases in comparable net sales in the future will be smaller than those
experienced historically.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
----------- ----------- ----------- --------- ----------- --------- ----------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $ 48,733 $ 62,885 $ 67,427 $ 121,185 $ 84,975 $ 102,689 $ 110,588 $ 194,785
Gross profit................ $ 16,458 $ 22,340 $ 26,068 $ 47,811 $ 29,070 $ 35,659 $ 41,890 $ 75,518
Operating income............ $ 865 $ 4,879 $ 6,656 $ 24,305 $ 2,570 $ 7,586 $ 11,134 $ 38,919
Stores open at end of
period.................... 424 452 478 500 660 686 712 737
Comparable store net
sales increases........... 6.8% 16.8% 2.8% 3.8% 11.8% 1.5% 4.3% 7.6%
<CAPTION>
<S> <C>
MAR. 31,
1997
----------
<S> <C>
Net sales................... $ 117,746
Gross profit................ $ 41,291
Operating income............ $ 6,243
Stores open at end of
period.................... 767
Comparable store net
sales increases........... 10.9%
</TABLE>
INFLATION
The Company's ability to provide quality merchandise at the $1.00 price
point is subject to certain economic factors which are beyond the Company's
control, including inflation. Significant and unexpected increases in inflation
could have a material adverse effect on the Company's business and results of
operations, especially given the constraints on the Company's ability to pass on
any incremental costs through price increases.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, EARNINGS PER SHARE. SFAS 128 establishes standards for computing and
presenting net income per share and is effective for financial statements issued
for periods ending after December 15, 1997. It replaces the calculation and
presentation of primary earnings per share with basic earnings per share and the
calculation and presentation of fully diluted earnings per share with diluted
earnings per share. The pro forma basic earnings per share calculation under
SFAS No. 128 would have been $0.14 for the three months ended March 31, 1997.
The calculation and presentation of diluted earnings per share under SFAS No.
128 is not expected to differ materially from the Company's reported fully
diluted earnings per share amounts.
22
<PAGE>
BUSINESS
OVERVIEW
Dollar Tree was established by J. Douglas Perry, the Company's Chairman,
Macon F. Brock, Jr., the Company's President and Chief Executive Officer, and H.
Ray Compton, the Company's Executive Vice President and Chief Financial Officer
(the "Founders"). Messrs. Perry and Brock began their careers in the variety
store business in 1969, working in a "five and dime" variety store owned by Mr.
Perry's father. In 1970, they, along with Mr. Perry's father, founded K&K Toys,
Incorporated ("K&K Toys"). Under their management and that of Mr. Compton, who
joined K&K Toys in 1979, K&K Toys expanded to 136 stores and was one of the
largest mall based toy retailers in the United States, based on number of
stores, when it was sold in October 1991.
In the mid 1980s, the Founders saw the opportunity to expand the variety
store concept into a new type of store, the "dollar store". In the 1980s,
traditional discount variety stores (such as Woolworth) were encountering
increasing competition from new mass merchandisers (such as Wal-Mart) and
smaller format, low price variety stores (such as Dollar General), both formats
emphasizing selection and value. In November 1986, Dollar Tree Stores opened
five variety stores using the $1.00 price point. From November 1986 through
October 1991, the Company increased the number of stores to 171, while
continuing to develop the Dollar Tree concept. During this period, Dollar Tree
benefitted from the Founders' familiarity with variety store retailing and from
the existing infrastructure of K&K Toys, with whom Dollar Tree shared certain
operating functions and expenses.
Following the sale of K&K Toys in 1991, the Founders focused their attention
solely on Dollar Tree and effected a number of strategic changes, including (i)
shifting the Company's merchandising focus away from closeout merchandise
towards its current emphasis on providing selection and value in traditional
variety store categories, (ii) focusing its expansion strategy on strip center
locations, (iii) accelerating the Company's expansion program and (iv) improving
the depth of the management team and breadth of operational controls.
Dollar Tree has opened over 80 new stores in each of the last three years.
Dollar Tree stores have been successful in major metropolitan areas, mid-sized
cities and small towns with populations under 25,000, and management believes
that Dollar Tree stores can perform well in a variety of locations. The Company
is focusing its expansion strategy on strip center locations anchored by strong
mass merchandisers such as Wal-Mart, whose target customers management believes
are similar to those of Dollar Tree.
BUSINESS STRATEGY
The Company's goal is to continue its leadership position in the $1.00 price
point segment of the discount retail industry. Factors contributing to the
success of the Company's operations include:
VALUE OFFERING. Dollar Tree's management strives to exceed its
customers' expectations of the range and quality of products that can be
purchased for $1.00. Management believes that many of the items Dollar Tree
sells for $1.00 are typically sold for higher prices elsewhere. The Company
is able to offer such value in part by purchasing a substantial portion of
its products directly from foreign manufacturers, allowing the Company to
pass on savings to the customer. In addition, direct relationships with both
domestic and foreign manufacturers permit broad product selection,
customized packaging and frequently the ability to obtain larger sizes and
higher package quantities.
CHANGING MERCHANDISE MIX. The Company supplements its wide assortment
of quality everyday core merchandise with a changing mix of new and exciting
products, including seasonal goods, such as summer toys, back-to-school
products and Christmas wrapping paper and, to a limited extent, selected
closeout merchandise. Closeouts comprise no more than 15% of merchandise
purchased at cost. The Company also takes advantage of the availability of
lower priced, private label goods, which are comparable to national name
brands.
23
<PAGE>
STRONG AND CONSISTENT STORE LEVEL ECONOMICS. The Company believes that
its attractive store level economics and the flexibility of its real estate
strategy provide it with a wide range of real estate opportunities and will
facilitate its continued expansion. The Company's stores have historically
been profitable within the first full year of operation, with an average
store level operating income of approximately $162,000 (approximately 23% of
net sales) for stores whose first full year of operation was 1996. In
addition, the operating performance of the Company's stores has been very
consistent, with over 90% of the Company's stores opened for the entire year
having store level operating income margins in excess of 15% for 1996.
COST CONTROL. Given the Company's pricing structure, Dollar Tree
believes that maintaining sufficient gross margins and tight control over
store expenses, corporate expenses and inventory costs are critical to its
success. Dollar Tree closely manages both retail inventory shrinkage and
retail markdowns of inventory, limiting each to an average of less than 2.5%
of annual net sales over the last five years. In the past five years, Dollar
Tree has maintained gross profit margins in the 36% to 37% range and
increased its operating income margin from 8.6% to 12.2%. In 1996, as a
result of the Dollar Bills acquisition, gross profit margin was slightly
impacted by a shift in merchandise mix toward higher levels of domestic,
consumable merchandise (for instance, food and health and beauty aids),
which generally carry a higher merchandise cost.
EXPERIENCED RETAIL MANAGEMENT TEAM. The Company's three executive
officers, J. Douglas Perry, Macon F. Brock, Jr., and H. Ray Compton, each
have between 18 and 28 years of experience in the retail industry and have
worked together for the past 18 years. Additionally, the Company's seven
Vice Presidents each have significant experience in their respective areas
of operational expertise.
GROWTH STRATEGY
The primary factors contributing to Dollar Tree's net sales growth have been
new store openings and comparable store net sales increases, as well as the
January 1996 acquisition of Dollar Bills. For the five years ended December 31,
1996, net sales increased at a compound annual growth rate of 42.2% and
operating income increased at a compound annual growth rate of 48.2%. Management
anticipates that the primary sources of future sales growth will be new store
openings and to a lesser degree sales increases from expanded and relocated
stores and comparable store net sales increases. Currently, management
anticipates expanding by approximately 145 to 150 stores in 1997, and
approximately 175 to 180 stores in 1998. The Company's expansion plans include
increasing its presence in its existing markets to take advantage of market
opportunities and efficiencies in distribution and field management and
selectively entering new markets. Although the Company has experienced
significant increases in comparable store net sales and average net sales per
square foot historically, management expects that any increases in comparable
store net sales and average net sales per square foot in the future will be
smaller.
Dollar Tree's real estate strategy allows the Company the flexibility of
opening stores in a variety of locations. Management believes that Dollar Tree
stores can perform well in strip center locations and selected mall locations.
The Company is currently concentrating on strip center locations anchored by
strong mass merchandisers such as Wal-Mart, Target and Kmart, whose target
customers management believes are similar to those of Dollar Tree. Although
strip center locations typically have lower sales per square foot, strip center
locations benefit from lower total investment requirements and lower occupancy
costs than mall based locations. Dollar Tree stores have been successful in
major metropolitan areas such as Washington/Baltimore, mid-sized cities such as
Norfolk, Virginia, and small towns with populations under 25,000. Management
also believes that its stores have a relatively small shopping radius, which
permits the concentration of multiple stores in a single market.
24
<PAGE>
MERCHANDISING AND STORE FORMAT
Dollar Tree's primary goal in merchandising is to offer a wide assortment of
products in traditional variety store categories which exceed customer
expectations of the value available for $1.00. The Company seeks to accomplish
this goal by: (i) offering a balanced mix of everyday core products and changing
products in traditional variety store categories, (ii) maintaining a
disciplined, global purchasing program and (iii) emphasizing the effective
presentation of merchandise in the stores.
MERCHANDISE MIX. Management believes its merchandise mix differentiates
Dollar Tree from other discount variety stores selling at the $1.00 price point.
The Company's stores offer a well stocked selection of core and changing
products within the traditional variety store categories, although the actual
items and brands offered at any one time will vary. The traditional variety
store categories featured in Dollar Tree stores include housewares, seasonal
goods, food, toys, health and beauty aids, party goods, stationery, hardware,
gifts, books and other consumer items.
Dollar Tree utilizes seasonal merchandise and, to a limited extent, selected
closeout merchandise to add to the variety and freshness in the stores'
merchandise. Seasonal goods include summer toys, back-to-school products and
Christmas wrapping paper. The Company purchases closeout merchandise, which
management believes can be effective in generating recognized value and
excitement, as opportunities present themselves, but limits the percentage of
total inventory represented by closeout merchandise to less than 15%.
When the opportunity presents itself, the Company purchases items which it
prices at two for $1.00. These items provide sufficient value to the customer
without compromising the Company's margin goals. These items are the only items
in the store on which a price tag is used, and customers may buy only one item
if desired.
During 1996, the merchandise mix at the Dollar Bills stores was adjusted to
more closely reflect the broad variety traditionally offered by Dollar Tree. In
turn, the merchandise mix at the Dollar Tree stores was supplemented with
increased domestic consumable products of the type normally carried at the
Dollar Bills stores.
PURCHASING. Management believes that its disciplined purchasing program,
its relationships with its suppliers and the exclusive focus of its buying power
at the $1.00 price point contribute to its successful purchasing strategy.
Dollar Tree believes that offering perceived as well as real value to its
customers while maintaining target merchandise margins in its purchasing program
is critical to its success.
The Company purchases merchandise from 600 to 700 vendors annually, buying
both directly from vendors and indirectly from trading companies and brokers. No
vendor accounted for 10% or more of total merchandise purchased in any of the
last five calendar years. New vendors are used frequently to offer competitive,
yet varied, product selection and to maintain high levels of value.
The Company deals with its suppliers principally on an order-by-order basis
and has no long-term purchase contracts or other contractual assurance of
continued supply or pricing. While there can be no assurance of a continuing and
increasing supply of quality merchandise suitable to be priced by the Company at
$1.00, management believes that such merchandise will be available in sufficient
quantities to meet the Company's plans for future growth.
In 1995 and 1996, the Company purchased approximately 34% and 32%,
respectively, of its merchandise based on cost and approximately 37% and 35%,
respectively, of its merchandise based on retail, directly from vendors located
abroad, primarily in Hong Kong and Taiwan (through which the Company's Chinese
imports flow), Thailand, Italy, Mexico and Indochina. The Company expects
imports to continue to account for approximately 35% to 40% of total purchases
at retail. In addition, the Company believes that a substantial portion of the
goods the Company purchases from domestic vendors are manufactured abroad. See
"Risk Factors--Risks Associated with Imports."
25
<PAGE>
VISUAL MERCHANDISING. Management believes that the presentation of its
merchandise is critical to communicating value and excitement to its customers.
Stores are attractively designed with the use of vibrant colors, uniform
decorative signage and supportive accent lighting. The stores are bright,
carpeted and provide background music, helping to create an inviting atmosphere
for shoppers. Dollar Tree uses a variety of very adaptable merchandising
fixtures, including slat walls, bins and shelving, and adjustable gift displays
to allow flexibility and the shifting of the merchandise mix to feature seasonal
merchandise. Some of these fixtures have been specifically designed for Dollar
Tree, such as the customized shelf display designed to promote the store's
porcelain gift products at the front of the stores. Dollar Tree maintains a
Field Merchandising and Store Opener Group to coordinate visual presentation in
stores throughout the chain and expedite the store opening process. The Company
relies on attractive exterior signage and in-store merchandising as its primary
form of advertising and generally does not utilize other forms of advertising.
Merchandise is displayed in densely stocked bins and shelves and organized
by category according to a standard store layout plan used throughout the chain.
The wide variety, value and freshness of merchandise at the $1.00 price point
and lively appearance of the store create excitement for customers that
management believes results in high store traffic, high sales volume and an
environment which encourages "impulse" purchases. Night stocking and "recovery"
of the stores help maintain the stores' clean and neat appearance as well as
ensure that the maximum amount of merchandise is displayed, particularly in the
busy fourth quarter. The size of the store, standard layout, merchandising by
category, pricing structure and convenient locations combine for a time
efficient shopping experience for the customer.
Centralized check-out at the front of the store and the even-dollar pricing
policy ensure that customers are not kept waiting. The Company does not have and
does not currently anticipate adding a point-of-sale system, and credit cards
are not accepted.
SITE SELECTION AND STORE LOCATIONS
The Company maintains a disciplined, cost sensitive approach to site
selection, favoring strip centers and selected enclosed malls. In the last five
years, Dollar Tree has opened primarily strip center based stores, which have
historically required lower initial capital investment and generated higher
operating margins than mall stores. The Company favors opening new stores in
strip center locations anchored by strong mass merchandisers such as Wal-Mart,
Kmart and Target, whose target customers management believes are similar to
those of Dollar Tree. The Company has also begun to open more stores in
neighborhood centers anchored by large grocery retailers. Dollar Tree stores
have been successful in major metropolitan areas, mid-sized cities and small
towns with populations under 25,000, and management believes that Dollar Tree
stores can perform well in a variety of locations. Management believes that its
stores have a relatively small shopping radius, which permits the concentration
of multiple stores in a single market. The Company's ability to open new stores
is contingent upon, among other factors, locating suitable sites and negotiating
favorable lease terms.
The prototype for future Dollar Tree stores is between 4,000 to 4,500 square
feet per store, of which approximately 85% to 90% represents selling space. This
represents a substantial increase over the historical average of approximately
3,000 square feet per store.
As of March 31, 1997, Dollar Tree operated 767 stores in 26 states, 556 of
which were located in strip centers (including certain non strip-center, urban
based Dollar Bills stores) and 221 of which were located in malls. Of the strip
center based stores, 211 were located in strips with Wal-Mart, 57 with Kmart and
35 with Target.
The Company currently leases all of its existing store locations and expects
that its policy of leasing rather than owning will continue as it expands. The
Company's leases typically provide for a short initial lease term with options
on the part of the Company to extend. Management believes that this lease
strategy enhances the Company's flexibility to pursue various expansion and
relocation opportunities
26
<PAGE>
resulting from changing market conditions. The Company's ability to open new
stores is contingent upon locating satisfactory sites, negotiating favorable
leases, obtaining necessary financing and recruiting and training additional
qualified management personnel.
As current leases expire, the Company believes that it will be able either
to obtain lease renewals if desired for present store locations, or to obtain
leases for equivalent or better locations in the same general area. To date, the
Company has not experienced difficulty in either renewing leases for existing
locations or securing leases for suitable locations for new stores. A
substantial number of the Company's store leases contain certain provisions
related to changes in control of the Company. These provisions may arguably be
applicable in a substantial number of the Company's leases as a result of the
1993 Recapitalization, and may be applicable in a small number of additional
leases as a result of the prior public offerings of the Company's common stock
and this offering. Many of the Company's leases contain provisions with which
the Company does not comply, including provisions requiring purchase of
insurance upon leasehold improvements and/or property located in the stores,
requiring the Company to advertise or prohibiting the Company from operating
another store within a specified radius. Based primarily on the Company's belief
that it maintains good relations with its landlords, that most of its leases are
at market rents, and that it has historically been able to secure leases for
suitable locations, management believes that these provisions will not have a
material adverse effect on the business or financial position of the Company.
FIELD MANAGEMENT AND PERSONNEL
Management believes its philosophy of providing strong field and store
management is an integral element of delivering value to its customers. The
Company maintains a highly trained and well managed staff to ensure that all
stores are continuously well maintained and tightly controlled and to provide
the best possible customer service. The field organization is directed by the
Senior Vice President, Sales and Operations, assisted by two Directors of Sales
and Operations and eleven Regional Managers, who in turn oversee numerous
District Managers and Area Supervisors. The corporate office is home of "Dollar
Tree University," where field and store managers receive extensive training.
Each store typically employs a manager, two assistant managers and 4 to 20
sales associates, most of whom are part-time. Additional temporary personnel are
typically hired to assist the stores with increased store traffic and sales
volume in the fourth quarter. Store managers are responsible for the operations
of individual stores, including recruiting and hiring store personnel,
communicating financial results nightly and coordinating with the distribution
staff on ordering, receiving and displaying weekly shipments.
Management believes its compensation and benefit programs are a key element
in attracting and retaining qualified field management and store personnel and
in obtaining a high degree of dedication from employees to their jobs. To
motivate the Company's field organization, Dollar Tree has in place bonus plans
for the certain groups, including Regional Managers, Regional Field
Merchandisers, District Managers, Store Managers and Associate Store Managers.
Compensation under the various bonus plans are based on a variety of factors
which vary between plans. These factors include comparable store sales, overall
sales performance, inventory shrinkage levels, payroll and net income. Eligible
employees may participate in the Company's Employee Stock Purchase Plan and its
401(k) and profit sharing plan. In addition, medical and dental insurance are
available to eligible employees.
WAREHOUSING AND DISTRIBUTION
Warehousing and distribution are managed centrally by the Company from its
corporate headquarters, which is located in the same building as its Norfolk
distribution center. The Company views maintaining strong warehousing and
distribution support for its stores as a critical element of its expansion
strategy and its ability to maintain a low cost operating structure. As the
Company continues its expansion, it intends to open new units in regions around
its distribution centers.
The Norfolk distribution center consists of 186,000 square feet; the Memphis
distribution center encompasses 244,000 square feet; and the Chicago
distribution center comprises 250,000 square feet. The
27
<PAGE>
Company's distribution centers have the capacity to service an estimated 1,000
stores. The Company currently leases its corporate headquarters and Norfolk
distribution center. The lease expires in June 2004. The distribution center in
Memphis is also leased; this lease expires in September 2004, with four
additional five year terms available. Additionally, the Company leases the
Chicago distribution center; this lease expires in June 2005, with certain
options to renew.
The Company plans to replace the Norfolk facility with a new Store Support
Center comprised of 400,000 square foot distribution center and a headquarters
facility to be built in Chesapeake, Virginia. The new distribution center will
contain advanced materials handling technologies, including a new automated
conveyor and sorting system, radio-frequency inventory tracking equipment,
improved racking and specialized information systems designed to improve
inventory movement and controls. When the new Store Support Center is complete,
the Company plans to relocate from its Norfolk facility. Management believes
that upon completion of the new facility, the Company's capacity to serve its
stores will increase from approximately 1,000 to 1,600 stores. The Company also
believes that the new distribution center will be operational in early 1998,
when its increased capacity is needed to support stores that are projected to be
open as of that date. See "Risk Factors -- Risks Associated with New Store
Support Center" and "Risk Factors--Disruptions in Receiving and Distribution."
