-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jYRA+OQ3EZGMPOYwk3cFXhlicFVOChkm/VYm/Zmx5NB6UbK1ruLaedQDTQHoPAGA opOpdiOihmC94on3igYM/g== 0000842913-95-000007.txt : 19950503 0000842913-95-000007.hdr.sgml : 19950503 ACCESSION NUMBER: 0000842913-95-000007 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19950502 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KASH N KARRY FOOD STORES INC CENTRAL INDEX KEY: 0000842913 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 954161591 STATE OF INCORPORATION: DE FISCAL YEAR END: 0730 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 033-58999 FILM NUMBER: 95533660 BUSINESS ADDRESS: STREET 1: 6422 HARNEY RD CITY: TAMPA STATE: FL ZIP: 33610 BUSINESS PHONE: 8136210276 S-1 1 REGISTRATION STATEMENT FILED 5/1/95 As filed with the Securities and Exchange Commission on May 1, 1995 Registration No. 33-_________ ================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 KASH N' KARRY FOOD STORES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 5411 95-4161591 (State or other (Primary Standard Industrial (I.R.S. Employer jurisdiction of Classification Code Number) Identification incorporation) Number) 6422 Harney Road Tampa, Florida 33610 (813) 621-0200 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive office) RAYMOND P. SPRINGER Senior Vice President, Chief Financial Officer, Treasurer and Secretary Kash n' Karry Food Stores, Inc. 6422 Harney Road Tampa, Florida 33610 (813) 621-0200 (Name, address, including zip code, and telephone number, including area code, of agent for service) with copies to: LAWRENCE LEDERMAN, ESQ. ROBERT S. BOLT, ESQ. Milbank, Tweed, Hadley & McCloy Barnett, Bolt, Kirkwood & Long 1 Chase Manhattan Plaza 601 Bayshore Boulevard, Suite 700 New York, New York 10005 Tampa, Florida 33606 (212) 530-5680 (813) 253-2020 Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement, as determined by the Selling Stockholders. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x (continues on following page) Page one of 384 pages. Exhibit Index appears on page 117. (continuation of cover page) CALCULATION OF REGISTRATION FEE Proposed Proposed Maximum Maximum Amount Title of Each Offering Aggregate of Class of Securities Amount to be Price Offering Regis- to be Registered Registered Per Share(1) Price(1) tration fee Common Stock, 3,100,000 $19.25 $59,675,000 $20,577.59 par value $.01 per share (1) Estimated solely for purposes of calculating the registration fee, pursuant to Rule 457. 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. CROSS REFERENCE SHEET (Pursuant to Item 501(b) of Regulation S-K) The following information sets forth the location in the Prospectus of information required by Items 1-12, Part I, of Form S-1 Registration Statement, Items Location in Prospectus and Heading 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.............Cover Page of Registration Statement; Outside Front Cover Page of Prospectus; Cross Reference Sheet 2. Inside Front and Outside Back Cover Pages of Prospectus...........Inside Front Cover Page of Prospectus; Outside Back Cover Page of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges....................Prospectus Summary; Investment Considerations; Selected Financial Information 4. Use of Proceeds.....................Not Applicable 5. Determination of Offering Price.....Not Applicable 6. Dilution............................Not Applicable 7. Selling Security Holders............Selling Stockholders 8. Plan of Distribution................Plan of Distribution 9. Description of Securities to be Registered..........................Outside Front Cover Page of Prospectus; Prospectus Summary; Description of Capital Stock 10. Interests of Named Experts and Counsel........................Not Applicable 11. Information With Respect to the Registrant.........................Inside Front Cover of Prospectus; Prospectus Summary; The Company; The Restructuring; Capitalization; Selected Financial Information; MarketPrice and Dividend Policy; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Relationships and Related Transactions; Principal Stockholders; Description of Capital Stock 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities ........Not Applicable INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 1, 1995 [LOGO] KASH N' KARRY FOOD STORES, INC. COMMON STOCK Up to 3,100,000 shares of Common Stock, par value $.01 per share (the "Common Stock"), of Kash n' Karry Food Stores, Inc. (the "Company"), may be offered from time to time by certain holders of the Common Stock (collectively, the "Selling Stockholders"). See "Selling Stockholders." The Common Stock offered hereby is listed on the Nasdaq Stock Market's Small Cap Market under the symbol "KASH." See "Market Price and Dividend Policy." The Company will not receive any of the proceeds from any sale of Common Stock offered from time to time by the Selling Stockholders. Any or all of such Common Stock may be sold by the Selling Stockholders from time to time (i) to or through underwriters or dealers, (ii) directly to one or more other purchasers, (iii) through agents on a best-efforts basis, or (iv) through a combination of any such methods of sale. If required, the names of any underwriters or agents and the applicable commissions or discounts, along with pricing information, will also be set forth in an accompanying Prospectus Supplement. See "Plan of Distribution." See "Investment Considerations" for a discussion of certain factors that should be considered by prospective investors in connection with an investment in the Common Stock. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is _______________, 1995 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street N.W., Washington, D.C. 20549, and at certain of the following regional offices: 7 World Trade Center, Suite 1300, New York, New York 10048, and Northwest Atrium Center, 550 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock is listed on the Nasdaq Small Cap Market; accordingly, such reports and other information concerning the Company may also be inspected at the offices of the Nasdaq Stock Market, 1735 K Street N.W., Washington, D.C. 20006. The Company has filed with the Commission a Registration Statement under the Securities Act of 1933 (the "Securities Act") with respect to the Common Stock offered hereby. This Prospectus, which forms a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits thereto, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the offering of Common Stock, reference is made hereby to such Registration Statement and exhibits. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the financial statements, including the notes thereto, appearing elsewhere in this Prospectus. References in this Prospectus to the "Company" mean Kash n' Karry Food Stores, Inc., references to "Common Stock" mean the 3,100,000 shares of common stock of the Company, par value $.01 per share, issued on December 29, 1994 in connection with the Restructuring (as herein defined). All financial information set forth herein is presented in accordance with generally accepted accounting principles ("GAAP"), unless otherwise noted. The Company The Company is the third largest food retailer in west central Florida, operating 92 multi-department supermarkets, five conventional supermarkets and 33 liquor stores under the "Kash n' Karry" name and two super warehouse stores under the "Save 'n Pack" name, all supported by a centrally-located warehouse and distribution facility. More than one-half of the Company's stores are located in the Tampa-St. Petersburg area, which is Florida's largest retail food sales market, with the balance located between Gainesville, approximately 130 miles to the north, and Bonita Springs, approximately 150 miles to the south. The west central Florida area has a diverse and growing economy, which includes high technology and financial centers, an insurance industry presence, retirement communities, coastal resorts and commercial agricultural activity. The region's population is estimated to be increasing at an annual rate of approximately 2%. The Company currently operates two distinct store concepts: . a large, full-service multi-department supermarket under the Kash n' Karry name, which is designed to operate profitably at lower sales levels than certain competitors; and . a super warehouse store under the Save 'n Pack name designed to serve trade areas with low household income. The Company has developed, and continues to implement, the following marketing and operating strategies to promote growth in revenues and operating cash flow: Marketing Strategy. The Company emphasizes competitive prices on everyday items, strong weekly features, high quality perishables and a broad assortment of both national and corporate brands. The Company's food stores are open seven days a week, with most operating 24 hours a day. The Company seeks to be either first or second among its competitors in 3 assortment of branded merchandise, stocking over 29,000 SKU's (stock keeping units) of national brand and corporate brand items. In addition to a full range of grocery and general merchandise items, most of the Company's multi-department supermarkets also feature expanded perishable goods departments, delicatessens and in-store bakeries, and many contain pharmacies and full-service seafood, full-service floral and video rental departments. In 1992, the Company introduced its own corporate brand merchandise. The Company's corporate brand strategy is to offer a product comparable in quality to the best-selling national brand at a lower price. The Kash n' Karry brand item generally sells for approximately 10% less than the competing best-selling national brand but generates a higher per unit gross profit contribution to the Company. Over 1,100 SKU's in a wide variety of product categories carry the Kash n' Karry brand name. Operations Strategy. The Company believes that up-to-date, strategically located facilities, well-trained associates and information management systems are key elements to the Company's future success. The Company operates a modern, 687,000 square foot warehouse, distribution and office facility in Tampa with sufficient capacity to service anticipated store expansion for the foreseeable future. The warehouse enables the Company to reduce costs by purchasing in large quantities, taking advantage of special promotional prices offered by vendors and purchasing prior to impending price increases, and reducing delivery costs through cross docking and backhauls. The central location of the warehouse facility to its stores also provides the Company with operating efficiencies. The Company relies on information technology to enhance operating efficiency. The Company recently entered into an agreement to outsource its information systems development in order to