Substantially all of the Company's inventory is shipped directly from
suppliers to the Company's distribution centers. Dollar Tree's substantial
distribution center capacity allows the Company to receive manufacturers' early
shipment discounts and buy large quantities of goods at favorable prices. In
addition, during the past several years the Company has utilized offsite
facilities to accommodate large shipments of seasonal merchandise. Since the
distribution centers maintain back-up inventory and provide weekly delivery to
each store, in-store inventory requirements are reduced and the Company is able
to operate with smaller stores than would otherwise be required. Since many
stores are limited in size, off-hours stocking, as well as off-site storage
space, is utilized to support the store's inventory turnover, particularly
during the busy fourth quarter.
Distribution to the stores is centrally controlled by the Company's
distribution group. The Company's merchandise replenishment software generates
distribution models that can be based on variables such as store volume and
certain demographic and physical characteristics of the stores. Each store has a
weekly and monthly budgeted inventory requirement based on its projected sales
for the year and its existing inventory levels. Stores receive weekly shipments
of merchandise from distribution centers based on their anticipated inventory
requirements for each week and communication via telephone or electronic mail
between store managers and the distribution group. The Company has the ability
to make two weekly deliveries to high volume stores during the busy Christmas
season.
The Company's distribution fleet consists of 18 leased tractors and 61 owned
or leased trailers. The majority of the Company's inventory is delivered to the
stores by contract carriers. The Company fleet is used in freight lanes which
allow backhauls of merchandise from suppliers to its distribution centers and to
service stores located near distribution centers. The Company is continuously
looking for opportunities to reduce its freight and distribution costs and
periodically evaluates various delivery options.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems allow it to monitor its
merchandising, inventory, distribution and operating expenses centrally at its
Norfolk headquarters. These systems allow the Company to support its stores
efficiently, manage inventory turnover, and provide detailed financial reporting
to support management's operational decisions and cost control efforts. The
Company does not have and does not currently anticipate adding a point-of-sale
system.
COMPETITION
The retail industry is highly competitive. The Company's competitors include
mass merchandisers (such as Wal-Mart), discount stores (such as Dollar General),
variety stores (such as Woolworth), closeout stores (such as Odd Lot and Big
Lot) and other $1.00 price point stores. In January 1996, the Company
28
<PAGE>
acquired all of the stock of one of its competitors, Dollar Bills. Several of
the largest operators of discount stores at the $1.00 price point (or their
parent companies) have filed for or emerged from bankruptcy protection in U.S.
bankruptcy court and have closed a number of their stores, while others have
abandoned the $1.00 price point concept and/or reconfigured their stores. The
Company may face competition in the future which could have an adverse effect on
its financial results.
TRADEMARKS
The Company is the owner of Federal service mark registrations for "Dollar
Tree," the "Dollar Tree" logo, "1 Dollar Tree" together with the related design,
and "One Price . . . One Dollar," each of which expires in 2003 or later. A
small number of the Company's stores operate under the name "Only $1.00," for
which the Company has not obtained a service mark registration; if it were
required to change the name of these stores, the Company does not believe that
this would have a material adverse effect on its business. Additionally, with
the acquisition of Dollar Bills in January 1996, the Company became the owner of
various Federal service mark registrations, including a concurrent use
registration for "Dollar Bill$" and the related logo. The Company also
occasionally uses various names under which it markets products. Management
indicates that the "brand names" are not significant to the Company's
operations.
EMPLOYEES
The Company employed approximately 8,500 employees at March 31, 1997,
approximately 1,900 of whom were full-time and 6,600 part-time. The number of
part-time employees fluctuates depending on seasonal needs. The Company
considers its relationship with employees to be good and has not experienced
significant interruptions of operations due to labor disagreements. None of the
Company's employees are currently represented by a labor union. On March 20,
1996, the employees of the Company's Norfolk distribution center voted against
union representation by the International Brotherhood of Teamsters in an
election certified by the National Labor Relations Board. There can be no
assurance that any of the Company's employees will not in the future elect to be
represented by a union. The Company considers its relationship with employees to
be good and has not experienced significant interruptions of operations due to
labor disagreements.
LEGAL PROCEEDINGS
The Company is engaged in a dispute with the former owners of Dollar Bills.
See "Risk Factors-- Legal Proceedings." Additionally, the Company is a party to
ordinary routine litigation and proceedings incidental to its business,
including certain matters which may occasionally be asserted by the Consumer
Product Safety Commission, none of which is individually or in the aggregate
material to the Company.
29
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL
The following table sets forth certain information with respect to
directors, executive officers and certain key personnel of the Company:
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS AGE OFFICE
- ---------------------------------- --- --------------------------------------------------
<S> <C> <C>
J. Douglas Perry 49 Chairman of the Board; Director
Macon F. Brock, Jr. 55 President and Chief Executive Officer; Director
H. Ray Compton 54 Executive Vice President and Chief Financial
Officer; Director
John F. Megrue 39 Vice Chairman of the Board; Director
Allan W. Karp 42 Director
Thomas A. Saunders, III 61 Director
Alan L. Wurtzel 63 Director
Frank Doczi 59 Director
CERTAIN KEY PERSONNEL
Thomas J. Bowyer 38 Senior Vice President, Sales and Operations
Frederick C. Coble 36 Senior Vice President, Finance
K. Bryan Bagwell 37 Vice President, Merchandise
Leonard Intrieri 57 Vice President, Human Resources
Darcel L. Stephan 39 Vice President, Information Systems
Stephen W. White 42 Vice President, Logistics
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
J. DOUGLAS PERRY has been a Director and Chairman of the Board of the
Company since 1986 when he founded the Company with Mr. Brock and Mr. Compton.
Mr. Perry is primarily responsible for directing the real estate, leasing and
construction functions of the Company. Until 1991, he was an executive officer
of K&K Toys which he, along with Mr. Brock, Mr. Compton and Mr. Perry's father,
built from its original single store to 136 stores. Mr. Perry has 28 years of
retail experience. Mr. Perry attended Old Dominion University.
MACON F. BROCK, JR. has been Chief Executive Officer of the Company since
1993 and a Director and President of the Company since 1986 when he founded the
Company with Mr. Perry and Mr. Compton. He also serves on the Board of Directors
for Signet Banking Corporation. Mr. Brock directs the overall operations of the
Company which primarily include purchasing, merchandising, logistics and
distribution and store operations. Until 1991, he was employed in a similar role
with K&K Toys. Mr. Brock has 28 years of retail experience. Mr. Brock graduated
from Randolph Macon College, served in the U.S. Marine Corps as a Captain and
was a special agent for U.S. Naval Intelligence.
H. RAY COMPTON has been a Director, Executive Vice President and Chief
Financial Officer of the Company since 1986 when he founded the Company with Mr.
Perry and Mr. Brock. He is responsible for finance, maintenance of credit
facilities, cash management, information systems and human resources. He also
serves on the Board of Directors of Hibbett Sporting Goods, Inc. From 1979 until
1991 Mr. Compton was employed in a similar role with K&K Toys. Prior to 1979, he
was associated for 15 years with a manufacturing company in various accounting
and management positions. Mr. Compton graduated from Phillips Business College.
30
<PAGE>
JOHN F. MEGRUE has been a Director and Vice Chairman of the Board of the
Company since September 1993. He also serves as Chairman of the Board and a
director of Hibbett Sporting Goods, Inc. Mr. Megrue has been a partner of SKM
Partners, L.P., which serves as the general partner of Saunders Karp & Megrue
and the Fund, since 1992. From 1989 to 1992 Mr. Megrue served as a Vice
President and Principal at Patricof & Co. and prior thereto he served as a Vice
President at C.M. Diker Associates. Mr. Megrue received a B.S. in mechanical
engineering from Cornell University and an M.B.A. from the Wharton School.
ALLAN W. KARP has been a Director of the Company since September 1993. Mr.
Karp has been a partner of SKM Partners, L.P., which serves as the general
partner of Saunders Karp & Co. and the Fund, since 1990. Before founding
Saunders Karp & Megrue, Mr. Karp was a Principal in the Merchant Banking
Department at Morgan Stanley & Co., where he began in the firm's Mergers and
Acquisitions Department in 1983. Mr. Karp graduated from M.I.T.'s Sloan School
of Management with a Masters of Science degree in Management.
THOMAS A. SAUNDERS, III, has been a Director of the Company since September
1993. He also serves on the Board of Directors of Hibbett Sporting Goods, Inc.
Mr. Saunders has been a partner of SKM Partners, L.P., which serves as the
general partner of Saunders Karp & Co. and the Fund, since 1990. Before founding
Saunders Karp & Megrue, Mr. Saunders served as a Managing Director of Morgan
Stanley & Co. from 1974 to 1989 and the Chairman of The Morgan Stanley Leveraged
Equity Fund II, L.P., from 1987 to 1989. Mr. Saunders is a member of the Board
of Visitors of the Virginia Military Institute and is the Chairman of the Board
of Trustees of the University of Virginia's Darden Graduate School of Business
Administration. Mr. Saunders is also a Trustee of the Cold Spring Harbor
Laboratory. Mr. Saunders received a B.S. in electrical engineering from the
Virginia Military Institute in 1958 and an M.B.A. from the University of
Virginia's Darden Graduate School of Business in 1967.
ALAN L. WURTZEL has been a Director of the Company since April 1995. Mr.
Wurtzel serves as the Vice Chairman of the Board of Circuit City Stores, Inc.
("Circuit City"), a large consumer electronics retailing chain. From 1986 to
1994, he served as Chairman of the Board of Circuit City. Prior to 1986, he
served in several other capacities with Circuit City, including Chief Executive
Officer (1973 to 1986). From December 1986 to April 1988, he served as President
of Operation Independence, a non-profit organization. Mr. Wurtzel was a director
of Office Depot, Inc. from 1989 to 1996. Mr. Wurtzel has 31 years of retail
experience. He is a graduate of Oberlin College and Yale Law School.
FRANK DOCZI has been a Director of the Company since May 1995. Mr. Doczi
currently serves as Special Advisor to the Chairman of Hechinger Company. Prior
to that appointment, he served as the President and Chief Executive Officer of
Home Quarters Warehouse, Inc. ("HQ"), a subsidiary of Hechinger Company, from
1988 until 1995. Mr. Doczi had been with HQ since its inception in 1984. He also
served as a member of the Management Committee for the Hechinger Company. Prior
to Mr. Doczi's association with HQ, he spent seven years with Moore's, a chain
of home centers operated by Evans Products Company, where he was the Senior Vice
President, General Merchandise Manager. Mr. Doczi attended Rutgers University.
Mr. Brock is married to Mr. Perry's sister. There are no additional family
relationships among the Directors and executive officers.
CERTAIN KEY PERSONNEL
THOMAS J. BOWYER became Senior Vice President, Sales and Operations, of the
Company in January 1995 and prior thereto served as Vice President, Sales and
Operations from July 1991. Prior thereto, he served as Director of Sales and
Operations of Dollar Tree from August 1989. His previous work experience
includes positions as a district manager with K&K Toys from 1988 and in the
grocery business, and store management positions with Circus World and Kay-Bee
Toy Stores.
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FREDERICK C. COBLE became Senior Vice President, Finance, of the Company in
January 1997 and prior thereto served as Vice President, Controller, of the
Company since December 1991. Prior to joining the Company in December 1989, he
served as Internal Audit Manager with Royster Company, a manufacturing company,
and as Audit Manager for KPMG Peat Marwick LLP. Mr. Coble graduated from the
University of Virginia in 1982 and is a Certified Public Accountant.
K. BRYAN BAGWELL became Vice President, Merchandise, of the Company in
September 1993. Prior thereto, Mr. Bagwell served as Merchandise Manager for
Dollar Tree from March 1993 to September 1993 and as a buyer for the Company
from October 1991 to March 1993. Before joining the Company, Mr. Bagwell worked
for K&K Toys from 1977 to October 1991, starting as a distribution center
associate and leaving as a senior buyer.
LEONARD INTRIERI became Vice President, Human Resources, of the Company in
September 1989. Prior thereto, he served as Personnel Director from February
1987 to March 1989 and Director, Human Resources, from March 1989 to September
1989. Mr. Intrieri previously worked as Personnel Manager for K&K Toys
(1984-1987), assistant personnel manager for Allied Marine Corporation
(1982-1984), assistant personnel/employee relations manager for Colonial
Stores/Big Star Supermarkets (1980-1982) and employment counselor for an
independent employment agency (1979-1980).
DARCEL L. STEPHAN became Vice President, Information Systems, of the Company
in September 1989. Prior thereto, she served as Data Processing Director from
February 1987 to September 1989. Before joining the Company, Ms. Stephan worked
for K&K Toys as Data Processing Supervisor from December 1980 to February 1987.
Ms. Stephan previously worked as a programmer/analyst with Haynes Furniture, a
furniture retailer, and C. Lloyd Johnson, a distributor of manufactured goods.
STEPHEN W. WHITE became Vice President, Logistics in December 1995 after
having joined the Company in June 1994 as Director of Transportation and
Distribution. Prior to joining the Company, he served as Director of
Transportation and Distribution Planning for Ames Department Stores from July
1986 to June 1994. His previous work experience included various transportation
and supply positions with a number of companies, including Shell Oil Company and
Eastern Airlines. Mr. White graduated from Northeastern University in 1978.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership as of June 1, 1997 of the Common Stock by (i) each of the Directors,
(ii) each of the executive officers, (iii) all current Directors and executive
officers as a group, (iv) each other person who is the beneficial owner of more
than 5% of the outstanding Common Stock and (v) each other Selling Shareholder.
The address of each Director and executive officer of the Company is c/o Dollar
Tree Stores, Inc., 2555 Ellsmere Ave., Norfolk Commerce Park, Norfolk, Virginia
23513.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
BENEFICIAL OWNERSHIP
BEFORE OFFERING(1) AFTER OFFERING(1)
---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
SHARES
SHARES PERCENT OFFERED(2) SHARES PERCENT
--------- ----------- ----------- --------- -----------
<CAPTION>
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
J. Douglas Perry......................................... 2,731,393(3) 10.28% 350,000 2,231,393 8.40%
Macon F. Brock, Jr....................................... 2,698,228(4) 10.15% 245,750 2,443,979 9.20%
H. Ray Compton........................................... 692,576(5) 2.65% 125,000 542,576 2.08%
John F. Megrue........................................... 8,589,815(6) 31.51% -- 6,248,253 22.92%
Alan W. Karp............................................. 8,589,815(7) 31.51% 3,835 6,248,253 22.92%
Thomas A. Saunders, III.................................. 8,589,815(8) 31.51% -- 6,248,253 22.92%
Alan L. Wurtzel.......................................... 23,000(9) * -- 23,000 *
Frank Doczi.............................................. 17,250(10) * -- 17,250 *
All current Directors and executive
officers of the Company (8 persons).................... 14,780,398 51.80% 724,585 11,526,916 40.39%
OTHER 5% SHAREHOLDERS
The SK Equity Fund, L.P..................................
Two Greenwich Plaza
Suite 100
Greenwich, Connecticut 06830 8,575,747(11) 31.47% 2,337,727 6,238,020 22.89%
OTHER SELLING SHAREHOLDERS
Joan P. Brock............................................ 1,037,365(12) 3.99% 245,751 791,614 3.04%
Christopher K. Reilly.................................... 2,813(13) * 767 2,046 *
Robert C. Miller and Macon F. Brock, Jr., as Trustees of
the Brock Children's Trust............................. 8,499 * 8,499 -- --
Robert C. Miller and J. Douglas Perry, as Trustees for
Joseph C. Perry Descendants Trust...................... 407,938(14) 1.56% 50,000 357,938 1.37%
Robert C. Miller and J. Douglas Perry, as Trustees for
Brandon D. Perry Descendants Trust..................... 407,938(14) 1.56% 50,000 357,938 1.37%
Robert C. Miller and J. Douglas Perry, as Trustees for
Laura Page Perry Descendants Trust..................... 407,937(14) 1.56% 50,000 357,937 1.37%
James P. Compton, Trustee of the Brymar Descendants
Trust.................................................. 332,916(15) 1.27% 25,000 307,916 1.18%
Melanie K. Berman, Custodian for Kyle Galbreath Megrue... 7,034(16) * 1,918 5,116 *
Melanie K. Berman, Custodian for Christopher Galbreath
Megrue................................................. 7,034(16) * 1,918 5,116 *
Thomas A. Saunders, III and Joanne S. Berkley, as
Trustees for the Saunders Dollar Tree Trust............ 14,068(17) * 3,835 10,233 *
</TABLE>
- ------------------------------
* less than 1%
33
<PAGE>
(1) As used in this table "beneficial ownership" means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed as of any date to have "beneficial ownership"
of any security that such person has a right to acquire within 60 days after
such date. Any security that any person named above has the right to acquire
within 60 days is deemed to be outstanding for purposes of calculating the
ownership percentage of such person, but is not deemed to be outstanding for
purposes of calculating the ownership percentage of any other person. The
Company has issued warrants to acquire 2,482,178 shares of Common Stock (the
"Warrant Shares") all of which are currently exercisable. The table does not
give effect to anticipated June 1996 transfers of less than 200,000 shares
beneficially owned by the Founders.
(2) Assumes no exercise of the Underwriter's over-allotment option to purchase
up to 525,000 shares of Common Stock. If the Underwriters exercise this
option in whole or in part, the Selling Shareholders will sell additional
shares generally in proportion to the respective amounts offered by them in
the initial sale to the Underwriters.
(3) Includes 671,329 shares and 558,489 Warrant Shares owned by trusts for the
benefit of certain Perry family members, of which Mr. Perry is a trustee,
but excludes 920,999 shares owned by Mr. Perry's wife, Patricia W. Perry.
(4) Includes 583,337 shares and 558,489 Warrant Shares owned by trusts for the
benefit of certain Brock family members, of which Mr. Brock is a trustee,
but excludes 1,037,365 shares owned by Mr. Brock's wife, Joan P. Brock.
(5) Includes 249,852 shares and 124,110 Warrant Shares owned by trusts for the
benefit of certain Compton family members, over which Mr. Compton may
indirectly exercise investment or voting power, but excludes 25,000 shares
owned by Mr. Compton's wife, Jean T. Compton.
(6) Represents 12,044 shares and 2,024 Warrant Shares owned by Mr. Megrue's
sister as Custodian for his children. Also includes 7,341,136 shares and
1,234,611 Warrant Shares owned by The SK Equity Fund, L.P. Mr. Megrue is a
general partner of the general partner of The SK Equity Fund, L.P.
(7) Includes 7,341,136 shares and 1,234,611 Warrant Shares owned by The SK
Equity Fund, L.P., and 2,025 Warrant Shares owned by Mr. Karp. Mr. Karp is a
general partner of the general partner of The SK Equity Fund, L.P.
(8) Represents 12,043 shares and 2,025 Warrant Shares owned by an irrevocable
trust for the benefit of certain Saunders family members, of which Mr.
Saunders is a trustee. Also includes 7,341,136 shares and 1,234,611 Warrant
Shares owned by The SK Equity Fund, L.P. Mr. Saunders is a general partner
of the general partner of The SK Equity Fund, L.P.
(9) Includes 5,750 shares held in a revocable trust of which Mr. Wurtzel is a
trustee and 17,250 shares issuable upon exercise of certain stock options
granted to Mr. Wurtzel pursuant to The Dollar Tree Stores, Inc. Stock
Incentive Plan.
(10) Includes 17,250 shares issuable upon exercise of certain stock options
granted to Mr. Doczi pursuant to The Dollar Tree Stores, Inc. Stock
Incentive Plan.
(11) Includes 1,234,611 Warrant Shares. Messrs. Megrue, Saunders and Karp, as
general partners of the general partner of The SK Equity Fund, L.P., may be
deemed to have beneficial ownership of shares held by The SK Equity Fund,
L.P. and the shares and Warrant Shares held by The SK Equity Fund, L.P. have
been attributed to them in the table above. See Notes (6), (7) and (8)
above.