minimize costs, accelerate the implementation period for systems improvements, facilitate future software upgrades, reduce personnel issues and eliminate equipment lease costs. Specifically, the agreement provides for the acquisition of new procurement, billing, labor scheduling and accounts payable systems and new point-of-sale equipment in the stores within the next 18 months. The Company also devotes significant resources to personnel training, utilizes labor scheduling programs to allocate manpower based on anticipated sales levels, and employs a variety of strategies to minimize inventory losses. None of the Company's associates is covered by a collective bargaining agreement. The principal executive offices of the Company are located at 6422 Harney Road, Tampa, Florida 33610, and its telephone number is (813) 621-0200. 4 The Restructuring The Company was formed in connection with a leveraged acquisition in 1988. Although the Company consistently generated stable operating cash flows through its 1993 fiscal year, it experienced net losses for each of the last five fiscal years and the 22-week period ended January 1, 1995 due primarily to its highly leveraged position. On November 9, 1994, the Company filed with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") a "prepackaged" plan of reorganization (the "Prepackaged Plan") pursuant to Chapter 11 of the U.S. Bankruptcy Code. The Prepackaged Plan was confirmed by the Bankruptcy Court on December 12, 1994. Under the terms of the Prepackaged Plan, the Company effected a comprehensive financial restructuring (the "Restructuring"). Among other things, the Company restructured its senior debt, converted its subordinated debt into an 85% equity interest in the Company, and received $10.0 million in cash from Green Equity Investors, L.P. ("GEI") for the remaining 15% equity interest of the Company. The Company emerged from bankruptcy on December 29, 1994. For further information with respect to the Prepackaged Plan and the Restructuring, see "The Restructuring," "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Investment Considerations The shares offered hereby involve a high degree of risk and should not be purchased by anyone who cannot afford the loss of their entire investment. See "Investment Considerations." 5 Summary Financial Data The following table presents summary financial information of the Company as of and for each of the fiscal years ended on the Sunday nearest to July 31, 1994, 1993 and 1992, and as of and for the periods ended January 29, 1995, January 1, 1995 and January 30, 1994, and should be read in conjunction with the financial statements and related notes thereto appearing elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The financial statements as of and for the periods ended January 29, 1995, January 1, 1995 and January 30, 1994, from which the summary financial data has been derived, have not been audited by independent accountants in accordance with generally accepted auditing standards, but, in the opinion of management, the financial statements as of and for the period ended January 30, 1994 include all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the Company's financial position and results of operations. As discussed herein, the Company's Prepackaged Plan was consummated on December 29, 1994 (the "Effective Date"). The financial statements as of and for the periods ended January 29, 1995 and January 1, 1995 reflect the Company's emergence from Chapter 11 and were prepared utilizing the principles of fresh-start reporting contained in the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." Operations during the period from the Effective Date through January 1, 1995 had no significant impact on the emergence transactions and as a result have not been separately identified. As a result of the implementation of fresh-start accounting, certain of the summary financial data as of and for the periods ended January 29, 1995 and January 1, 1995 is not comparable to the summary financial data of prior periods due to the change in reporting entity resulting from the application of fresh-start accounting. Therefore, summary financial data for the "Reorganized Company" has been separately identified from that of the "Predecessor Company." Results for the periods ended January 29, 1995 or January 1, 1995 are not necessarily indicative of the results for the full year. The summary store data have been derived from the Company's management reporting records. 6 Reorganized Predecessor Company Company Period Ended January 29, January 1, January 30, 1995 1995 1994 (4 weeks) (22 weeks) (26 weeks) (In Thousands, Except Per Share Amounts) Statement of Operations Data Sales . . . . . . . . . . . $86,354 $426,681 $534,801 Cost of sales . . . . . . . 68,940 340,802 425,915 ------- ------- ------- Gross profit. . . . . . . . 17,414 85,879 108,886 Selling, general and administrative expenses 12,226 68,819 90,128 Depreciation and amortization 1,979 10,234 12,111 Store closing and other costs -- -- 11,016 ------ ------ -------- Operating income (loss) . . 3,209 6,826 (4,369) Net interest expense (1). . 2,402 13,719 22,513 ------ ------ -------- Income (loss) from operations before reorganization items, income taxes, extraordinary items and change in accounting principle 807 (6,893) (26,882) Reorganization items. . . . -- (219) -- Extraordinary items - gain on debt discharge -- 70,166 -- Cumulative effect of change in accounting principle. . . . . . . . -- (2,000) -- ----- ------- -------- Net income (loss) . . . . . $807 $61,054 $(26,882) ===== ======= ======== Income per common share (2), (3) $0.26 -- -- Predecessor Company Fiscal Year Ended Sunday Nearest July 31, (4) 1994 1993 1992 (In Thousands) Statement of Operations Data Sales . . . . . . . . . . . $1,065,165 $1,086,125 $1,071,038 Cost of sales . . . . . . . 845,597 856,156 848,441 ---------- ---------- ---------- Gross profit. . . . . . . . 219,568 229,969 222,597 Selling, general and administrative expenses 176,945 175,177 164,897 Depreciation and amortization 24,112 23,455 20,132 Store closing and other costs 11,016 -- -- ---------- ---------- ---------- Operating income. . . . . . 7,495 31,337 37,568 Net interest expense (1). . 45,390 43,257 44,869 ---------- ---------- ---------- Net loss. . . . . . . . . . $(37,895) $(11,920) $(7,301) ========== ========== ========== 7 Reorganized Predecessor Company Company Period Ended January 29, January 1, January 30, 1995 1995 1994 (4 weeks) (22 weeks) (26 weeks) (Dollar Amounts In Thousands) Balance Sheet Data Total assets. . . . . . . . $381,751 $381,492 $408,154 Inventories . . . . . . . . 78,756 87,115 85,952 Property and equipment, net 143,813 144,979 165,518 Working capital . . . . . . 7,207 7,045 (367) Total long-term debt and capital leases (including current maturities)(5) 240,286 242,786 353,723 Preferred stock . . . . . . -- -- 4,650 Total stockholders' equity (deficit) 47,302 46,495 (50,041) Other Data Operating cash flow (EBITDA) (6) 5,188 17,060 18,758 Capital expenditures (7). . 162 665 10,606 Store Data Food stores open at end of period (8). . . . . . . . 99 99 101 Avg. selling sq. ft. during period (in thousands) (9). . . . . . 2,903 2,903 3,096 Avg. sales per store week (10) $218 $196 $190 Predecessor Company Fiscal Year Ended Sunday Nearest July 31, (4) 1994 1993 1992 Balance Sheet Data (Dollar Amounts in Thousands) Total assets. . . . . . . . $389,893 $423,208 $399,419 Inventories . . . . . . . . 76,094 95,385 91,226 Property and equipment, net 160,491 164,937 145,372 Working capital . . . . . . (12,747) 19,137 26,031 Total long-term debt and capital leases (including current maturities) (5) 360,121 351,890 316,220 Preferred stock . . . . . . 4,650 4,650 4,650 Total stockholders' deficit (61,054) (23,159) (11,239) Other Data Operating cash flow (EBITDA) (6) $42,623 $54,792 $57,700 Capital expenditures (7). . 15,471 37,703 15,385 Store Data Food stores open at end of period (8). . . . . . . . 100 115 111 Avg. selling sq. ft. during period (in thousands) (9). . . . . . 3,084 3,100 2,970 Avg. sales per store week (10) $196 $183 $181 8 Notes to Summary Financial Data (Dollar Amounts In Thousands) (1) Includes amortization of deferred financing costs of $182, $1,152 and $1,549 for the four weeks ended January 29, 1995, 22 weeks ended January 1, 1995, and 26 weeks ended January 30, 1994, respectively; and $2,950, $2,850, and $2,932 for the 1994, 1993 and 1992 fiscal years, respectively. (2) Based on 3,100,00 shares (the weighted average number of shares of Common Stock outstanding). (3) Net income per share of Common Stock is not meaningful prior to January 1, 1995 due to the significant change in the capital structure in connection with the Restructuring. (4) The Company's fiscal year is based on a 52/53 week fiscal year ending on the Sunday nearest to July 31. Therefore, the 1992 fiscal year included 53 weeks of operations. The 1994 and 1993 fiscal years each had 52 weeks of operations. (5) Total long-term debt includes long-term debt, current maturities of long-term debt, capital lease obligations and certain other debt. (6) Represents earnings before net interest expense (which includes amortization of deferred financing costs), provision for income taxes, depreciation and amortization, store closing and other costs, reorganization items, extraordinary items, and cumulative effect of change in accounting principle. Operating cash flow (EBITDA) is presented here as a measure of the Company's debt service ability, and should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) or to cash flows from operating activities (as determined on the Statements of Cash Flows in the Company's financial statements). (7) Capital expenditures consist of cash expenditures, additions to capital leases and, for the 1994, 1993 and 1992 fiscal years, amounts funded under the capital improvements revolving credit facility under the Old Credit Agreement (as defined in "The Restructuring"). (8) Data relating to the number of stores is expressed in actual numbers. (9) Represents the average of the selling square footage of the Company's stores on the first and last day of the respective periods. Selling square footage includes adjacent liquor stores, where applicable, but does not include backroom and receiving areas. (10) Represents, for each of the respective periods, sales for such period divided by the sum of the number of weeks for which each of the Company's stores was open during such period. 