(12) Does not include 2,139,789 shares and 558,489 Warrant Shares beneficially
owned by Mrs. Brock's husband, Macon F. Brock, Jr.
(13) Includes 405 Warrant Shares. Mr. Reilly is a general partner of Saunders
Karp & Megrue, an affiliate of The SK Equity Fund, L.P.
(14) Includes 186,163 Warrant Shares.
(15) Includes 124,110 Warrant Shares.
(16) Includes 1,012 Warrant Shares.
(17) Includes 2,025 Warrant Shares.
34
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the Company
and the Selling Shareholders the number of shares of Common Stock indicated
below opposite their respective names at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of the shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Montgomery Securities............................................................
Alex. Brown & Sons Incorporated .................................................
Goldman, Sachs & Co. ............................................................
Smith Barney Inc.................................................................
----------
Total........................................................................ 3,500,000
----------
----------
</TABLE>
The Underwriters have advised the Company and the Selling Shareholders that
the Underwriters propose initially to offer the Common Stock to the public on
the terms set forth on the cover page of this Prospectus. The Underwriters may
allow to selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the public offering, the
offering price and other selling terms may be changed by the Underwriters. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
The Selling Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 525,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise this
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
All of the Selling Shareholders have agreed, subject to certain limited
exceptions, not to offer, sell or otherwise dispose, directly or indirectly, of
any shares of Common Stock of the Company for a period of 90 days after the date
of this Prospectus, without the prior written consent of Montgomery Securities,
as representative of the Underwriters. The Company has agreed not to offer, sell
or otherwise dispose of, directly or indirectly, any shares of Common Stock of
the Company for a period of 90 days after the date of this Prospectus, without
the prior written consent of Montgomery Securities, as representative of the
Underwriters, except that the Company, without such consent, may grant options
or issue Common Stock upon exercise of new or outstanding options pursuant to
The Dollar Tree Stores, Inc. Amended and Restated Stock Option Plan, The Dollar
Tree Stores, Inc. Stock Incentive Plan and The Dollar Tree Stores, Inc. Employee
Stock Purchase Plan.
The Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives may
reduce that short position by purchasing
35
<PAGE>
Common Stock in the open market. The Representatives may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above.
In general, purchases of Common Stock for the purpose of stabilization or to
reduce a short position could cause the price of the Common Stock to be higher
than it might be in the absence of such purchases. Neither the Company nor any
of the Underwriters makes any representation or predictions as to the direction
or magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Respresentatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
LEGAL MATTERS
The validity of the Common Stock and certain other legal matters in
connection with this offering will be passed upon for the Company by Hofheimer,
Nusbaum, McPhaul & Samuels, a Professional Corporation, Norfolk, Virginia.
Certain legal matters in connection with the Common Stock offered hereby will be
passed upon for the Underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Dollar Tree Stores, Inc. as of December 31, 1995
and 1996, and for each of the years in the three-year period ended December 31,
1996 have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended, with the Securities and Exchange Commission
(the "Commission") with respect to the shares offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained herein
concerning the provisions of any documents are not necessarily complete and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports and other information with the
Commission. A copy of the reports and other information filed by the Company in
accordance with the Exchange Act may be inspected without charge at the offices
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and will also be available for inspection and copying at the regional offices of
the Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549, upon payment
of the fees prescribed by the Commission. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission with a Web
site address of http://www.sec.gov. Such reports, proxy statements and other
information concerning the Company are also available for inspection at the
offices of the Nasdaq National Market, Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
36
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference: (1) the Company's Annual Report on Form 10-K
for the year ended December 31, 1996; (2) the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997; and (3) the Company's Registration
Statement on Form 8-A filed February 28, 1995, registering the Company's Common
Stock under Section 12(g) of the Exchange Act. All documents filed by the
Company with the Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act subsequent to the date hereof and prior to the termination of
the offering of the Common Stock registered hereby shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing such documents. Any statements contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company will provide without charge to each person to whom this
Prospectus is delivered, upon a written request of such person, a copy of any or
all of the foregoing documents incorporated by reference into this Prospectus
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Requests for such copies should
be delivered to H. Ray Compton, Executive Vice President and Chief Financial
Officer, 2555 Ellsmere Avenue, Norfolk, VA 23513.
37
<PAGE>
[Internal Store Photo]
<PAGE>
- -----------------------------------------------
-----------------------------------------------
- -----------------------------------------------
-----------------------------------------------
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
SHAREHOLDER OR BY THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY................................... 3
RISK FACTORS......................................... 6
USE OF PROCEEDS...................................... 12
PRICE RANGE OF COMMON STOCK.......................... 12
DIVIDEND POLICY...................................... 12
CAPITALIZATION....................................... 13
SELECTED FINANCIAL DATA.............................. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS...................................... 16
BUSINESS............................................. 23
MANAGEMENT........................................... 30
PRINCIPAL AND SELLING SHAREHOLDERS................... 33
UNDERWRITING......................................... 35
LEGAL MATTERS........................................ 36
EXPERTS.............................................. 36
ADDITIONAL INFORMATION............................... 36
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...... 37
</TABLE>
3,500,000 SHARES
[LOGO]
DOLLAR TREE STORES, INC.
COMMON STOCK
-----------
PROSPECTUS
----------------
MONTGOMERY SECURITIES
ALEX. BROWN & SONS
INCORPORATED
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
, 1997
- -----------------------------------------------
-----------------------------------------------
- -----------------------------------------------
-----------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION
The following table sets forth the fees and expenses payable in connection
with the issuance and distribution of the securities other than underwriting
discount. All of such expenses except the Securities and Exchange Commission
registration fee and NASD filing fee are estimated:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 57,631
Blue Sky fees and expenses........................................ 12,000
Printing expense.................................................. 100,000
Accounting fees and expenses...................................... 40,000
Legal fees and expenses........................................... 108,000
NASD filing fee................................................... 19,518
Miscellaneous..................................................... 62,851
---------
Total....................................................... $ 400,000
---------
---------
The Selling Shareholders have agreed to pay the foregoing expenses.
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
To the full extent permitted by the Virginia Stock Corporation Act, the
Articles of Incorporation require the Company to indemnify its officers and
directors. Article V of the Articles of Incorporation provides that any director
or officer who was or is a party to any proceeding shall be indemnified by the
Company against any liability incurred by him in connection with such proceeding
unless he engaged in willful misconduct or a knowing violation of the criminal
law. The Company is also required to promptly pay for or reimburse all
reasonable expenses, including attorneys' fees, incurred by a director or
officer in advance of final disposition of the proceeding if the director or
officer furnishes the Company with a written statement of his good faith belief
that he has met the standard of conduct that is a prerequisite to his
entitlement to indemnification and agrees to repay the advance if it is
ultimately determined that he did not meet such standard of conduct. The Company
is authorized to purchase and maintain insurance to insure the Company against
its indemnification obligation, or insure any person who is or was a director,
officer, employee, or agent of the Company against any liability asserted
against or incurred by him in any such capacity or arising from his status as
such, whether or not the Company has the power to indemnify him against such
liability. The Company has directors and officers liability insurance. The
Company is also empowered, by a majority vote of a quorum of disinterested
directors, to enter into a contract to indemnify any director or officer against
liability, whether occurring before or after the execution of the contract.
Except to the extent contrary to the Articles of Incorporation or Virginia Stock
Corporation Act, the Company is not prevented or restricted from making or
providing for indemnities in addition to those provided in the Articles of
Incorporation.
Section 11 of the Underwriting Agreement provides for indemnification by the
Underwriters of directors, officers and controlling persons of the Company
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), under certain circumstances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
<TABLE>
<S> <S>
1.1 --Form of Underwriting Agreement
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <S>
* 2.1 --Agreement for Purchase and Sale of Stock dated September 24, 1993 among J.
Douglas Perry, Patricia W. Perry, Macon F. Brock, Jr., Joan P. Brock, H. Ray
Compton and The SK Equity Fund, L.P.
** 2.2 --Amended and Restated Stockholders Agreement effective March 13, 1995 among the
Company, John F. Megrue, Thomas A. Saunders, III, and certain shareholders
("Stockholders Agreement")
* 2.3 --Securities Purchase Agreement dated September 30, 1993 among the Company, J.
Douglas Perry, Patricia W. Perry, Macon F. Brock, Jr., Joan P. Brock, H. Ray
Compton, John F. Megrue, Thomas A. Saunders, III, Allan W. Karp, Christopher K.
Reilly, and The SK Equity Fund, L.P., and the First Amendment thereto
*** 2.4 --Agreement for Purchase and Sale of Stock dated as of January 16, 1996 between
the Company and Michael N. Alper and Pamela J. Alper
2.5 --First Amendment to Stockholders Agreement effective March 13, 1995
** 4.1 --Amended and Restated Stockholders Agreement (See Exhibit 2.2)
* 4.2 --Third Restated Articles of Incorporation of the Company
* 4.3 --Second Restated Bylaws of the Company
* 4.4 --Form of Specimen Certificate representing the Company's Common Stock, $.01 par
value per share
5.1 --Opinion of Hofheimer, Nusbaum, McPhaul & Samuels, a Professional Corporation,
regarding the legality of the securities being registered
10.1 --Second Amendment to Dollar Tree Stores, Inc. Stock Incentive Plan
10.2 --Standard Form of Agreement between Owner (Dollar Tree Stores, Inc.) and
Contractor (Clancy & Theys Construction Company)
23.1 --Consent of Hofheimer, Nusbaum, McPhaul & Samuels, a Professional Corporation
(included in Exhibit 5.1 hereto)
23.2 --Consent of KPMG Peat Marwick LLP, independent accountants
24.1 --Power of Attorney (included in Part II of the Registration Statement)
</TABLE>
- ------------------------
*Incorporated by reference to the Company's Registration Statement on Form
S-1, No. 33-88502.
**Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.
***Incorporated by reference to the Company's Current Report on Form 8-K dated
February 14, 1996.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above or otherwise,
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been
II-2
<PAGE>
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes:
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or(4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Norfolk, Commonwealth of Virginia, on the 6th day of
June, 1997.
DOLLAR TREE STORES, INC.
By /s/ MACON F. BROCK, JR.
------------------------------------
Macon F. Brock, Jr.
President and Chief Executive
Officer
The registrant and each person whose signature appears below constitutes and
appoints Macon F. Brock, Jr. and J. Douglas Perry, and any agent for service
named in this registration statement and each of them, his, her or its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him, her or it and in his, her, or its name, place and
stead, in any and all capacities, to sign and file (i) any and all amendments
(including post-effective amendments) to this registration statement and (ii)
any registration statement relating to the offering covered by this registration
statement deemed effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933 and any and all amendments (including post-effective
amendments) thereto, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he, she, or it
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ J. DOUGLAS PERRY
- ------------------------------ Chairman of the Board; June 6, 1997
J. Douglas Perry Director
President and Chief
/s/ MACON F. BROCK, JR. Executive Officer;
- ------------------------------ Director (principal June 6, 1997
Macon F. Brock, Jr. executive officer)
Executive Vice President
/s/ H. RAY COMPTON and Chief Financial
- ------------------------------ Officer; Director June 6, 1997
H. Ray Compton (principal financial and
accounting officer)
/s/ JOHN F. MEGRUE
- ------------------------------ Vice Chairman; Director June 6, 1997
John F. Megrue
/s/ ALLAN W. KARP
- ------------------------------ Director June 6, 1997
Allan W. Karp
/s/ THOMAS A. SAUNDERS, III
- ------------------------------ Director June 6, 1997
Thomas A. Saunders, III
/s/ ALAN L. WURTZEL
- ------------------------------ Director June 6, 1997
Alan L. Wurtzel
/s/ FRANK DOCZI
- ------------------------------ Director June 6, 1997
Frank Doczi
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 --Form of Underwriting Agreement
* 2.1 --Agreement for Purchase and Sale of Stock dated September 24, 1993 among J. Douglas Perry,
Patricia W. Perry, Macon F. Brock, Jr., Joan P. Brock, H. Ray Compton and The SK Equity
Fund, L.P.
** 2.2 --Amended and Restated Stockholders Agreement effective March 13, 1995 among the Company,
John F. Megrue, Thomas A. Saunders, III, and certain shareholders ("Stockholders
Agreement")
* 2.3 --Securities Purchase Agreement dated September 30, 1993 among the Company, J. Douglas
Perry, Patricia W. Perry, Macon F. Brock, Jr., Joan P. Brock, H. Ray Compton, John F.
Megrue, Thomas A. Saunders, III, Allan W. Karp, Christopher K. Reilly, and The SK Equity
Fund, L.P., and the First Amendment thereto
*** 2.4 --Agreement for Purchase and Sale of Stock dated as of January 16, 1996 between the Company
and Michael N. Alper and Pamela J. Alper
2.5 --First Amendment to Stockholders Agreement effective March 13, 1995
** 4.1 --Amended and Restated Stockholders Agreement (See Exhibit 2.2)
* 4.2 --Third Restated Articles of Incorporation of the Company
* 4.3 --Second Restated Bylaws of the Company
* 4.4 --Form of Specimen Certificate representing the Company's Common Stock, $.01 par value per
share
5.1 --Opinion of Hofheimer, Nusbaum, McPhaul & Samuels, a Professional Corporation, regarding
the legality of the securities being registered
10.1 --Second Amendment to Dollar Tree Stores, Inc. Stock Incentive Plan
10.2 --Standard Form of Agreement between Owner (Dollar Tree Stores, Inc.) and Contractor
(Clancy & Theys Construction Company)
23.1 --Consent of Hofheimer, Nusbaum, McPhaul & Samuels, a Professional Corporation (included in
Exhibit 5.1 hereto)
23.2 --Consent of KPMG Peat Marwick LLP, independent accountants
24.1 --Power of Attorney (included in Part II of the Registration Statement)
</TABLE>
- ------------------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, No. 33-88502.
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
*** Incorporated by reference to the Company's Current Report on Form 8-K dated
February 14, 1996.
<PAGE>
Exhibit 1.1
3,500,000 Shares
DOLLAR TREE STORES, INC.
Common Stock
UNDERWRITING AGREEMENT
June __, 1997
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. INTRODUCTORY. Certain shareholders of Dollar Tree Stores,
Inc., a Virginia corporation (the "Company"), named in Schedule B annexed hereto
(the "Selling Shareholders") propose to transfer and sell an aggregate of
3,500,000 shares of the outstanding Common Stock of the Company (the "Common
Stock") to the several underwriters named in Schedule A annexed hereto (the
"Underwriters"), for whom you are acting as Representatives. Said aggregate of
3,500,000 shares are herein called the "Firm Common Shares." In addition, the
Selling Shareholders propose to grant to the Underwriters an option to purchase
up to 525,000 additional shares of Common Stock (the "Optional Common Shares"),
as provided in Section 5 hereof. The Firm Common Shares and, to the extent such
option is exercised, the Optional Common Shares are hereinafter collectively
referred to as the "Common Shares."
You have advised the Company and the Selling Shareholders that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and each of the Selling Shareholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the several Underwriters that:
<PAGE>
(a) A registration statement on Form S-3 (File No. 333-_____) with respect
to the Common Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The Company has prepared and has filed or proposes to file prior to
the effective date of such registration statement an amendment or amendments to
such registration statement, which amendment or amendments have been or will be
similarly prepared. There shall be delivered to you, upon your request, two
photocopies of the signed version of such registration statement and amendments,
together with two copies of each exhibit filed therewith. Conformed copies of
such registration statement and amendments (but without exhibits) and of the
related preliminary prospectus have been delivered to you in such reasonable
quantities as you have requested for each of the Underwriters. The Company will
next file with the Commission one of the following: (i) prior to effectiveness
of such registration statement, a further amendment thereto, including the form
of final prospectus, or (ii) a final prospectus in accordance with Rules 430A
and 424(b) of the Rules and Regulations. As filed, such amendment and form of
final prospectus, or such final prospectus, shall include all Rule 430A
Information and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to you
prior to the date and time that this Agreement was executed and delivered by the
parties hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company shall have
previously advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the First Closing Date (as hereinafter defined), shall also mean such
registration statement as so amended; PROVIDED, HOWEVER, that such term shall
also include (i) all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the Rules and Regulations and (ii) any registration
statement filed pursuant to Rule 462(b) of the Rules and Regulations relating to
the Common Shares (the "Additional Registration Statement"). The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to in
the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule 430A
Information. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Common Shares in the form in which it is first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if
no filing pursuant to Rule 424(b) of the Rules and Regulations is required,
shall mean the form of final prospectus included in the Registration Statement
at the time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Common Shares and the
offering thereof permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A of the Rules and Regulations. Any
reference herein to any Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include the documents incorporated by reference therein pursuant
to Form S-3 under the Act, as of the date of such Preliminary Prospectus or
Prospectus, as the case may be.
<PAGE>
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including the First
Closing Date hereinafter mentioned, the Registration Statement will contain all
material statements and information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and the Registration
Statement will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Prospectus, as amended and
supplemented, as applicable, at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including the First
Closing Date hereinafter mentioned, will not include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not
misleading; provided, however, no representation or warranty contained in this
subsection 2(b) shall be applicable to information contained in or omitted from
any Preliminary Prospectus, the Registration Statement, the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter,
directly or through the Representatives, specifically for use in the preparation
thereof. The documents incorporated by reference in the Prospectus, when they
were filed with the Commission, conformed in all material respects to the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, and none of
such documents contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, with full power and
authority (corporate and other) to own and lease their properties and conduct
their respective businesses as described in the Prospectus, except where the
failure to be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole; the Company owns of record and
beneficially all of the outstanding capital stock of its subsidiaries free and
clear of all claims, liens, charges and encumbrances (except as disclosed in the
Prospectus); the Company and each of its subsidiaries are in possession of and
operating in compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of their respective businesses,
all of which are valid and in full force and effect; the Company and each of its
subsidiaries are duly qualified to do business and in good standing as foreign
corporations in each jurisdiction in which the ownership or leasing of
properties or the conduct of their respective businesses requires such
qualification, except for jurisdictions in which the failure to so qualify would
not have a material adverse effect upon the Company and its subsidiaries, taken
as a whole; and no proceeding has been instituted in any such jurisdiction,
<PAGE>
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(d) The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Prospectus; the issued and outstanding
shares of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
conform to the description thereof contained in the Prospectus. All issued and
outstanding shares of capital stock of each subsidiary of the Company have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as disclosed in or contemplated by the Prospectus and the financial statements
of the Company, and the related notes thereto, included in the Prospectus,
neither the Company nor any subsidiary has outstanding any options to purchase,
or any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations, except that the Company has preemptive
rights to acquire shares of its subsidiaries' stock. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(e) No shareholder of the Company has any right which has not been waived
or satisfied to require the Company to register the sale of any shares owned by
such shareholder under the Act in the public offering contemplated by this
Agreement. No further approval or authority of the shareholders or the Board of
Directors of the Company will be required for the transfer and sale of the
Common Shares to be sold by the Selling Shareholders.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
applicable law. Except as disclosed in the Prospectus, the making and
performance of this Agreement by the Company and the consummation by the Company
of the transactions herein contemplated will not violate any provisions of the
certificate of incorporation or bylaws, or other organizational documents, of
the Company or any of its subsidiaries, and will not conflict with, result in
the breach or violation of, or constitute, either by itself or upon notice or
the passage of time or both, a default under any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument to which
the Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or any of their respective properties, except for any such
conflicts, breaches or defaults which individually or in the aggregate would not
be material to the Company and its subsidiaries, taken as a whole may be bound
or affected, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries or any of
their respective properties, except for any such conflicts, breaches or defaults
which individually or in the aggregate would not be material to the Company and
its subsidiaries, taken as a whole. No
<PAGE>
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement by the Company, except such consents, approvals,
authorizations or orders (i) as have been obtained under the Act, (ii) as may be
required under state securities or Blue Sky laws or foreign securities laws in
connection with the purchase and distribution of the Shares by the Underwriters,
(iii) as may be required by the National Association of Securities Dealers, Inc.
(the "NASD") and (iv) the absence of which individually and in the aggregate are
not material to the Company and its subsidiaries, taken as a whole, or to the
Underwriters.
(g) KPMG Peat Marwick LLP, who have expressed their opinion with respect
to the financial statements and schedules of the Company filed with the
Commission as a part of the Registration Statement and/or included or
incorporated by reference in the Prospectus and in the Registration
Statement, are independent accountants as required by the Act and the Rules
and Regulations.
(h) The financial statements and schedules of the Company, and
the related notes thereto, included in the Registration Statement and the
Prospectus and/or incorporated by reference therein present fairly the financial
position of the Company as of the respective dates of such financial
statements and schedules, and the results of operations and cash flows of the
Company for the respective periods covered thereby. Such statements,
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. No other
financial statements or schedules are required to be included in the
Registration Statement or in the documents incorporated by reference therein.
The selected financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Financial Data" fairly present the information
set forth therein on the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, or as to violations, defaults
and breaches which individually or in the aggregate would not be material to the
Company and its subsidiaries, taken as a whole, neither the Company nor any of
its subsidiaries is in violation or default of any provision of its Articles of
Incorporation or Bylaws, or is in breach of or default with respect to any
provision of any agreement, judgment, decree, order, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to which it is
a party or by which it or any of its properties are bound; and, except as
disclosed in the Prospectus, there does not exist any state of facts which
constitutes an event of default on the part of the Company or any such
subsidiary as defined in such documents or which, with notice or lapse of time
or both, would constitute such an event of default.
<PAGE>
(j) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement or to any documents incorporated by reference therein by the Act, by
the Exchange Act or by the rules and regulations thereunder which have not been
described or filed as required. Except as disclosed in the Prospectus, the
contracts so described in the Prospectus are in full force and effect on the
date hereof; and neither the Company nor any of its subsidiaries, nor to the
best of the Company's knowledge, any other party is in breach of or default
under any of such contracts.
(k) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its subsidiaries
is or may be a party or of which property owned or leased by the Company or any
of its subsidiaries is or may be the subject, or related to environmental or
discrimination matters, which actions, suits or proceedings might, individually
or in the aggregate, prevent or materially adversely affect the transactions
contemplated by this Agreement or result in a material adverse change in the
condition (financial or otherwise), properties, business, results of operations
or prospects of the Company and its subsidiaries; the descriptions in the
Prospectus of the litigation matters described therein are accurate and complete
in all material respects; and, except as disclosed in the Prospectus, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent which might be expected to materially adversely affect such
condition, properties, business, results of operations or prospects. Neither
the Company nor any of its subsidiaries is a party or subject to the provisions
of any material injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good and marketable title
to all the properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except (i) those, if any,
reflected in such financial statements (or elsewhere in the Prospectus), or
(ii) those which are not material in amount and do not adversely affect the use
made and proposed to be made of such property by the Company and its
subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are not
significant in relation to the business of the Company. Except as disclosed in
the Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted.
(m) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not incurred any material liabilities or obligations,
indirect, direct or contingent, or entered into any material verbal or written
agreement or other transaction, other than in the ordinary course of business;
(ii) the Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other distributions
with respect to its capital stock and the Company and its subsidiaries are not
in default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock or
indebtedness material to the Company and its
<PAGE>
subsidiaries (other than in the ordinary course of business); and (v) there has
not been any material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the Company and its
subsidiaries.
(n) Except as disclosed in or specifically contemplated by the Prospectus,
the Company and its subsidiaries have sufficient trademarks, trade names,
copyrights, licenses, approvals and governmental authorizations to conduct their
businesses as now conducted, with such exceptions as would not have a material
adverse effect on the condition (financial or otherwise), business, properties,
results of operations or prospects of the Company and its subsidiaries, taken as
a whole; the expiration of any trademarks (other than "Dollar Tree" or "Dollar
Bill$"), trade names, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the condition
(financial or otherwise), business, properties, results of operations or
prospects of the Company or its subsidiaries, taken as a whole; and the Company
has no knowledge of any material infringement by it or its subsidiaries of
trademark, trade name rights, copyrights, licenses, trade secret or other
similar rights of others, and there is no claim being made against the Company
or its subsidiaries regarding trademark, trade name, copyright, license, trade
secret or other infringement which could have a material adverse effect on the
condition (financial or otherwise), business, properties, results of operations
or prospects of the Company and its subsidiaries, taken as a whole.
(o) The Company has not been advised, and has no reason to believe, that
either it or any of its subsidiaries is not conducting business in compliance
with all applicable laws, rules and regulations of the jurisdictions in which it
is conducting business, including, without limitation, all applicable local,
state and federal environmental laws and regulations, except where failure to be
so in compliance would not materially adversely affect the condition (financial
or otherwise), business, properties, results of operations or prospects of the
Company and its subsidiaries, taken as a whole.
(p) The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes shown
as due thereon; and the Company has no knowledge of any tax deficiency which has
been or might be asserted or threatened against the Company or its subsidiaries
which could materially and adversely affect the condition (financial or
otherwise) business, properties, results of operations or prospects of the
Company and its subsidiaries, taken as a whole.
(q) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the Registration Statement
and other materials permitted by the Act.
(s) Each of the Company and its subsidiaries maintains insurance of the
types and in the amounts generally deemed adequate for its business, including,
but not limited to, insurance covering real and personal property (except for
personal property in the stores, which is
<PAGE>
uninsured) owned or leased by the Company and its subsidiaries against theft,
damage, destruction and acts of vandalism, all of which insurance is in full
force and effect.
(t) Neither the Company nor any of its subsidiaries has at any time during
the last five years (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws or the United States or
any jurisdiction thereof.
(u) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Common Shares.
(v) The Common Stock of the Company has been registered under Section
12(g) of the Exchange Act, and all of the outstanding shares of Common Stock
(including the Common Shares to be sold by the Selling Shareholders hereunder)
have been listed on the National Market of the Nasdaq Stock Market.
(w) The Company has filed with the Commission, on a timely basis, all
documents required to have been filed by the Company pursuant to the Exchange
Act or the rules and regulations promulgated thereunder. Each such document,
when filed with the Commission, conformed in all material respects to the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING
SHAREHOLDERS.
(a) Each of the Selling Shareholders severally represents and
warrants to, and agrees with, the several Underwriters that:
(i) Such Selling Shareholder has, and on the First Closing Date
and the Second Closing Date (if applicable) hereinafter mentioned will
have, good and valid title to the Common Shares proposed to be sold by
such Selling Shareholder hereunder on such Closing Date and full
right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver such Common Shares hereunder, free and
clear of all voting trust arrangements, liens, encumbrances, equities,
security interests, restrictions and claims whatsoever; and upon
delivery of and payment for such Common Shares hereunder, assuming the
Underwriters acquire such Common Shares without notice of any adverse
claim, the Underwriters will acquire good and valid title thereto,
free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts or other defects of
title whatsoever.
<PAGE>
(ii) This Agreement has been duly authorized, executed and delivered
by such Selling Shareholder and constitutes the valid and binding
obligation and agreement of such Selling Shareholder, enforceable against
such Selling Shareholder in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited by applicable law.
(iii)Such Selling Shareholder has executed and delivered a Power of
Attorney and caused to be executed and delivered on his behalf a Custody
Agreement (hereinafter collectively referred to with respect to each
Selling Shareholder as the "Shareholders Agreement") and in connection
herewith such Selling Shareholder further represents, warrants and agrees
that such Selling Shareholder has deposited in custody, under the
Shareholders Agreement, with the agent named therein (the "Agent") as
custodian, certificates in negotiable form for the Common Shares to be sold
hereunder by such Selling Shareholder, for the purpose of further delivery
pursuant to this Agreement. Such Selling Shareholder agrees that the
Common Shares to be sold by such Selling Shareholder on deposit with the
Agent are subject to the interests of the Company and the Underwriters,
that the arrangements made for such custody are to that extent irrevocable
(except as otherwise provided in this Agreement or the Shareholders
Agreement), and that the obligations of such Selling Shareholder hereunder
shall not be terminated, except as provided in this Agreement or in the
Shareholders Agreement, by any act of such Selling Shareholder, by
operation of law, by the death or incapacity of such Selling Shareholder or
by the occurrence of any other event. If the Selling Shareholder should
die or become incapacitated, or if any other event should occur, before the
delivery of the Common Shares hereunder, the documents evidencing Common
Shares then on deposit with the Agent shall be delivered by the Agent in
accordance with the terms and conditions of this Agreement as if such
death, incapacity or other event had not occurred, regardless of whether or
not the Agent shall have received notice thereof. This Agreement and the
Shareholders Agreement have been duly executed and delivered by or on
behalf of such Selling Shareholder and the form of such Shareholders
Agreement has been delivered to you.
(iv) The performance of this Agreement and the Shareholders Agreement
by such Selling Shareholder and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or violation by
such Selling Shareholder of any of the terms or provisions of, or
constitute a default by such Selling Shareholder under, (A) any indenture,
mortgage, deed of trust, trust (constructive or other), loan agreement,
lease, franchise, license or other agreement, trust instrument or
instrument to which such Selling Shareholder is a party or by which such
Selling Shareholder or any of its properties is bound, (B) if such Selling
Shareholder is not a natural person, the partnership agreement, trust
instrument or any other organizational documents of such Selling
Shareholder, or (C) any statute, judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and
delivery by such Selling Shareholder of this Agreement and the Shareholders
Agreement or the consummation by such Selling Shareholder of the
transactions
<PAGE>
contemplated by this Agreement and the Shareholders Agreement, except such
consents, approvals, authorizations or orders (i) as have been obtained
under the Act, (ii) as may be required under state securities or Blue Sky
laws or foreign securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, (iii) as may be required by
the NASD and (iv) the absence of which individually and in the aggregate
are not material to the Company and its subsidiaries, taken as a whole, or
to the Underwriters.
(v) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Common Shares.
(vi) Each Preliminary Prospectus and the Prospectus, insofar as it has
related to such Selling Shareholder, has not included any untrue statement
of a material fact or omitted to state a material fact necessary to make
the statements therein not misleading in light of the circumstances under
which they were made; and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, as it relates to such
Selling Shareholder, will include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(vii) Such Selling Shareholder is not aware that the Registration
Statement or Prospectus includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. It is agreed the aggregate
liability of a Selling Shareholder to the Underwriters (A) for a breach of
this representation and (B) under Section 11(a) hereof shall not exceed the
amount of the After Tax Net Proceeds (as defined in Section 11(a)) received
by such Selling Shareholder with respect to the Shares purchased by the
Underwriters from such Selling Shareholder hereunder; and that no Selling
Shareholder shall be liable to any Underwriter for a breach of this
representation unless (1) the Representatives shall have first made demand
for payment on the Company with respect to any damages alleged to result
from the breach of this representation, (2) the Representatives shall
thereafter have used all reasonable efforts to obtain such payment from the
Company, including active pursuit in a court of law of any rights to
indemnity or contribution based on the facts giving rise to the alleged
breach of this representation, and (3) the Company shall have failed to
make such payment within one year after receipt of the notice described in
clause (1).
(b) Each of the Selling Shareholders agree with the Company and
the Underwriters not to offer to sell, sell or contract to sell or
otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable for any shares of Common Stock, for a
period of 90 days after the date of the Prospectus, without the prior
written consent of Montgomery Securities, as a Representative of the
Underwriters, which consent may be withheld at the sole discretion of
Montgomery Securities.
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS. The
Representatives, on behalf of the several Underwriters, represent and warrant
to the Company and the Selling Shareholders that the information set forth
(i) in the first sentence of the last paragraph of text on the cover page of
the Prospectus, (ii) in the stabilization language on the inside front cover
of the Prospectus and (iii) in the second paragraph under "Underwriting" in
the Prospectus concerning the terms of the offering by the Underwriters and
in the sixth paragraph of text under "Underwriting," was furnished to the
Company by and on behalf of the Underwriters for use in connection with the
preparation of the Registration Statement and the Prospectus and is correct
in all material respects. The Representatives represent and warrant that
they have been authorized by each of the other Underwriters as the
Representatives to enter into this Agreement on its behalf and to act for it
in the manner herein provided.
SECTION 5. PURCHASE, SALE AND DELIVERY OF COMMON SHARES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Selling Shareholders agree,
severally and not jointly, to sell to the Underwriters in the respective amounts
set forth in Schedule B hereto, an aggregate of 3,500,000 Firm Common Shares.
The Underwriters agree, severally and not jointly, to purchase from the Selling
Shareholders the number of Firm Common Shares described below. The purchase
price per share to be paid by the several Underwriters to the Selling
Shareholders shall be $_____ per share.
The obligation of each Underwriter to the Selling Shareholders shall be to
purchase from the Selling Shareholders that number of full shares set forth
opposite the name of such Underwriter in Schedule A hereto.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m.
Washington D.C. time, the fourth) full business day following the first date
that any of the Common Shares are released by you for sale to the public, as you
shall designate by at least 48 hours prior notice to the Company (or at such
other time and date, not later than one week after such third or fourth, as the
case may be, full business day as may be agreed upon by the Company and the
Representatives) (the "First Closing Date"); provided, however, that if the
Prospectus is at any time prior to the First Closing Date recirculated to the
public, the First Closing Date shall occur upon the later of the third or
fourth, as the case may be, full business day following the first date that any
of the Common Shares are released by you for sale to the public or the date that
is 48 hours after the date that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Selling Shareholders to you, for the respective accounts of the
Underwriters, against payment by you, for the accounts of the several
Underwriters, of the purchase price therefor by wire transfer of same day funds
to the order of the Agent. The certificates for the Firm Common Shares shall
<PAGE>
be registered in such names and denominations as you shall have requested at
least two full business days prior to the First Closing Date, and shall be made
available for checking and packaging on the business day preceding the First
Closing Date at a location in New York, New York, as may be designated by you.
Time shall be of the essence, and delivery at the time and place specified in
this Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Selling Shareholders hereby grant an option to the several
Underwriters to purchase, severally and not jointly, in the respective
amounts set forth in Schedule B hereto, up to an aggregate of 525,000
Optional Common Shares at the purchase price per share to be paid for the
Firm Common Shares, for use solely in covering any over-allotments made by
you for the account of the Underwriters in the sale and distribution of the
Firm Common Shares. The option granted hereunder may be exercised at any
time (but not more than once) within 30 days after the first date that any of
the Common Shares are released by you for sale to the public, upon notice by
you to the Company and the Agent setting forth the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the
option, the names and denominations in which the certificates for such shares
are to be registered and the time and place at which such certificates will
be delivered. Such time of delivery (which may not be earlier than the First
Closing Date), being herein referred to as the "Second Closing Date," shall
be determined by you, but if at any time other than the First Closing Date
shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. The number of Optional Common Shares to
be purchased by each Underwriter shall be determined by multiplying the
number of Optional Common Shares to be sold by the Selling Shareholders
pursuant to such notice of exercise by a fraction, the numerator of which is
the number of Firm Common Shares to be purchased by such Underwriter as set
forth opposite its name in Schedule A and the denominator of which is
3,500,000 (subject to such adjustments to eliminate any fractional share
purchases as you and the Selling Shareholders may mutually agree). If the
option granted hereunder is exercised in part, the number of Optional Common
Shares to be sold by each Selling Shareholder shall be determined by
multiplying the number of Optional Common Shares set forth opposite his or
its name in Schedule B by a fraction, the numerator of which is the number of
Optional Common Shares to be sold by the Selling Shareholders as specified in
such notice of exercise and the denominator of which is 525,000 (subject to
such adjustments to eliminate any fractional share purchases as you and the
Selling Shareholders may mutually agree). Certificates for the Optional
Common Shares will be made available for checking and packaging on the
business day preceding the Second Closing Date at a location in New York, New
York, as may be designated by you. The manner of payment for and delivery of
the Optional Common Shares shall be the same as for the Firm Common Shares
purchased from the Selling Shareholders as specified in the two preceding
paragraphs. At any time before lapse of the option, you may cancel such
option by giving written notice of such cancellation to the Company and the
Agent.
You have advised the Company and the Selling Shareholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to receipt
<PAGE>
therefor. You, individually and not as the Representatives of the Underwriters,
may (but shall not be obligated to) make payment for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received by you by
the First Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees
that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing
of the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly
advise you in writing (i) of the receipt of any comments of the Commission,
(ii) of any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. The Company will
not file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus of which you have not been furnished with a copy a reasonable
time prior to such filing or to which you reasonably object (except to the
extent any amendment or supplement to which you object is necessary in the
opinion of counsel to the Company to ensure that the Prospectus does not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading) or which is not in compliance in all material respects with the
Act and the Rules and Regulations.
(b) The Company will fully and completely comply with the provisions
of Rule 430A of the Rules and Regulations with respect to information
omitted from the Registration Statement in reliance upon such Rule.
(c) If during such period after the first date of the public offering
of the Shares as, in the opinion of your counsel, the Prospectus is
required by law to be delivered in
<PAGE>
connection with sales by an Underwriter or dealer, any event occurs, as a
result of which the Prospectus, including any amendments or supplements,
would include an untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, or if it is necessary at any time to
amend the Prospectus, including any amendments or supplements, to comply
with the Act or the Rules and Regulations, the Company will promptly advise
you thereof and will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such statement
or omission or an amendment or supplement which will effect such compliance
and will use its best efforts to cause the same to become effective (to the
extent effectiveness is required under the Act or the Rules and
Regulations) as soon as possible; and, in case any Underwriter is required
to deliver a prospectus after such period, the Company upon request, but at
the expense of such Underwriter, will promptly prepare such amendment or
amendments to the Registration Statement and such Prospectus or
Prospectuses as may be necessary to permit compliance with the requirements
of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after the end
of the first quarter ending after one year following the "effective date of
the Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a period
of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to you or mail to your order
copies of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents (other
than periodic filings under the Exchange Act) in each case as soon as
available and in such quantities as you may reasonably request, for the
purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions
from the application of) the Blue Sky laws of such jurisdictions as you
designate and Canadian securities laws, will comply with such laws and will
continue such qualifications, registrations and exemptions in effect so
long as reasonably required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any such jurisdiction where
it is not presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company, with your
cooperation, will use its best efforts to obtain the withdrawal thereof.
<PAGE>
(g) During the period of five years hereafter, the Company will
furnish to the Representatives: (i) as soon as practicable after the end
of each fiscal year, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year and
statements of income, shareholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof, copies
of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q, Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
(h) During the period of 90 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of Montgomery Securities, as a Representative of the
Underwriters, or each of the Representatives (which consent may be withheld
at the sole discretion of any of the Representatives), the Company will not
issue, offer, sell, grant options to purchase or otherwise dispose of any
of the Company's equity securities or any other securities convertible into
or exchangeable with its Common Stock or other equity security; provided,
however, that the Company may (i) issue shares of Common Stock upon the
exercise of stock options and warrants outstanding on the date hereof, as
described in the Prospectus (it being agreed that the Company shall not
accelerate the exercisability of any such options or grant any waiver or
acceleration under the terms of the Stock Restriction Agreement to be
entered into by the optionee upon the exercise of such options), and
(ii) grant options and issue shares of Common Stock in accordance with its
Amended and Restated Stock Option Plan, Stock Incentive Plan or Employee
Stock Purchase Plan, as described in the Prospectus or in materials
incorporated by reference in the Prospectus.
(i) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary
trading in the Company's Common Stock in California), will comply with such
Blue Sky laws and will continue such qualifications, registrations and
exemptions in effect for a period of five years after the date hereof.
You, on behalf of the Underwriters, may, in your sole discretion, waive in
writing the performance by the Company of any one or more of the foregoing
covenants or extend the time for their performance.