9 INVESTMENT CONSIDERATIONS An investment in the shares of Common Stock offered hereby involves a high degree of risk. Prospective investors should carefully consider the following matters, in addition to the other information set forth in this Prospectus, in connection with an investment in the Common Stock offered hereby. History of Net Losses; Reorganization The Company experienced net losses for each of the last five fiscal years. The Company's statements of operations reflect a net loss of approximately $37.9 million for the 1994 fiscal year, $11.9 million for the 1993 fiscal year, $7.3 million for the 1992 fiscal year, $39.0 million for the 1991 fiscal year, and $25.6 million for the 1990 fiscal year. See "Selected Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." On November 9, 1994, the Company sought relief pursuant to a "prepackaged" plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code to reduce its debt service requirements and overall level of indebtedness, to realign its capital structure and to provide the Company with greater liquidity. See "The Restructuring." There can be no assurance that the Company will operate profitably in its reorganized form. Tax Considerations As a result of the Restructuring (as defined in "The Restructuring"), an ownership change within the meaning of Code section 382(g) occurred with respect to the Company on December 29, 1994 (the "Change Date"). Accordingly, the Company's ability to carry forward all of the net operating losses (and "recognized built-in losses," if any), to taxable years beginning after the Change Date within the meaning of Code section 382(j) (and a portion of the taxable year which includes the Change Date) will become subject to an annual limitation under Code sections 382 and 383. The Company intends to determine the annual limitation under the provisions of Code section 382(l)(6), which deals with a loss corporation that exchanges stock for debt and undergoes an ownership change in a proceeding under Chapter 11. The amount of income that may be offset by the net operating loss carryovers should generally be limited to an amount (subject to a proration rule for the taxable year that includes the Effective Date) equal to the product of (i) the value of the stock of the Company, determined immediately prior to the Restructuring but increased to take into account the effect on such value of the issuance of Common Stock to the holders of Old Subordinated Debentures (as defined in "The Restructuring") and (ii) the long-term tax-exempt rate, within the meaning of Code section 382(f). This annual limitation will be increased by "recognized built-in gain," if any. The 10 Annual limitation on the Company's ability to carry forward its net operating losses (and "reorganized built-in losses," if any) may be substantial. Highly Leveraged Position Even after the Restructuring, the Company remains highly leveraged. As of January 29, 1995, the Company had total long-term indebtedness (including current maturities) of $240.2 million, including $144.1 million of aggregate principal amount of New Senior Floating Rate Notes and New Senior Fixed Rate Notes (as defined in "The Restructuring") (collectively, the "New Notes"), which mature on February 1, 2003, $47.0 million of term loan and revolving loan indebtedness under the New Credit Agreement (as defined in "The Restructuring"), $33.6 million of indebtedness under mortgages maturing between 1999 and 2003, and $15.6 million of capital lease and other obligations. Under the indentures governing the New Notes, the Company has the option of paying interest in kind on the New Senior Floating Rate Notes through August 1, 1995, and on the New Senior Fixed Rate Notes through February 1, 1996. The Company expects to exercise the payment-in-kind option, which will increase the principal amount of the New Notes outstanding by $16.9 million through February 1, 1996 (assuming a 9.0% annual interest rate on the New Senior Floating Rate Notes and 11.5% on the New Senior Fixed Rate Notes). If future cash provided by operations is less than currently expected, the Company may experience difficulty in meeting interest and principal payments due on outstanding indebtedness and other obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The degree to which the Company is leveraged could have important consequences to holders of Common Stock of the Company, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of the principal of and interest on its existing indebtedness, which materially decreases the funds available to the Company to finance its working capital, capital expenditures and business operations generally; (iii) certain of the Company's borrowings are at variable rates of interest, which, in the absence of interest rate hedging arrangements, make the Company vulnerable to increases in interest rates; (iv) the Company's indentures and New Credit Agreement impose significant financial and operating restrictions which, if violated, could permit the Company's creditors to accelerate payments thereunder (see "Investment Considerations -- Restrictions Imposed Under Indebtedness"); (v) the Company is more highly leveraged than its principal competitors, which may place the Company at a competitive disadvantage (see "Competition" below); and (vi) the Company's high degree of leverage may make it vulnerable to economic downturns and may limit its ability to withstand competitive pressures and adverse changes in government regulation and to capitalize on significant business opportunities. 