SECTION 7. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, each Selling Shareholder agrees to pay its pro rata portion of all
costs, fees and expenses incurred in connection with the performance of the
obligations of the Company or the Selling Shareholders hereunder, including
without limiting the generality of the foregoing, (i) all expenses incident to
the delivery of the Common Shares (including all printing, copying, and
engraving costs), (ii) all fees and expenses of the registrar and transfer agent
of the Common Stock, (iii) all necessary
<PAGE>
transfer and other stamp taxes in connection with the transfer and sale of the
Common Shares to the Underwriters, (iv) all fees and expenses of the Company's
counsel and the Company's independent accountants, (v) all costs and expenses
incurred in connection with the preparation, printing, copying, filing, shipping
and distribution of the Registration Statement, each Preliminary Prospectus and
the Prospectus (including all exhibits and financial statements) and all
amendments and supplements provided for herein, this Agreement, the Agreement
Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire and the Blue Sky memorandum, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the Blue Sky laws and Canadian securities laws (provided that such fees and
expenses shall not exceed $12,000), (vii) the filing fee of the NASD, and
(viii) all other fees, costs and expenses referred to in Item 14 of the
Registration Statement. Except as provided in this Section 7, Section 9 and
Section 11 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to qualification, registration or exemption under the Blue Sky laws and Canadian
securities laws and the Blue Sky memorandum referred to above). Each Selling
Shareholder's pro rata portion of the expenses described in this Section 7 shall
be that amount which bears to the total expenses the same proportion as the
number of Firm Shares to be sold by such Selling Shareholder bears to 525,000.
SECTION 8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Shareholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Shareholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Shareholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10:00 P.M.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been consented to by you; if
the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule
424(b) of the Rules and Regulations; and prior to such Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company or you,
shall be contemplated by the Commission; and any request of the Commission
for inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to your satisfaction.
<PAGE>
(b) You shall be satisfied that since the respective dates as of
which information is given in the Registration Statement and Prospectus,
(i) there shall not have been any change in the capital stock of the
Company (other than as contemplated by Section 6(h) above) or any of its
subsidiaries or any material change in the indebtedness (other than in the
ordinary course of business) of the Company or any of its subsidiaries,
(ii) except as set forth in or contemplated by the Registration Statement
or the Prospectus, no material verbal or written agreement or other
transaction shall have been entered into by the Company or any of its
subsidiaries, which is not in the ordinary course of business, (iii) no
loss or damage (whether or not insured) to the property of the Company or
any of its subsidiaries shall have been sustained which materially and
adversely affects the condition (financial or otherwise), business, results
of operations or prospects of the Company and its subsidiaries, taken as a
whole, (iv) no legal or governmental action, suit or proceeding affecting
the Company or any of its subsidiaries which is material to the Company and
its subsidiaries, taken as a whole, or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted or
threatened and (v) there shall not have been any material change in the
condition (financial or otherwise), business, management, results of
operations or prospects of the Company and its subsidiaries, taken as a
whole, which makes it impractical or inadvisable in the judgment of the
Representatives to proceed with the public offering or purchase the Common
Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to
you, except as otherwise expressly provided below:
(i) An opinion of Hofheimer, Nusbaum, McPhaul & Samuels, P.C.,
counsel for the Company and the Selling Shareholders identified as the
"Virginia Selling Shareholders" on Schedule B hereto (the "Virginia
Selling Shareholders"), addressed to the Underwriters and dated the
First Closing Date, or the Second Closing Date, as the case may be, to
the effect that:
(1) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, is duly qualified
to do business as a foreign corporation and is in good standing in
each state in which it owns or leases real property, and has full
corporate power and authority to own its properties and conduct its
business as described in the Registration Statement;
(2) The authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the
Prospectus; all necessary and proper corporate proceedings have been taken
in order to validly authorize such authorized capital stock; all
outstanding shares of capital stock (including the Firm Common Shares and
any Optional Common Shares) have been duly and validly issued, are fully
paid and nonassessable, were not issued in violation of or subject to any
preemptive rights or, to the best of such counsel's knowledge, other rights
to subscribe for or purchase any securities and conform to the description
thereof contained in the Prospectus; all outstanding shares
<PAGE>
of capital stock of the Company have been issued in compliance with federal
and state securities laws;
(3) All of the issued and outstanding shares of the Company's
subsidiaries have been duly and validly authorized and issued, are fully
paid and nonassessable and are owned beneficially by the Company free and
clear of all liens, encumbrances, equities, claims, security interests,
voting trusts or other defects of title whatsoever;
(4) The certificates evidencing the Common Shares to be delivered
hereunder are in due and proper form under Virginia law, and when duly
countersigned by the Company's transfer agent and registrar, and delivered
to you or upon your order against payment of the agreed consideration
therefor in accordance with the provisions of this Agreement, the Common
Shares represented thereby will be duly authorized and validly issued,
fully paid and nonassessable, will not have been issued in violation of or
subject to any preemptive rights or, to the best of such counsel's
knowledge, other rights to subscribe for or purchase securities and will
conform in all respects to the description thereof contained in the
Prospectus;
(5) Except as disclosed in or specifically contemplated by the
Prospectus, to the best of such counsel's knowledge, there are no
outstanding options, warrants or other rights calling for the issuance of,
and no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable for
capital stock of the Company;
6(a) To the best of such counsel's knowledge, there are no franchises,
leases, contracts, agreements or documents of a character required to be
disclosed in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement or to any document incorporated by
reference therein which are not disclosed or filed, as required; and
(b) To the best of such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened against
the Company which are required to be described in the Prospectus which are
not described as required.
(7) The Company has full right, power and authority to enter into
this Agreement; this Agreement has been duly and validly authorized by all
necessary corporate action by the Company, has been duly and validly
executed and delivered by and on behalf of the Company, and is a valid and
binding agreement of the Company in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and except as to those provisions relating to indemnity or
contribution for liabilities, as to which no opinion need be expressed; and
no approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any court, regulatory,
administrative or other governmental body is required for the execution and
delivery of this Agreement by the Company or the consummation of the
transactions contemplated by this Agreement; provided, however, no opinion
need be
<PAGE>
expressed as to the Act, the rules of the NASD or applicable state
securities or Blue Sky laws or foreign securities laws in connection with
the purchase and distribution of the Common Shares;
(8) Except as disclosed in the Prospectus, the execution and
performance of this Agreement and the consummation of the transactions
herein contemplated will not conflict with, result in the breach of, or
constitute, either by themselves or upon notice or the passage of time or
both, a default under, any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument known to such
counsel to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of its or their
property may be bound or affected which is material to the Company and its
subsidiaries, taken as a whole, or violate any of the provisions of the
certificate of incorporation or bylaws, or other organizational documents,
of the Company or any of its subsidiaries or, so far as is known to such
counsel, violate any statute, judgment, decree, order, rule or regulation
of any court or governmental body having jurisdiction over the Company or
any of its subsidiaries or any of its or their property;
(9) Except as disclosed in the Prospectus, neither the Company nor
any subsidiary is in violation of its Articles of Incorporation or Bylaws,
or other organizational documents, or to the best of such counsel's
knowledge, in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument known to such counsel to which the Company or
any such subsidiary is a party or by which it or any of its properties may
be bound or affected, except where such breach or default would not
materially adversely affect the Company and its subsidiaries, taken as a
whole; and, to the best of such counsel's knowledge, the Company and its
subsidiaries are in compliance with all laws, rules, regulations,
judgments, decrees, orders and statutes of any court or jurisdiction to
which they are subject, except where noncompliance would not materially
adversely affect the Company and its subsidiaries, taken as a whole;
(10) To the best of such counsel's knowledge, no holders of securities
of the Company have rights which have not been waived to the registration
of shares of Common Stock or other securities, because of the filing of the
Registration Statement by the Company or the offering contemplated hereby;
(11) No transfer taxes are required to be paid in connection with the
sale and delivery of the Common Shares to the Underwriters hereunder.
(12) This Agreement and the Shareholders Agreement have been duly
authorized, executed and delivered by or on behalf of each Virginia Selling
Shareholder; the Agent has been duly and validly authorized to act as the
custodian of the Common Shares to be sold by each Virginia Selling
Shareholder; and the performance of this Agreement and the Shareholders
Agreement and the consummation of the transactions contemplated herein and
therein by each Virginia Selling Shareholder will not result in a
<PAGE>
breach or violation of, or constitute a default under, (A) any indenture,
mortgage, deed of trust, trust (constructive or other), loan agreement,
lease, franchise, license or other agreement or instrument known to such
counsel to which such Virginia Selling Shareholder is a party or by which
it or any of its properties may be bound, (B) any organizational documents
of any Virginia Selling Shareholder that is not a natural person, or (C)
any statute, or, to the best of such counsel's knowledge, any judgment,
decree, order, rule or regulation of any court or governmental body having
jurisdiction over such Virginia Selling Shareholder or any of its
properties; and no approval, authorization, order or consent of any court,
regulatory body, administrative agency or other governmental body is
required for the execution and delivery by each Virginia Selling
Shareholder of this Agreement or the Shareholders Agreement or the
consummation by each Virginia Selling Shareholder of the transactions
contemplated by this Agreement or the Shareholders Agreement, provided,
however, no opinion need be expressed as to the Act, the rules of the NASD
or applicable state securities or Blue Sky laws or foreign securities laws
in connection with the purchase and distribution of the Common Shares;
provided that the opinions expressed in this clause 8(c)(i)(12) with
respect to the due and valid authorization of the Agent to act as the
custodian of the Common Shares to be sold by each such Virginia Selling
Shareholder need not cover the provisions contained in the second and third
sentences of Section 3(a)(iii) hereof, [the second full paragraph on page 5
of the Selling Shareholders Power of Attorney or the seventh paragraph of
the Selling Shareholders Custody Agreement];
(13) Each Virginia Selling Shareholder that is not an individual has
trust power and authority to enter into this Agreement and the Shareholders
Agreement and to sell, transfer and deliver the Common Shares to be sold on
such Closing Date by such Virginia Selling Shareholders; immediately prior
to each Closing Date, each Virginia Selling Shareholder was the sole
registered owner of the Shares to be sold by such Virginia Selling
Shareholder on such Closing Date; upon issuance of new certificates in the
names of the Underwriters representing such Shares, assuming the
Underwriters purchased the Shares in good faith and without notice of any
adverse claim within the meaning of the Uniform Commercial Code, the
Underwriters will have acquired all rights of such Virginia Selling
Shareholder in the Shares free of any adverse claim, any lien in favor of
the Company, and any restrictions on transfer imposed by the Company;
(14) This Agreement and the Shareholders Agreement are valid and
binding agreements of each Virginia Selling Shareholder in accordance with
their terms, except (i) as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally, (ii) with respect to
those provisions relating to indemnities or contributions for liabilities
under the Act, as to which no opinion need be expressed, and (iii) with
respect to the provisions contained in the second and third sentences of
Section 3(a)(iii) hereof, [the second full paragraph on page 5 of the
Selling Shareholders Power of Attorney or the seventh paragraph of the
Selling Shareholders Custody Agreement], as to which no opinion need be
expressed;
<PAGE>
(15) The documents incorporated by reference in the Prospectus
(except for the financial statements and schedules included in such
documents as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder.
(16)(a) The Registration Statement (assuming compliance with clause
(2) of Rule 462(b) in the case of any Additional Registration Statement)
has become effective under the Act, and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the Registration
Statement or preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations
has been made in the manner and within the time period required by such
Rule 424(b);
(b) The Registration Statement, the Prospectus and each amendment or
supplement thereto, if any (except for the financial statements and
schedules included therein as to which such counsel need express no
opinion), comply as to form in all material respects with the requirements
of the Act and the Rules and Regulations.
In rendering such opinion, such counsel may rely, as to matters
of fact, on certificates of officers of the Company, of the
Virginia Selling Shareholders and of governmental officials, in
which cases their opinion is to state that they are so doing and
that the Underwriters are justified in relying on such
certificates and copies of such certificates are to be attached
to the opinion. Such counsel's opinion may also state that
they have made no independent factual investigation and may
assume the capacity of all natural persons and may assume the
conformity of all copies or facsimiles to the originals
thereof. Moreover, such counsel's opinion shall be made with
respect to federal and Virginia law only. Such counsel shall
also include in such opinion (or provide separately to you) a
statement to the effect that nothing has come to such counsel's
attention that would lead such counsel to believe that at its
effective date the Registration Statement contained any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as
amended or supplemented, if applicable, at the applicable Closing
Date includes an untrue statement of material fact or omits to
state a material fact necessary in order to make the statements,
in the light of the circumstances under which they were made, not
misleading. Such counsel may also state that they have assumed
the conformity of documents filed as exhibits to the Registration
Statement with the Commission via the Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR"), except for required
EDGAR formatting changes, to the physical copis of the documents
submitted for their examination. Such counsel shall also permit
Hale and Dorr LLP, as counsel to the Underwriters, to rely on
such opinion (insofar as it relates to matters of Virginia law)
in rendering their opinion pursuant to Section 8(c)(iii) hereof;
(ii) An opinion of ____________________, special counsel for the
Selling Shareholders identified as the "New York Selling Shareholders" on
Schedule B hereto
<PAGE>
(the "New York Selling Shareholders"), addressed to the Underwriters and
dated the First Closing Date, or the Second Closing Date, as the case may
be, to the effect that:
(1) This Agreement and the Shareholders Agreement have been duly
authorized, executed and delivered by or on behalf of each New York Selling
Shareholder; the Agent has been duly and validly authorized to act as the
custodian of the Common Shares to be sold by each such New York Selling
Shareholder; and the performance of this Agreement and the Shareholders
Agreement by each New York Selling Shareholder will not result in a breach
or violation of, or constitute a default under, (A) any indenture,
mortgage, deed of trust, trust (constructive or other), loan agreement,
lease, franchise, license or other agreement or instrument known to such
counsel to which such New York Selling Shareholder is a party or by which
it or any of its properties may be bound, (B) if such Selling Shareholder
is not a natural person, any organizational documents of such New York
Selling Shareholder, or (C) any statute, or, to the knowledge of such
counsel, any judgment, decree, order, rule or regulation of any court or
governmental body having jurisdiction over such New York Selling
Shareholder or any of its properties; and no approval, authorization, order
or consent of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery by each New
York Selling Shareholder of this Agreement or the Shareholders Agreement or
the consummation by each New York Selling Shareholder of the transactions
contemplated by this Agreement or the Shareholders Agreement, except such
consents, approvals, authorizations or orders (i) as have been obtained
under the Act, (ii) as may be required under state securities or Blue Sky
laws or foreign securities laws in connection with the purchase and
distribution of the Shares by the Underwriters and (iii) as may be required
by the NASD; provided that the opinions expressed in this clause
8(c)(ii)(1) with respect to the due and valid authorization of the Agent to
act as the custodian of the Common Shares to be sold by each such New York
Selling Shareholder need not cover the provisions contained in the second
and third sentences of Section 3(a)(iii) hereof, [the second full paragraph
on page 5 of the Selling Shareholders Power of Attorney or the seventh
paragraph of the Selling Shareholders Custody Agreement];
(2) Each New York Selling Shareholder that is not an individual has,
as applicable, corporate, partnership or trust power and authority to enter
into this Agreement and the Shareholders Agreement and to sell, transfer
and deliver the Common Shares to be sold on such Closing Date by such New
York Selling Shareholder; immediately prior to each Closing Date, each New
York Selling Shareholder was the sole registered owner of the Shares to be
sold by such New York Selling Shareholder on such Closing Date; upon
registration of the Shares in the names of the Underwriters in the stock
records of the Company, and the issuance of new certificates registered in
the names of the Underwriters representing such Shares, assuming the
Underwriters purchased the Shares in good faith and without notice of any
adverse claim within the meaning of the Uniform Commercial Code, the
Underwriters will have acquired all rights of such New York Selling
Shareholder in the Shares free of any adverse claim, any lien in favor of
the Company, and any restrictions on transfer imposed by the Company; and
the owner of
<PAGE>
the Shares, if other than such New York Selling Shareholder, is precluded
from asserting against the Underwriters the ineffectiveness of any
unauthorized endorsement;
(3) This Agreement and the Shareholders Agreement are valid and
binding agreements of each New York Selling Shareholder in accordance with
their terms, except (i) as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally, (ii) with respect to
those provisions relating to indemnities or contributions for liabilities
under the Act, as to which no opinion need be expressed, and (iii) with
respect to the provisions contained in the second and third sentences of
Section 3(a)(iii) hereof, [the second full paragraph on page 5 of the
Selling Shareholders Power of Attorney or the seventh paragraph of the
Selling Shareholders Custody Agreement], as to which no opinion need be
expressed; and
In rendering such opinion, such counsel may rely, as to
matters of fact, on certificates of the New York Selling
Shareholders and of governmental officials, in which cases their
opinion is to state that they are so doing and copies of such
certificates are to be attached to the opinion. Such counsel may
also state that they have made no independent factual
investigation and have assumed the capacity of all natural
persons. Such counsel shall also permit Hale and Dorr LLP, as
counsel to the Underwriters, to rely on the opinions set forth
above (insofar as they relate to matters of New York law) in
rendering their opinion pursuant to Section 8(c)(iii) hereof;
(iii) Such opinion or opinions of Hale and Dorr LLP, counsel for
the Underwriters, dated the First Closing Date or the Second Closing Date,
as the case may be, with respect to the incorporation of the Company, the
sufficiency of all corporate proceedings and other legal matters relating
to this Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you may
reasonably require, and the Company and the Selling Shareholders shall have
furnished to such counsel such documents and shall have exhibited to them
such papers and records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with such opinions,
such counsel may rely on representations or certificates of officers of the
Company and governmental officials.
(iv) A certificate of the Company executed by the Chairman of the
Board or President and the chief financial or accounting officer of the
Company, dated the First Closing Date or the Second Closing Date, as the
case may be, to the effect that:
(1) The representations and warranties of the Company set forth in
Section 2 of this Agreement are true and correct as of the date of this
Agreement and as of the First Closing Date or the Second Closing Date, as
the case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied on or
prior to such Closing Date;
<PAGE>
(2) The Commission has not issued any order preventing or suspending
the use of the Prospectus or any Preliminary Prospectus filed as a part of
the Registration Statement or any amendment thereto; no stop order
suspending the effectiveness of the Registration Statement has been issued;
and to the best of the knowledge of the respective signers, no proceedings
for that purpose have been instituted or are pending or contemplated under
the Act;
(3) Each of the respective signers of the certificate has carefully
examined the Registration Statement and the Prospectus on behalf of the
Company; the Registration Statement and the Prospectus and any amendments
or supplements thereto contain all statements required to be stated therein
regarding the Company and its subsidiaries; and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(4) Since the initial date on which the Registration Statement was
filed, no agreement, written or oral, transaction or event has occurred
which should have been set forth in an amendment to the Registration
Statement or in a supplement to or amendment of any prospectus which has
not been disclosed in such a supplement or amendment;
(5) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as disclosed in
or contemplated by the Prospectus, there has not been any material adverse
change or a development involving a material adverse change in the
condition (financial or otherwise), business, properties, results of
operations, management or prospects of the Company and its subsidiaries,
taken as a whole; and no legal or governmental action, suit or proceeding
is pending or threatened against the Company or any of its subsidiaries
which is material to the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, or which may adversely affect the transactions contemplated by
this Agreement; since such dates and except as so disclosed, neither the
Company nor any of its subsidiaries has entered into any verbal or written
agreement or other transaction that is material to the Company and its
subsidiaries, taken as a whole, which is not in the ordinary course of
business or incurred any material liability or obligation, direct,
contingent or indirect, made any change in its capital stock, made any
material change in its short-term debt or funded debt or repurchased or
otherwise acquired any of the Company's capital stock; and the Company has
not declared or paid any dividend, or made any other distribution, upon its
outstanding capital stock payable to shareholders of record on a date prior
to the First Closing Date or Second Closing Date, as the case may be; and
(6) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus and except as disclosed in or
contemplated by the Prospectus, the Company and its subsidiaries have not
sustained a material loss or
<PAGE>
damage by strike, fire, flood, windstorm, accident or other calamity
(whether or not insured).
(v) On the First Closing Date or the Second Closing Date, as the case
may be, a certificate, dated such Closing Date and addressed to you, signed
by or on behalf of each of the Selling Shareholders to the effect that the
representations and warranties of such Selling Shareholder in this
Agreement are true and correct, as if made at and as of the First Closing
Date or the Second Closing Date, as the case may be, and such Selling
Shareholder has complied with all the agreements and satisfied all the
conditions on his part to be performed or satisfied prior to the First
Closing Date or the Second Closing Date, as the case may be.
(vi) On the date this Agreement is executed and also on the First
Closing Date and the Second Closing Date, letters addressed to you, as
Representatives of the Underwriters, from KPMG Peat Marwick LLP,
independent accountants, the first of each to be dated the date of this
Agreement, the second of each to be dated the First Closing Date and the
third of each (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance satisfactory to you.
(vii) An opinion of Goldberg, Kohn, Bell, Black, Rosenbloom &
Moritz, Ltd., special litigation counsel for the Company, addressed to the
Underwriters and dated the First Closing Date, or the Second Closing Date,
as the case may be, to the effect that the section of the Prospectus
entitled "Risk Factors -- Legal Proceedings" (except for the first sentence
and the last two sentences) contain fair and accurate summaries of the
litigation described therein, and that nothing has come to their attention
that would lead them to believe that either at the effective date of the
Registration Statement or the applicable Closing Date, the above-listed
sections of the Prospectus contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein regarding the litigation described therein
not misleading.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you
and to Hale and Dorr LLP, counsel for the Underwriters. The Company shall
furnish you with such manually signed or conformed copies of such opinions,
certificates, letters and documents as you request. Any certificate signed
by any officer of the Company and delivered to the Representatives or to
counsel for the Underwriters shall be deemed to be a representation and
warranty by the Company to the Underwriters as to the statements made
therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives to the
Company and the Selling Shareholders without liability on the part of any
Underwriter or the Company except for the expenses to be paid or
<PAGE>
reimbursed by the Company and the Selling Shareholders pursuant to Sections 7
and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 9. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. Notwithstanding any
other provisions hereof, if the sale to the Underwriters of the Common Shares at
the First Closing is not consummated because of any refusal, inability or
failure on the part of the Company or any Selling Shareholder to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse you and the other Underwriters upon demand for all out-of-pocket
expenses that shall have been reasonably incurred by you and them in connection
with the proposed purchase and the sale of the Common Shares, including but not
limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, telegraph charges and telephone charges relating directly to
the offering contemplated by the Prospectus. Any such termination shall be
without liability of any party to any other party except that the provisions of
this Section, Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. EFFECTIVENESS OF REGISTRATION STATEMENT. You, the Company and
the Selling Shareholders will use your and its best efforts to cause the
Registration Statement to become effective, to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement and, if such
stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 11. INDEMNIFICATION. (a) The Company and each of the Selling
Shareholders, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act, the Exchange Act, or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state in any of them a material fact
required to be stated therein or necessary to make the statements in any of them
not misleading; and will reimburse each Underwriter and each such controlling
person for any legal and other expenses as such expenses are reasonably incurred
by such Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; PROVIDED, that neither the Company nor any Selling
Shareholder shall be liable in any such case to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto (i) in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 4 hereof or (ii) in
reliance upon and in conformity with information furnished to the Company by a
Selling Shareholder with respect to such Selling Shareholder (except that the
Selling Shareholder furnishing such information shall not be so relieved of
liability); PROVIDED FURTHER, that no Selling Shareholder shall be liable under
this
<PAGE>
Section 11(a) for an amount in excess of the After Tax Net Proceeds (as defined
below) received by such Selling Shareholder with respect to the Shares purchased
by the Underwriters from such Selling Shareholder hereunder; PROVIDED FURTHER
that no Selling Shareholder shall be required to provide indemnification
hereunder unless (1) the Representatives shall have first made demand for
payment on the Company with respect to any such loss, claim, damage, liability
or expense, (2) the Representatives shall thereafter have used all reasonable
efforts to obtain such payment from the Company, including active pursuit in a
court of law of any rights hereunder to indemnity or contribution for such loss,
claim, damage, liability or expense, and (3) the Company shall have failed to
make such payment within one year after receipt of the notice described in
clause (1); and PROVIDED FURTHER that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such loss, claim, damage,
liability or expenses purchased Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The Company and the Selling Shareholders may
agree, as among themselves and without limiting the rights of the Underwriters
under this Agreement, as to their respective amounts of such liability for which
they each shall be responsible. In addition to their other obligations under
this Section 11(a), the Company and the Selling Shareholders agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, all as described in this Section 11(a), they
will reimburse each Underwriter on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding. To the extent that
any such interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it to the Company or the Selling Shareholders,
as applicable, together with interest, compounded daily, determined on the basis
of the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Bank of America NT&SA, San
Francisco, California (the "Prime Rate"). Any such interim reimbursement
payments which are not made to an Underwriter within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which
the Company or the Selling Shareholders may otherwise have. The "After Tax Net
Proceeds" received by a Selling Shareholder with respect to Shares sold by it
hereunder shall mean the proceeds (net of the applicable underwriting discount)
received by such Selling Shareholder with respect to such Shares, as adjusted to
reflect both (i) the amount of any taxes paid or payable by such Selling
Shareholder by virtue of the sale of such Shares and (ii) the value of any tax
benefit realized or realizable (taking into account the probability that any
such tax benefit will be realized) by such Selling Shareholder by virtue of the
payment of amounts under this Section 11 or the payment of amounts in regard to
a breach of a representation of such Selling Shareholder set forth in Section
3(a).
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, each Selling
<PAGE>
Shareholder and each person, if any, who controls the Company or any Selling
Shareholder within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director, officer or
controlling person may become subject, under the Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Underwriter), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as contemplated
below) arise out of or are based upon any untrue or alleged untrue statement of
any material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof; and will reimburse the Company, or any such director, officer, Selling
Shareholder or controlling person for any legal and other expense reasonably
incurred by the Company, or any such director, officer, Selling Shareholder or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this Section 11(b), each
Underwriter severally agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in this Section 11(b) which relates to information furnished to the
Company pursuant to Section 4 hereof, it will reimburse the Company (and, to the
extent applicable, each officer, director, Selling Shareholder or controlling
person) on a quarterly basis for all reasonable legal or other expenses incurred
in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, Selling Shareholder or controlling person)
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement payment is so held to have been improper, the Company
(and, to the extent applicable, each officer, director, Selling Shareholder or
controlling person) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any
<PAGE>
indemnified party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however, if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel, approved
by the Representatives in the case of paragraph (a), representing the
indemnified parties who are parties to such action) or (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after notice
of commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party. The indemnifying
party shall not be liable for any settlement of such action effected without its
written consent, which shall not be unreasonably withheld or delayed, but if
settled with such consent, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement.
(d) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party (subject to the limits set
forth in subparagraph (a) of this Section 11) shall contribute to the amount
paid or payable by such indemnified party as a result of any losses, claims,
damages, liabilities or expenses referred to herein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the
Selling Shareholders and the Underwriters from the offering of the Common Shares
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, the Selling Shareholders and the Underwriters in connection with
the statements or omissions or inaccuracies in the representations and
warranties herein which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
respective relative benefits received by the Company, the Selling Shareholders
and the Underwriters shall be deemed to be in the same proportion, in the case
of the Company and the Selling Shareholders on the one hand, as the total price
paid to the Selling Shareholders for the Common Shares sold by them to the
<PAGE>
Underwriters (net of underwriting commissions but before deducting expenses),
and in the case of the Underwriters, on the other hand, as the underwriting
commissions received by them bears to the total of such amounts paid to the
Selling Shareholders and received by the Underwriters as underwriting
commissions. The relative fault of the Company, the Selling Shareholders and
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Shareholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in subparagraph (c) of this Section 11, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in subparagraph (c) of
this Section 11 with respect to notice of commencement of any action shall apply
if a claim for contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under subparagraph (c) for purposes of
indemnification. The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 11 were determined solely by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
11, no Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting commissions received by such Underwriter in
connection with the Common Shares underwritten by it and distributed to the
public. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 11 are several in proportion
to their respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 11(a) and 11(b) hereof,
including the amounts of any requested reimbursement payments and the method of
determining such amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of the New
York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of
the NASD. Any such arbitration must be commenced by service of a written demand
for arbitration or written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so.
SECTION 12. DEFAULT OF UNDERWRITERS. It shall be a condition to this
Agreement and the obligation of the Selling Shareholders to sell and deliver the
Common Shares hereunder, and of each Underwriter to purchase the Common Shares
in the manner as described herein, that, except as hereinafter in this paragraph
provided, each of the Underwriters shall purchase and pay for all the Common
Shares agreed to be purchased by such Underwriter hereunder upon tender to the
Representatives of all such shares in accordance with the terms hereof. If any
<PAGE>
Underwriter or Underwriters default in their obligations to purchase Common
Shares hereunder on either the First or Second Closing Date and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed to purchase on such Closing Date does not exceed 10% of the total
number of Common Shares which the Underwriters are obligated to purchase on such
Closing Date, the non-defaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Common
Shares which such defaulting Underwriters agreed but failed to purchase on such
Closing Date. If any Underwriter or Underwriters so default and the aggregate
number of Common Shares with respect to which such default occurs is more than
the above percentage and arrangements satisfactory to the Representatives and
the Company for the purchase of such Common Shares by other persons are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Shareholders except for the expenses to be paid by the Selling
Shareholders pursuant to Section 7 hereof and except to the extent provided in
Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. EFFECTIVE DATE. This Agreement shall become effective
immediately as to Sections 7, 9, 11, 14 and 15 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams
(i) advising Underwriters that the Common Shares are released for public
offering, or (ii) offering the Common Shares for sale to securities dealers,
whichever may occur first.
SECTION 14. TERMINATION. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Shareholders or by you by notice to the Company and the
Selling Shareholders at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall
be without liability on the part of the
<PAGE>
Company or any Selling Shareholder to any Underwriter (except for the
expenses to be paid or reimbursed by the Company and the Selling
Shareholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof) or of any Underwriter to the Company or any
Selling Shareholder (except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company and the Selling Shareholders (i) if
additional material governmental restrictions, not in force and effect on
the date hereof, shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock
Exchange or in the over the counter market by the NASD, or trading in
securities generally shall have been suspended on either such Exchange or
in the over the counter market by the NASD, or a general banking moratorium
shall have been established by federal, New York or California authorities,
(ii) if an outbreak of major hostilities or other national or international
calamity or any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated to
such an extent, as, in the judgment of the Representatives, to affect
adversely the marketability of the Common Shares, (iii) if any adverse
event shall have occurred or shall exist which makes untrue or incorrect in
any material respect any statement or information contained in the
Registration Statement or Prospectus or which is not reflected in the
Registration Statement or Prospectus but should be reflected therein in
order to make the statements or information contained therein not
misleading in any material respect, or (iv) if there shall be any action,
suit or proceeding pending or threatened, or there shall have been any
development or prospective development involving particularly the business
or properties or securities of the Company or any of its subsidiaries or
the transactions contemplated by this Agreement, which, in the reasonable
judgment of the Representatives, may materially and adversely affect the
Company's business or earnings and makes it impracticable or inadvisable to
offer or sell the Common Shares. Any termination pursuant to this
subparagraph (b) shall be without liability on the part of any Underwriter
to the Company or any Selling Shareholder or on the part of the Company or
any Selling Shareholder to any Underwriter (except for expenses to be paid
or reimbursed by the Selling Shareholders pursuant to Section 7 hereof and
except to the extent provided in Section 11 hereof.
SECTION 15. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any Selling Shareholder or any of its
or their partners, officers or directors or any controlling person, as the case
may be, and will survive delivery of and payment for the Common Shares sold
hereunder and any termination of this Agreement.
SECTION 16. NOTICES. All communications hereunder shall be in writing
and, if sent to the Representatives shall be mailed, delivered or telecopied to
you at 600 Montgomery Street,
<PAGE>
San Francisco, California 94111, Attention: John A. Berg, with a copy to Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention: Patrick
J. Rondeau, Esq.; if sent to the Company, shall be mailed, delivered or
telecopied to the Company, at 2555 Ellsmere Avenue, Norfolk Commerce Park,
Norfolk, Virginia 23501-2500 with a copy to Hofheimer, Nusbaum, McPhaul &
Samuels, 1700 Dominion Tower, 999 Waterside Drive, Norfolk, Virginia 23510,
Attention: William A. Old, Esq.; if sent to any Virginia Selling Shareholder,
shall be mailed, delivered or telecopied to the Selling Shareholder c/o the
Company at 2555 Ellsmere Avenue, Norfolk Commerce Park, Norfolk, Virginia
23501-2500 with a copy to Hofheimer, Nussbaum, McPhaul & Samuels, 1700 Dominion
Tower, 99 Waterside Drive, Norfolk, Virginia 23510, Attention: William A. Old,
Esq.; and if sent to any of the New York Selling Shareholders, to the New York
Selling Shareholder c/o Saunders, Karp & Co., 667 Madison Avenue, 21st Floor,
New York, New York 10021 with a copy to ______________________________. The
Company, the Selling Shareholders or you may change the address for receipt of
communications hereunder by giving notice to the others.
SECTION 17. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 18. REPRESENTATION OF UNDERWRITERS. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 19. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 20. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 21. GENERAL. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Shareholders (to the extent
such amendment affects them) and you.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Shareholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
DOLLAR TREE STORES, INC.
By:______________________________
Name:
Title:
THE SELLING SHAREHOLDERS IDENTIFIED ON SCHEDULE B
By:______________________________
Name:
By:______________________________
Name:
Each as Attorney-in-Fact acting
on behalf of each such Selling
Shareholder
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:______________________________
Partner
<PAGE>
SCHEDULE A
Number of Firm
Name of Underwriter Common Shares to Be Purchased
- ------------------- ---------------
Montgomery Securities
Alex. Brown & Sons Incorporated
Goldman, Sachs & Co.
Smith Barney Inc.
TOTAL 3,500,000
=========
<PAGE>
SCHEDULE B
Number of Firm Number of Optional
Common Shares Common Shares
Name of Selling Shareholder to be Sold to be Sold
- --------------------------- -------------- ------------------
The Virginia Selling Shareholders:
J. Douglas Perry 350,000 114,187
Macon F. Brock, Jr. 245,750 114,188
H. Ray Compton 125,000 34,125
Joan P. Brock 245,751 --
Robert C. Miller and
J. Douglas Perry, as
Trustees for Joseph
C. Perry 50,000 --
Robert C. Miller and
J. Douglas Perry, as
Trustees for Brandon
D. Perry 50,000 --
Robert C. Miller and
J. Douglas Perry, as
Trustees for Laura Page
Perry 50,000 --
Robert C. Miller and
Macon F. Brock, Jr., as
Trustees of the Brock
Children's Trust 8,499 --
James P. Compton, Trustee
of the Brymar Descendants
Trust 25,000 --
The New York Selling Shareholders:
SK Equity Fund, L.P. . 2,337,727 261,130
Allan W. Karp 3,835 428
Christopher K. Reilly 767 86
Melanie K. Berman, Custodian
for Kyle Galbreath
Megrue 1,918 214
Melanie K. Berman, Custodian
for Christopher Galbreath
Megrue 1,918 214
Thomas A. Saunders, III and
Joanne S. Berkley, as
Trustees for the
Saunders Dollar Tree
Trust 3,835 428
--------- -------
TOTAL 3,500,000 525,000
========= =======
<PAGE>
Exhibit 2.5
FIRST AMENDMENT TO
DOLLAR TREE STORES, INC.
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This FIRST AMENDMENT ("Amendment") to the Dollar Tree Stores, Inc. Amended
and Restated Stockholders Agreement is made by and among the undersigned parties
effective March 13, 1995.
WHEREAS, the undersigned parties are original parties (or have become
parties) to that certain Amended and Restated Stockholders Agreement
("Agreement"), effective March 13, 1995;
WHEREAS, the Agreement deals with certain matters relating to the ownership
of securities of Dollar Tree Stores, Inc., a Virginia corporation ("Company");
and
WHEREAS, pursuant to Section 7.7 of the Agreement, the undersigned parties
now wish to amend certain provisions of the Agreement as set forth below.
NOW, THEREFORE, in consideration of the premises, the mutual promises set
forth below and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Agreement is hereby amended as
follows:
1. DEFINITIONS.
a. Capitalized words used in this Amendment shall have the same
meaning as the identical terms used in the Agreement, except as otherwise
explicitly noted herein.
b. The definition of "Permitted Transferee" in Section 1.18 of
the Agreement shall be amended and restated as follows:
PERMITTED TRANSFEREES. Any of the following persons to whom Stock is
Transferred, who agrees to be bound by the provisions of this Agreement,
and whose admission to the Agreement is approved by the Fund and the
Founders, all in the manner provided in Section 7.2:
(a) With respect to a Founder, "Permitted Transferee" may include (i)
any Founder, (ii) any executive manager of the Company, (iii) the spouse
(other than pursuant to a separation agreement, divorce decree, or other
instrument indicative of marital discord), lineal descendant, or lineal
ascendent, of any Founder or executive manager of the Company, (iv) the
estate of any person described in (i), (ii), or (iii) above or a trust,
foundation or custodianship for the benefit of any person described in (i),
(ii) or (iii) above.
1
<PAGE>
(b) With respect to The SK Equity Fund, L.P., "Permitted Transferee"
may include any entity which is under common control with, controls, or is
controlled by Saunders Karp & Co., L.P., directly or indirectly through one
or more intermediaries, or the Fund Successor.
(c) With respect to the Fund (with the exception of The SK Equity
Fund, L.P.), "Permitted Transferee" may include (i) the spouse (other than
pursuant to a separation agreement, divorce decree, or other instrument
indicative of marital discord), lineal descendant, or lineal ascendant of
Karp, Saunders, Reilly or Megrue, (ii) the estate of any person described
in (i) above or a trust, foundation or custodianship for the benefit of any
person described in (i) above.
2. TRANSFERS.
a. Section 3.12 of the Agreement is hereby amended and restated as
follows:
HOLDBACK AGREEMENT. The parties to this Agreement agree not to effect
any Transfer, including any sale pursuant to Rule 144 (or any successor
provision, under the Act), of any Stock or of any security convertible into
or exchangeable or exercisable for any Stock (in each case, other than as
part of a Public Offering) during 14 days prior to, and during the 90-day
period which begins on the effective date any registration statement filed
with respect to Stock; provided that the prohibition shall only be
effective once a Stockholder has or reasonably should have notice of such
registration.
b. Section 7.2 of the Agreement is hereby amended and restated as
follows:
TRANSFER. Apart from the holdback provisions found in Section 3.12,
nothing in this Agreement shall prohibit or restrict a Transfer of Stock or
of any security convertible into or exchangeable or exercisable for any
Stock by a party hereto. However, no person receiving Stock by any
Transfer shall become a Permitted Transferee under this Agreement unless
and until the following conditions precedent are met:
(i) any such transferee who is not an original party hereto shall
become subject to the provisions of this Agreement as if the
transferee were an original party hereto by executing a written
agreement to that effect and delivering the same to the Company, and
(ii) the Fund and the Founders shall both approve the
transferee's admission to the Agreement as a Permitted Transferee,
which approval may not be unreasonably withheld. Execution of an
admission agreement as contemplated above by John F. Megrue and H. Ray
Compton or their attorney(s)-in-fact shall constitute conclusive proof
of such approval by the Fund and the Founders respectively.
2
<PAGE>
Any Transfer of Stock failing to comply with the foregoing conditions shall
be NOT be deemed void on account of such failure, but the transferee shall
not be deemed a Permitted Transferee unless and until the failure is
remedied. The Transfer of Stock or any security convertible into Stock is
restricted under applicable state and federal securities laws, and nothing
in this Section 7.2 shall be deemed to require the Company to acknowledge
or record on its books any such Transfer without registration under the Act
or an exemption therefrom as determined by counsel reasonably acceptable to
the Company.
c. The first sentence and the text of the restrictive legend
contained in Section 7.4 of the Agreement are amended and restated as follows:
The following provisions described in (i) below shall be affixed to
each existing certificate representing Stock owned by a party to this Agreement
or a transferee of such party, and, in addition, the provisions described in
(ii) below shall be affixed to certificates representing Stock owned by a party
to this Agreement or a Permitted Transferee of such party:
(i) This Stock has not been registered under the Securities
Act of 1933, as amended, or any state securities laws and
may not be offered or sold except in compliance therewith.
(ii) In addition, this Stock is subject to the terms of a
certain Amended and Restated Stockholders Agreement
effective March 13, 1995, as it may be amended from time to
time, which may be furnished to the Stockholder upon written
request without charge or obtained and inspected without
charge at the office of Dollar Tree Stores, Inc. or
Hofheimer, Nusbaum, McPhaul & Samuels, between the hours of
9:00 a.m. and 5:00 p.m. on weekdays. Among other things,
the Stockholders Agreement provides for restrictions on the
transfer of this Stock.
3. MISCELLANEOUS.
a. Except as herein modified, the Agreement is confirmed and
ratified and shall continue in full force and effect in accordance with its
terms.
b. This Amendment shall be governed by the internal substantive law
of the Commonwealth of Virginia without giving effect to the choice- or
conflict-of-law provisions thereof and may be executed in two or more
counterparts, each of which shall be deemed an original hereof, but all of which
together, shall constitute a single agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
hand and seal on the dates stated below, but effective as of the Effective Date.
DOLLAR TREE STORES, INC.
By: /s/ J. Douglas Perry
- --------------------------- ----------------------
Date Executed Name: J. Douglas Perry
Title:
Attest:
/s/ H. Ray Compton
- ---------------------------
H. Ray Compton
Secretary
4
<PAGE>
/s/ J. Douglas Perry
- ------------- ---------------------------------------
Date Executed J. Douglas Perry
/s/ Patricia W. Perry
- ------------- ---------------------------------------
Date Executed Patricia W. Perry
/s/ J. Douglas Perry
- ------------- ---------------------------------------
Date Executed J. Douglas Perry, Trustee of the Brandon
Douglas Perry Descendants' Trust
/s/ J. Douglas Perry
- ------------- ---------------------------------------
Date Executed J. Douglas Perry, Trustee of the Joseph
Christopher Perry Descendants' Trust
/s/ J. Douglas Perry
- ------------- ---------------------------------------
Date Executed J. Douglas Perry, Trustee of the Laura
Paige Perry Descendants' Trust
/s/ J. Douglas Perry
- ------------- ---------------------------------------
Date Executed J. Douglas Perry, Trustee of the Patricia
W. Perry Grantor Retained Annuity Trust
5
<PAGE>
/s/ Macon F. Brook, Jr.
- ------------- ---------------------------------------
Date Executed Macon F. Brock, Jr.
/s/ Joan P. Brock
- ------------- ---------------------------------------
Date Executed Joan P. Brock
/s/ Macon F. Brock, Jr.
- ------------- ---------------------------------------
Date Executed Macon F. Brock, Jr., Trustee of the
Kathryn P. Brock Descendants' Trust
/s/ Macon F. Brock, Jr.
- ------------- ---------------------------------------
Date Executed Macon F. Brock, Jr., Trustee of the
Christine Brock McCammon Descendants'
Trust
/s/ Macon F. Brock, Jr.
- ------------- ---------------------------------------
Date Executed Macon F. Brock, Jr., Trustee of the
Macon F. Brock, III, Descendants' Trust
/s/ Macon F. Brock, Jr.
- ------------- ---------------------------------------
Date Executed Macon F. Brock, Jr., Trustee of the
Joan P. Brock Grantor Retained Annuity
Trust
6
<PAGE>
/s/ H. Ray Compton
- ------------- ---------------------------------------
Date Executed H. Ray Compton
/s/ James P. Compton
- ------------- ---------------------------------------
Date Executed James P. Compton, Trustee of the Brymar
Descendants' Trust
/s/ Jean T. Compton
- ------------- ---------------------------------------
Date Executed Jean T. Compton, Trustee of the H. Ray
Compton Grantor Retained Annuity Trust
7
<PAGE>
THE SK EQUITY FUND, L.P.
By: SK PARTNERS, L.P.,
Sole General Partner
By: /s/ Thomas A. Saunders, III
- ------------- ------------------------------
Date Executed Duly Authorized General Partner
/s/ Allan W. Karp
- ------------- ---------------------------------------
Date Executed Allan W. Karp
/s/ Christopher K. Reilly
- ------------- ---------------------------------------
Date Executed Christopher K. Reilly
/s/ Melanie K. Berman
- ------------- ---------------------------------------
Date Executed Melanie K. Berman, Custodian for
Christopher Galbreath Megrue until
age twenty-one, under the New York
Uniform Gifts to Minors Act
/s/ Melanie K. Berman
- ------------- ---------------------------------------
Date Executed Melanie K. Berman, Custodian for
Kyle Galbreath Megrue until age
twenty-one, under the New York Uniform
Gifts to Minors Act
/s/ Thomas A. Saunders, III
- ------------- ---------------------------------------
Date Executed Thomas A. Saunders, III, Trustee for
the Ivor Family Trust
/s/ John F. Megrue
- ------------- ---------------------------------------
Date Executed John F. Megrue
/s/ Thomas A. Saunders, III
- ------------- ---------------------------------------
Date Executed Thomas A. Saunders, III
/s/ Joanne S. Berkley
- ------------- ---------------------------------------
Date Executed Joanne S. Berkley, Trustee for
the Ivor Family Trust and the
Saunders Dollar Tree Trust
8
<PAGE>
Exhibit 5.1
[LETTERHEAD OF HOFHEIMER, NUSBAUM, MCPHAUL & SAMUELS]
June 6, 1997
Dollar Tree Stores, Inc.
2555 Ellsmere Avenue
Norfolk, Va 23513
Re: Public Offering
Ladies and Gentlemen:
We have acted as counsel to you in connection with the filing of a
Registration Statement on Form S-3 on June 6, 1997 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"), with
respect to the registration of 4,025,000 shares of Common Stock of Dollar
Tree Stores, Inc., a Virginia corporation (the "Shares"). We have examined
such documents, records, and matters of law as we have deemed necessary for
purposes of this opinion and, based thereon, we are of the opinion that the
Shares when paid for as will be described in the definitive prospectus with
respect to the Registration Statement will be duly and validly authorized,
issued, fully paid, and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the heading
"Legal Matters" in the Prospectus. In giving such consent, we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Act or the Rules and Regulations of the Securities and
Exchange Commission promulgated under the Act.
Very truly yours,
/s/ HOFHEIMER, NUSBAUM, MCPHAUL & SAMUELS
a Professional Corporation
<PAGE>
Exhibit 10.1
SECOND AMENDMENT
TO
DOLLAR TREE STORES, INC.
STOCK INCENTIVE PLAN
THIS SECOND AMENDMENT ("Amendment") to the Dollar Tree Stores, Inc. Stock
Incentive Plan ("Plan") made as of the ____ day of March, 1997 by Dollar Tree
Stores, Inc. ("Company"). All capitalized terms in this Amendment not otherwise
defined shall have their respective meanings under the Plan.
WHEREAS, the Company wishes to amend the Plan to conform with recent
changes to the regulations issued pursuant to Section 16(b) of the Exchange Act;
and
WHEREAS, the Company wishes to amend the Plan to authorize the issuance of
options for an additional 1,500,000 shares and to make other amendments as
provided below.
NOW THEREFORE, the Board of Directors hereby adopts this Amendment upon the
following terms and conditions effective immediately upon approval of the
shareholders of the Company:
1. Sections 2.13 and 3.1 shall be amended by replacing "disinterested
person" or "disinterested persons" with "non-employee director" or
"non-employee directors."
2. The first sentence of Section 4.1 shall be amended and restated as
follows:
Subject to adjustment as provided in Section 4.3 below, the maximum
number of shares of Common Stock that shall be authorized and reserved
for issuance under the Plan shall be 2,400,000 shares of Common Stock
(900,000 of such shares having been authorized and reserved when the
Plan was originally adopted).
3. Section 12.3 shall be amended by replacing "Rule 16b-3(c)(i)" with
"Rule 16b-3(d)(3)."
4. The first sentence of Article 13 shall be amended by placing a period
after "NASD" and deleting the remainder of the sentence.
WITNESS the signature of the undersigned officer of Dollar Tree Stores,
Inc.
DOLLAR TREE STORES, INC.
By /s/ H. Ray Compton
--------------------------
H. Ray Compton
Executive Vice President
<PAGE>
Exhibit 10.2
THE AMERICAN INSTITUTE OF ARCHITECTS
[LOGO]
- --------------------------------------------------------------------------------
AIA Document A111
Standard Form of Agreement
Between Owner and Contractor
where the basis of payment is the
COST OF THE WORK PLUS A FEE
with or without a Guaranteed Maximum Price
1987 EDITION
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH
AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION.
The 1987 Edition of AIA Document A201, General Conditions of the Contract
for Construction, is adopted in this document by reference. Do not use
with other general conditions unless this document is modified.
This document has been approved and endorsed by The Associated General
Contractors of America.
- --------------------------------------------------------------------------------
AGREEMENT
made as of the Second day of January in the year of Nineteen Hundred and
Ninety-Seven
BETWEEN the Owner: Dollar Tree Stores, Inc.
(Name and address) 2555 Ellsmere Avenue
Norfolk, Virginia 23513
and the Contractor: Clancy & Theys Construction Company
(Name and address) 11830 Fishing Point Drive, Suite 201
Newport News, Virginia 236O6-2504
the Project is: Corporate Office and Distribution Buildings
(Name and address) Volvo Parkway
Chapman, Virginia
the Architect is: Rose Architects, P.C.
(Name and address) 4190 Innslake Drive
Glen Allen, Virginia 23060
The Owner and Contractor agree as set forth below.
- --------------------------------------------------------------------------------
Copyright 1920, 1925, 1951, 1958, 1961, 1963, 1967, 1974, 1978, (C)1987 by
The American Institute of Architects, l735 New York Avenue, N.W.,
Washington, D.C. 20006. Reproduction of the material herein or substantial
quotation of its provisions without written permission of the AIA violates
the copyright laws of the United States and will be subject to legal
prosecution.
- --------------------------------------------------------------------------------
AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
o (C)l987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006 A111-1987 1
WARNING: Unlicensed photocopying violates U.S. copyright
laws and is subject to legal prosecution.
<PAGE>
ARTICLE 1
THE CONTRACT DOCUMENTS
1.1 The Contract Documents consist of this Agreement, Conditions of the Contract
(General, Supplementary and other Conditions), Drawings, Specifications, addenda
issued prior to execution of this Agreement, other documents listed in this
Agreement and Modifications issued after execution of this Agreement; these form
the Contract, and are as fully a part of the Contract as if attached to this
Agreement or repeated herein. The Contract represents the entire and integrated
agreement between the parties hereto and supersedes prior negotiations,
representations or agreements, either written or oral. An enumeration of the
Contract Documents, other than Modifications, appears in Article 16. If anything
in the other Contract Documents is inconsistent with this Agreement, this
Agreement shall govern.
ARTICLE 2
THE WORK OF THIS CONTRACT
2.1 The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows:
ARTICLE 3
RELATIONSHIP OF THE PARTIES
3.1 The Contractor accepts the relationship of trust and confidence established
by this Agreement and covenants with the Owner to cooperate with the Architect
and utilize the Contractor's best skill, efforts and judgment in furthering the
interests of the Owner; to furnish efficient business administration and
supervision; to make best efforts to furnish at all times an adequate supply of
workers and materials; and to perform the Work in the best way and most
expeditious and economical manner consistent with the interests of the Owner.
The Owner agrees to exercise best efforts to enable the Contractor to perform
the Work in the best way and most expeditious manner by furnishing and approving
in a timely way information required by the Contractor and making payments to
the Contractor in accordance with requirements of the Contract Documents.
ARTICLE 4
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement is the date from which the Contract Time of
Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
Ten days after notice to proceed from Owner, and upon approval of site
plans to allow clearing and grading to begin.
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit the timely filing of mortgages,
mechanic's liens and other security interests.
- --------------------------------------------------------------------------------
AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
o (C)l987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006 A111-1987 2
WARNING: Unlicensed photocopying violates U.S. copyright
laws and is subject to legal prosecution.
<PAGE>
4.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion of
certain portions of the Work, if not stated elsewhere in the Contract
Documents.)
October 15, 1997 for Office Building. August 15, 1997 for 50% of shell of
Distribution Facility, inclusive of slabs, roofing, and associated items
enough to allow installation of Automated Rack Storage System. Completion
of Distribution Facility to be complete by January 1, 1998 or as necessary
to maintain progressive installation of Automated Storage and Distribution
Systems and allow for complete operation of entire facility by January 1,
1998. Completion shall be based on receiving notice to proceed by January
16, 1997.
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time.)
ARTICLE 5
CONTRACT SUM
5.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum consisting of the Cost of the Work
as defined in Article 7 and the Contractor's Fee determined as follows:
(State a lump sum, percentage of Cost of the Work or other provision for
determining the Contractor's Fee, and explain how the Contractor's Fee is to be
adjusted for changes in the Work.)
Three and three quarters percent (3 3/4%) of the cost of work. For changes in
the work that would lengthen the substantial completion or come after
substantial completion, the fee would be adjusted to ten percent (10%) of the
cost of work.
5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE) N/A*
5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed by
the Contractor not to exceed Dollars ($ ), subject
to additions and deductions by Change Order as provided in the Contract
Documents. Such maximum sum is referred to in the Contract Documents as the
Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price
to be exceeded shall be paid by the Contractor without reimbursement by the
Owner.
(Insert specific provisions if the Contractor is to participate in any savings.)
* Owner and contractor agree format of contract may be amended to
Guaranteed Maximum with split savings or Lump Sum upon completion of design
documents or at a mutually agreeable stage of project.
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AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
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5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if
any, which are described in the Contract Documents and are hereby accepted by
the Owner: N/A
(State the numbers or other identification of accepted alternates, but only if a
Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If decisions on
other alternates are to be made by the Owner subsequent to the execution of this
Agreement, attach a schedule of such other alternates showing the amount for
each and the date until which that amount is valid.)
5.2.3 The amounts agreed to for unit prices, if any, are as follows: N/A
(State unit prices only if a Guaranteed Maximum Price is inserted in
Subparagraph 5.2.1.)
ARTICLE 6
CHANGES IN THE WORK
6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE N/A
6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the
Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the
General Conditions.
6.1.2 In calculating adjustments to subcontracts (except those awarded with the
Owner's prior consent on the basis of cost plus a fee), the terms "cost" and
"fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs"
and "a reasonable allowance for overhead and profit" as used in Subparagraph
7.3.6 of the General Conditions shall have the meanings assigned to them in the
General Conditions and shall not be modified by Articles 5, 7 and 8 of this
Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on
the basis of cost plus a fee shall be calculated in accordance with the terms of
those subcontracts.
6.1.3 In calculating adjustments to this Contract, the terms "cost" and "costs"
as used in the above-referenced provisions of the General Conditions shall mean
the Cost of the Work as defined in Article 7 of this Agreement and the terms
"fee" and "a reasonable allowance for overhead and profit" shall mean the
Contractor's Fee as defined in Paragraph 5.1 of this Agreement.
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AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
o (C)l987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006 A111-1987 4
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6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
6.2.1 Increased costs for the items set forth in Article 7 which result from
changes in the Work shall become part of the Cost of the Work, and the
Contractor's Fee shall be adjusted as provided in Paragraph 5.1.
6.3 ALL CONTRACTS
6.3.1 If no specific provision is made in Paragraph 5.1 for adjustment of the
Contractor's Fee in the case of changes in the Work, or if the extent of such
changes is such, in the aggregate, that application of the adjustment provisions
of Paragraph 5.1 will cause substantial inequity to the Owner or Contractor, the
Contractor's Fee shall be equitably adjusted on the basis of the Fee established
for the original Work.
ARTICLE 7
COSTS TO BE REIMBURSED
7.1 The term Cost of the Work shall mean costs necessarily incurred by the
Contractor in the proper performance of the Work. Such costs shall be at rates
not higher than the standard paid at the place of the Project except with prior
Consent of the Owner. The Cost of the Work shall include only the items set
forth in this Article 7.
7.1.1 LABOR COSTS
7.1.1.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's agreement,
at off-site workshops.
7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's agreement.
See Article #14 for project management cost
(If it is intended that the wages or salaries of certain personnel stationed at
the Contractor's principal or other offices shall be included in the Cost of the
Work, identify in Article 14 the personnel to be included and whether for all or
only part of their time.)
7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative
personnel engaged, at factories, workshops or on the road, in expediting the
production or transportation of materials or equipment required for the Work,
but only for that portion of their time required for the Work.
7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law or collective bargaining
agreements and, for personnel not covered by such agreements, customary benefits
such as sick leave, medical and health benefits, holidays, vacations and
pensions, provided such costs are based on wages and salaries included in the
Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3.
7.1.2 SUBCONTRACT COSTS
Payments made by the Contractor to Subcontractors in accordance with the
requirements of the subcontracts.
7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED
CONSTRUCTION
7.1.3.1 Costs, including transportation, of materials and equipment incorporated
or to be incorporated in the completed construction.
7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess
of those actually installed but required to provide reasonable allowance for
waste and for spoilage. Unused excess materials, if any, shall be handed over to
the Owner at the completion of the Work or, at the Owner's option, shall be sold
by the Contractor; amounts realized, if any, from such sales shall be credited
to the Owner as a deduction from the Cost of the Work.
7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED
ITEMS
7.1.4.1 Costs, including transportation, installation, maintenance, dismantling
and removal of materials, supplies, temporary facilities, machinery, equipment,
and hand tools not customarily owned by the construction workers, which are
provided by the Contractor at the site and fully consumed in the performance of
the Work; and cost less salvage value on such items if not fully consumed,
whether sold to others or retained by the Contractor. Cost for items previously
used by the Contractor shall mean fair market value.
7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand
tools not customarily owned by the construction workers, which are provided by
the Contractor at the site, whether rented from the Contractor or others, and
costs of transportation, installation, minor repairs and replacements,
dismantling and removal thereof. Rates and quantities of equipment rented shall
be subject to the Owner's prior approval.
7.1.4.3 Costs of removal of debris from the site.
7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and parcel
delivery charges, telephone service at the site and reasonable petty cash
expenses of the site office.
7.1.4.5 That portion of the reasonable travel and subsistence expenses of the
Contractor's personnel incurred while traveling in discharge of duties connected
with the Work.
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7.1.5 MISCELLANEOUS COSTS
7.1.5.1 That portion directly attributable to this Contract of premiums for
insurance and bonds.
7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which
are related to the Work and for which the Contractor is liable.
7.1.5.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the Contract
Documents to pay.
7.1.5.4 Fees of testing laboratories for tests required by the Contract
Documents, except those related to defective or nonconforming Work for which
reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or
other provisions of the Contract Documents and which do not fall within the
scope of Subparagraphs 7.2.2 through 7.2.4 below.
7.1.5.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of defending
suits or claims for infringement of patent rights arising from such requirement
by the Contract Documents; payments made in accordance with legal judgments
against the Contractor resulting from such suits or claims and payments of
settlements made with the Owner's consent; provided, however, that such costs of
legal defenses, judgment and settlements shall not be included in the
calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any,
and provided that such royalties, fees and costs are not excluded by the last
sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of
the Contract Documents.
7.1.5.6 Deposits lost for causes other than the Contractor's fault or
negligence.
7.1.6 OTHER COSTS
7.1.6.1 Other costs incurred in the performance of the Work if and to the extent
approved in advance in writing by the Owner.
7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK
The Cost of the Work shall also include costs described in Paragraph 7.1 which
are incurred by the Contractor:
7.2.1 In taking action to prevent threatened damage, injury or loss in case of
an emergency affecting the safety of persons and property, as provided in
Paragraph 10.3 of the General Conditions.
7.2.2 In repairing or correcting Work damaged or improperly executed by
construction workers in the employ of the Contractor, provided such damage or
improper execution did not result from the fault or negligence of the Contractor
or the Contractor's foremen, engineers or superintendents, or other supervisory,
administrative or managerial personnel of the Contractor.
7.2.3 In repairing damaged Work other than that described in Subparagraph 7.2.2,
provided such damage did not result from the fault or negligence of the
Contractor or the Contractor's personnel, and only to the extent that the cost
of such repairs is not recoverable by the Contractor from others and the
Contractor is not compensated therefor by insurance or otherwise.
7.2.4 In correcting defective or nonconforming Work performed or supplied by a
Subcontractor or material supplier and not corrected by them, provided such
defective or nonconforming Work did not result from the fault or neglect of the
Contractor or the Contractor's personnel adequately to supervise and direct the
Work of the Subcontractor or material supplier, and only to the extent that the
cost of correcting the defective or nonconforming Work is not recoverable by the
Contractor from the Subcontractor or material supplier.
ARTICLE 8
COSTS NOT TO BE REIMBURSED
8.1 The Cost of the Work shall not include:
8.1.2 Expenses of the Contractor's principal office and offices other than the
site office.
8.1.3 Overhead and general expenses, except as may be expressly included in
Article 7.
8.1.4 The Contractor's capital expenses, including interest on the Contractor's
capital employed for the Work.
8.1.5 Rental costs of machinery and equipment, except as specifically provided
in Clause 7.1.4.2.
8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph 13.5
of this Agreement, costs due to the fault or negligence of the Contractor,
Subcontractors, anyone directly or indirectly employed by any of them, or for
whose acts any of them may be liable, including but not limited to costs for the
correction of damaged, defective or nonconforming Work, disposal and replacement
of materials and equipment incorrectly ordered or supplied, and making good
damage to property not forming part of the Work.
8.1.7 Any cost not specifically and expressly described in Article 7.
8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be
exceeded.
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ARTICLE 9
DISCOUNTS, REBATES AND REFUNDS
9.1 Cash discounts obtained on payments made by the Contractor shall accrue to
the Owner if (1) before making the payment, the Contractor included them in an
Application for Payment and received payment therefor from the Owner, or (2) the
Owner has deposited funds with the Contractor with which to make payments;
otherwise, cash discounts shall accrue to the Contractor. Trade discounts,
rebates, refunds and amounts received from sales of surplus materials and
equipment shall accrue to the Owner, and the Contractor shall make provisions so
that they can be secured.
9.2 Amounts which accrue to the Owner in accordance with the provisions of
Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the
Work.
ARTICLE 10
SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Those portions of the Work that the Contractor does not customarily perform
with the Contractor's own personnel shall be performed under subcontracts or by
other appropriate agreements with the Contractor. The Contractor shall obtain
bids from Subcontractors and from suppliers of materials or equipment fabricated
especially for the Work and shall deliver such bids to the Architect. The Owner
will then determine, with the advice of the Contractor and subject to the
reasonable objection of the Architect, which bids will be accepted. The Owner
may designate specific persons or entities from whom the Contractor shall obtain
bids; however, if a Guaranteed Maximum Price has been established, the Owner may
not prohibit the Contractor from obtaining bids from others. The Contractor
shall not be required to Contract with anyone to whom the Contractor has
reasonable objection.
10.2 If a Guaranteed Maximum Price has been established and a specific bidder
among those whose bids are delivered by the Contractor to the Architect (1) is
recommended to the Owner by the Contractor; (2) is qualified to perform that
portion of the Work; and (3) has submitted a bid which conforms to the
requirements of the Contract Documents without reservations or exceptions, but
the Owner requires that another bid be accepted; then the Contractor may require
that a Change Order be issued to adjust the Guaranteed Maximum Price by the
difference between the bid of the person or entity recommended to the Owner by
the Contractor and the amount of the subcontract or other agreement actually
signed with the person or entity designated by the Owner.
10.3 Subcontracts or other agreements shall conform to the payment provisions of
Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus a
fee without the prior consent of the Owner.
ARTICLE 11
ACCOUNTING RECORDS
11.1 The Contractor shall keep full and detailed accounts and exercise such
controls as may be necessary for proper financial management under this
Contract; the accounting and control systems shall be satisfactory to the Owner.
The Owner and the Owner's accountants shall be afforded access to the
Contractor's records, books, correspondence, instructions, drawings, receipts,
subcontracts, purchase orders, vouchers, memoranda and other data relating to
this Contract, and the Contractor shall preserve these for a period of three
years after final payment, or for such longer period as may be required by law.
ARTICLE 12
PROGRESS PAYMENTS
12.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
12.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
12.3 Provided an Application for Payment is received by the Owner not later than
the First (1st) day of a month, the Owner shall make payment to the Contractor
not later than the Fifteenth (15th) day of the same month. If an Application for
Payment is received by the Owner after the application date fixed above, payment
shall be made by the Owner not later than fifteen (15) days after the Owner
receives the Application for Payment.
12.4 With each Application for Payment the Contractor shall submit any evidence
required by the Owner or Architect to demonstrate that cash disbursements
already made by the Contractor on account of the Cost of the Work equal or
exceed (1) progress payments already received by the Contractor; less (2) that
portion of those payments attributable to the Contractor's Fee; plus (3)
payrolls for the period covered by the present Application for Payment; plus (4)
retainage provided in Subparagraph 12.5.4, if any, applicable to prior progress
payments.
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12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE N/A
12.5.1 Each Application for Payment shall be based upon the most recent schedule
of values submitted by the Contractor in accordance with the Contract Documents.
The schedule of values shall allocate the entire Guaranteed Maximum Price among
the various portions of the Work, except that the Contractor's Fee shall be
shown as a single separate item. The schedule of values shall be prepared in
such form and supported by such data to substantiate its accuracy as the
Architect may require. This schedule, unless objected to by the Architect, shall
be used as a basis for reviewing the Contractor's Applications for Payment.
12.5.2 Applications for Payment shall show the percentage completion of each
portion of the Work as of the end of the period covered by the Application for
Payment. The percentage completion shall be the lesser of (1) the percentage of
that portion of the Work which has actually been completed or (2) the percentage
obtained by dividing (a) the expense which has actually been incurred by the
Contractor on account of that portion of the Work for which the Contractor has
made or intends to make actual payment prior to the next Application for Payment
by (b) the share of the Guaranteed Maximum Price allocated to that portion of
the Work in the schedule of values.
12.5.3 Subject to other provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable to
completed Work as determined by multiplying the percentage completion of each
portion of the Work by the share of the Guaranteed Maximum Price allocated to
that portion of the Work in the schedule of values. Pending final determination
of cost to the Owner of changes in the Work, amounts not in dispute may be
included as provided in Subparagraph 7.3.7 of the General Conditions, even
though the Guaranteed Maximum Price has not yet been adjusted by Change Order.
12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to
materials and equipment delivered and suitably stored at the site for subsequent
incorporation in the Work or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing.
12.5.3.3 Add the Contractor's Fee, less retainage of percent
( %). The Contractor's Fee shall be computed upon the Cost of the Work
described in the two preceding Clauses at the rate stated in Paragraph 5.1. or,
if the Contractor's Fee is stated as a fixed sum in that Paragraph, shall be an
amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work
in the two preceding Clauses bears to a reasonable estimate of the probable Cost
of the Work upon its completion.
12.5.3.4 Subtract the aggregate of previous payments made by the Owner.
12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 to substantiate prior Applications for
Payment, or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
12.5.4 Additional retainage, if any, shall be as follows:
(If it is intended to retain additional amounts from progress payments to the
Contractor beyond (1) the retainage from the Contractor's Fee provided in Clause
12.5.3.3, (2) the retainage from Subcontractors provided in Paragraph 12.7
below, and (3) the retainage, if any, provided by other provisions of the
Contract, insert provision for such additional retainage here. Such provision,
if made, should also describe any arrangement for limiting or reducing the
amount retained after the Work reaches a certain state of completion.)
12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
12.6.1 Applications for Payment shall show the Cost of the Work actually
incurred by the Contractor through the end of the period covered by the
Application for Payment and for which the Contractor has made or intends to make
actual payment prior to the next Application for Payment.
12.6.2 Subject to other provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
12.6.2.1 Take the Cost of the Work as described in Subparagraph 12.6.1.
12.6.2.2 Add the Contractor's Fee, less retainage of five percent (5%). The
Contractor's Fee shall be computed upon the Cost of the Work described in the
preceding Clause 12.6.2.1 at the rate stated in Paragraph 5.1 or, if the
Contractor's Fee is stated as a fixed sum in that Paragraph, an amount which
bears the same ratio to that fixed-sum Fee as the Cost of the Work in the
preceding Clause bears to a reasonable estimate of the probable Cost of the Work
upon its completion.
12.6.2.3 Subtract the aggregate of previous payments made by the Owner.
12.6.2.4 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 or to substantiate prior Applications
for Payment or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
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12.6.2.5 Subtract amounts, if any, for which the Architect has withheld or
withdrawn a Certificate for Payment as provided in the Contract Documents.
12.6.3 Additional retainage, if any, shall be as follows:
None
12.7 Except with the Owner's prior approval, payments to Subcontractors included
in the Contractor's Applications for Payment shall not exceed an amount for each
Subcontractor calculated as follows:
12.7.1 Take that portion of the Subcontract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each portion of
the Subcontractor's Work by the share of the total Subcontract Sum allocated to
that portion in the Subcontractor's schedule of values, less retainage of Five
percent (5%). Pending final determination of amounts to be paid to the
Subcontractor for changes in the Work, amounts not in dispute may be included as
provided in Subparagraph 7.3.7 of the General Conditions even though the
Subcontract Sum has not yet been adjusted by Change Order.
12.7.2 Add that portion of the Subcontract Sum properly allocable to materials
and equipment delivered and suitably stored at the site for subsequent
incorporation in the Work or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing, less retainage of Five
percent (5%).
12.7.3 Subtract the aggregate of previous payments made by the Contractor to the
Subcontractor.
12.7.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment by the Owner to the Contractor for reasons
which are the fault of the Subcontractor.
12.7.5 Add, upon Substantial Completion of the entire Work of the Contractor, a
sum sufficient to increase the total payments to the Subcontractor to One
hundred percent (100%) of the Subcontract Sum, less amounts, if any, for
incomplete Work and unsettled claims; and, if final completion of the entire
Work is thereafter materially delayed through no fault of the Subcontractor, add
any additional amounts payable on account of Work of the Subcontractor in
accordance with Subparagraph 9.10.3 of the General Conditions.
(If it is intended, prior to Substantial Completion of the entire Work of the
Contractor, to reduce or limit the retainage from Subcontractors resulting from
the percentages inserted in Subparagraphs 12.7.1 and 12.7.2 above, and this is
not explained elsewhere in the Contract Documents, insert here provisions for
such reduction or limitation.)
The Subcontract Sum is the total amount stipulated in the subcontract to be paid
by the Contractor to the Subcontractor for the Subcontractor's performance of
the subcontract.
12.8 Except with the Owner's prior approval, the Contractor shall not make
advance payments to suppliers for materials or equipment which have not been
delivered and stored at the site.
12.9 In taking action on the Contractor's Applications for Payment, the
Architect shall be entitled to rely on the accuracy and completeness of the
information furnished by the Contractor and shall not be deemed to represent
that the Architect has made a detailed examination, audit or arithmetic
verification of the documentation submitted in accordance with Paragraph 12.4 or
other supporting data; that the Architect has made exhaustive or continuous
on-site inspections or that the Architect has made examinations to ascertain how
or for what purposes the Contractor has used amounts previously paid on account
of the Contract. Such examinations, audits and verifications, if required by the
Owner, will be performed by the Owner's accountants acting in the sole interest
of the Owner.
ARTICLE 13
FINAL PAYMENT
13.1 Final payment shall be made by the Owner to the Contractor when (1) the
Contract has been fully performed by the Contractor except for the Contractor's
responsibility to correct defective or nonconforming Work, as provided in
Subparagraph 12.2.2 of the General Conditions, and to satisfy other
requirements, if any, which necessarily survive final payment; (2) a final
Application for Pay-
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ment and a final accounting for the Cost of the Work have been submitted by the
Contractor and reviewed by the Owner's accountants; and (3) a final Certificate
for Payment has then been issued by the Architect; such final payment shall be
made by the Owner not more than 30 days after the issuance of the Architect's
final Certificate for Payment, or as follows:
13.2 The amount of the final payment shall be calculated as follows:
13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's
final accounting and the Contractor's Fee; but not more than the Guaranteed
Maximum Price, if any.
13.2.2 Subtract amounts, if any, for which the Architect withholds, in whole or
in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of
the General Conditions or other provisions of the Contract Documents.
13.2.3 Subtract the aggregate of previous payments made by the Owner.
If the aggregate of previous payments made by the Owner exceeds the amount due
the Contractor, the Contractor shall reimburse the difference to the Owner.
13.3 The Owner's accountants will review and report in writing on the
Contractor's final accounting within 30 days after delivery of the final
accounting to the Architect by the Contractor. Based upon such Cost of the Work
as the Owner's accountants report to be substantiated by the Contractor's final
accounting, and provided the other conditions of Paragraph 13.1 have been met,
the Architect will, within seven days after receipt of the written report of the
Owner's accountants, either issue to the Owner a final Certificate for Payment
with a copy to the Contractor, or notify the Contractor and Owner in writing of
the Architect's reasons for withholding a certificate as provided in
Subparagraph 9.5.1 of the General Conditions. The time periods stated in this
Paragraph 13.3 supersede those stated in Subparagraph 9.4.1 of the General
Conditions.
13.4 If the Owner's accountants report the Cost of the Work as substantiated by
the Contractor's final accounting to be less than claimed by the Contractor, the
Contractor shall be entitled to demand arbitration of the disputed amount
without a further decision of the Architect. Such demand for arbitration shall
be made by the Contractor within 30 days after the Contractor's receipt of a
copy of the Architect's final Certificate for Payment; failure to demand
arbitration within this 30-day period shall result in the substantiated amount
reported by the Owner's accountants becoming binding on the Contractor. Pending
a final resolution by arbitration, the Owner shall pay the Contractor the amount
certified in the Architect's final Certificate for Payment.
13.5 If, subsequent to final payment and at the Owner's request, the Contractor
incurs costs described in Article 7 and not excluded by Article 8 to correct
defective or nonconforming Work, the Owner shall reimburse the Contractor such
costs and the Contractor's Fee applicable thereto on the same basis as if such
costs had been incurred prior to final payment, but not in excess of the
Guaranteed Maximum Price, if any. If the Contractor has participated in savings
as provided in Paragraph 5.2, the amount of such savings shall be recalculated
and appropriate credit given to the Owner in determining the net amount to be
paid by the Owner to the Contractor.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
14.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any.)
9%
(Usury laws and requirements under the Federal Trust in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
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AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
o (C)l987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006 A111-1987 10
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laws and is subject to legal prosecution.
<PAGE>
14.3 Other provision:
Cost for Project Manager (and assistant, where applicable) inclusive of
time, travel, postage and secretarial support shall be a project cost while
stationed at the project, enroute, or at Newport News Division office.
ARTICLE 15
TERMINATION OR SUSPENSION
15.1 The Contract may be terminated by the Contractor as provided in Article 14
of the General Conditions; however, the amount to be paid to the Contractor
under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount
the Contractor would be entitled to receive under Paragraph 15.3 below, except
that the Contractor's Fee shall be calculated as if the Work had been fully
completed by the Contractor, including a reasonable estimate of the Cost of the
Work for Work not actually completed.
15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract may
be terminated by the Owner for cause as provided in Article 14 of the General
Conditions; however, the amount, if any, to be paid to the Contractor under
Subparagraph 14.2.4 of the General Conditions shall not cause the Guaranteed
Maximum Price to be exceeded, nor shall it exceed the amount the Contractor
would be entitled to receive under Paragraph 15.3 below.
15.3 If no Guaranteed Maximum Price is established in Article 5, the Contract
may be terminated by the Owner for cause as provided in Article 14 of the
General Conditions; however, the Owner shall then pay the Contractor an amount
calculated as follows:
15.3.1 Take the Cost of the Work incurred by the Contractor to the date of
termination.
15.3.2 Add the Contractor's Fee computed upon the Cost of the Work to the date
of termination at the rate stated in Paragraph 5.1 or, if the Contractor's Fee
is stated as a fixed sum in that Paragraph, an amount which bears the same ratio
to that fixed-sum Fee as the Cost of the Work at the time of termination bears
to a reasonable estimate of the probable Cost of the Work upon its completion.
15.3.3 Subtract the aggregate of previous payments made by the Owner.
The Owner shall also pay the Contractor fair compensation, either by purchase or
rental at the election of the Owner, for any equipment owned by the Contractor
which the Owner elects to retain and which is not otherwise included in the Cost
of the Work under Subparagraph 15.3.1. To the extent that the Owner elects to
take legal assignment of subcontracts and purchase orders (including rental
agreements), the Contractor shall, as a condition of receiving the payments
referred to in this Article 15, execute and deliver all such papers and take all
such steps, including the legal assignment of such subcontracts and other
contractual rights of the Contractor, as the Owner may require for the purpose
of fully vesting in the Owner the rights and benefits of the Contractor under
such subcontracts or purchase orders.
15.4 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be
increased as provided in Subparagraph 14.3.2 of the General Conditions except
that the term "cost of performance of the Contract" in that Subparagraph shall
be understood to mean the Cost of the Work and the term "profit" shall be
understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3
of this Agreement.
ARTICLE 16
ENUMERATION OF CONTRACT DOCUMENTS
16.1 The Contract Documents, except for Modifications issued after execution of
this Agreement, are enumerated as follows:
16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A111, 1987 Edition.
16.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
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AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
o (C)l987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006 A111-1987 11
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laws and is subject to legal prosecution.
<PAGE>
16.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated , and are as follows:
Document Title Pages
N/A
16.1.4 The Specifications are those contained in the Project Manual dated as in
Paragraph 16.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
Section Title Pages
N/A
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AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
o (C)l987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006 A111-1987 12
WARNING: Unlicensed photocopying violates U.S. copyright
laws and is subject to legal prosecution.
<PAGE>
16.1.5 The Drawings are as follows, and are dated unless a
different date is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
Number Title Date
N/A
16.1.6 The addenda, if any, are as follows:
Number Date Pages
N/A
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 16.
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AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
o (C)l987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006 A111-1987 13
WARNING: Unlicensed photocopying violates U.S. copyright
laws and is subject to legal prosecution.
<PAGE>
16.1.7 Other Documents, if any, forming part of the Contract Documents are as
follows: N/A
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to be
part of the Contract Documents.)
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER Dollar Tree Stores, Inc. CONTRACTOR Clancy & Theys Construction Co.
/s/ H. Ray Compton /s/ Thomas W. Glasgow
- ------------------------------- -------------------------------------------
(Signature) (Signature)
H. Ray Compton, Exec. V.P. Thomas W. Glasgow, VP & CEO, VA Division
- ------------------------------- -------------------------------------------
(Printed name and title) (Printed name and title)
[AIA] CAUTION: You should sign an original AIA document which has this caution
printed in red. An original assures that changes will not be obscured as may
occur when documents are reproduced.
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AIA DOCUMENT A111 o OWNER-CONTRACTOR AGREEMENT o TENTH EDITION o AIA(R)
o (C)l987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C. 20006 A111-1987 14
WARNING: Unlicensed photocopying violates U.S. copyright
laws and is subject to legal prosecution.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Dollar Tree Stores, Inc.:
We consent to the use of our report incorporated herein by reference and to the
references to our firm under the headings "Selected Financial Data" and
"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Norfolk, Virginia
June 6, 1997