11 Restrictions Imposed Under Indebtedness The New Credit Agreement (as defined in "The Restructuring") and the indentures governing the New Notes contain numerous limitations, including restrictions on the ability of the Company to (i) incur additional indebtedness, (ii) place liens on assets, (iii) sell assets, (iv) engage in mergers or consolidations, (v) pay dividends and (vi) engage in certain transactions with affiliates. The New Credit Agreement also requires the Company to maintain compliance with certain financial covenants. These limitations and requirements may restrict the ability of the Company to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes. The ability of the Company to comply with the covenants in its debt agreements will be dependent on its future financial performance, which will be subject to prevailing economic conditions and other factors, including factors beyond the control of the Company. Failure to comply with any of these covenants could result in a default or event of default under the relevant debt agreements, permitting lenders to accelerate the maturity of the indebtedness under such agreements and to foreclose upon any collateral securing such indebtedness. Any such failure to comply or any default, event of default or acceleration under any particular indebtedness could also result in the acceleration of other debt of the Company under agreements that contain cross-default or cross-acceleration provisions. Fresh-Start Reporting Presentation The Company's Prepackaged Plan was confirmed by the U.S. Bankruptcy Court on December 12, 1994, and consummated on December 29, 1994. In accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," the Company adopted "fresh-start reporting." Accordingly, financial statements for periods subsequent to December 29, 1994 have been prepared on a basis not comparable to prior periods. The application and impact of "fresh-start reporting" is set forth in greater detail in the notes to the Company's financial statements, which are included in this Prospectus. See "Capitalization," "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's financial statements, including the notes thereto. Competition The food retailing business is highly competitive. The Company competes with several national, regional and local supermarket chains, particularly Publix, Winn-Dixie, Albertson's and Food Lion. The Company is also in competition with convenience stores, stores owned and operated or otherwise affiliated with large food wholesalers, unaffiliated independent food stores, merchandise clubs, discount drugstore chains and discount general merchandise chains and supercenters. 12 The Company's principal competitors have greater financial resources than the Company and could use those resources to take steps which could adversely affect the Company's competitive position and financial performance. For example, operating results generally and sales growth in particular were adversely affected by approximately 84 competitive supermarket openings during the 1994, 1993, 1992 and 1991 fiscal years by both established competitors and new entrants in the Company's market area. In fiscal 1995, the Company expects approximately 12 such competitive store openings, and it is anticipated that these competitive store openings will continue in the future. Another example of the highly competitive nature of the food retailing business is the practice of competitors to reposition their pricing structure. Over the past several years, each of the Company's major competitors has changed its pricing practices in a manner that has adversely affected general retail pricing in the market. Winn-Dixie discontinued double coupons and introduced its every day low price program in the spring of 1991. In the spring of 1993, Publix began a campaign focused on "surprisingly low prices," and Food Lion began a double coupon program which has since been discontinued. The Company has had to deal with each of these changes in a manner that has, in some instances, adversely affected its operating results and may continue to do so in the future. In addition, the Company's ability to compete may be adversely affected by its high leverage and the limitations imposed by its debt agreements. Anti-Takeover Provisions The Company has adopted a preferred stock purchase rights plan (the "Rights Plan"). See "Description of Capital Stock -- Certain Anti-Takeover and Charter Provisions." The Rights Plan is designed to assure that all stockholders receive fair and equal treatment in the event of any proposed takeover of the Company. The Rights Plan could discourage certain potential acquisition proposals and could delay or prevent a change in control of the Company in certain circumstances. The Rights Plan could diminish the opportunities for a stockholder to participate in tender offers, including tender offers at a price above the then current market value of the Common Stock, or proxy contests, and may also inhibit fluctuations in the market price of the Common Stock that could result from takeover attempts. In addition, the Board of Directors, without further stockholder approval, may issue Preferred Stock with such terms as the Board of Directors may determine, and which could have the effect of delaying or preventing a change in control of the Company. The issuance of such Preferred Stock could also adversely affect the voting power of the holders of Common Stock. See "Description of Capital Stock -- Preferred Stock." The Company is also afforded the protections of Section 203 of the Delaware General Corporation Law, which could delay or prevent a change in control of the Company or could impede a merger, consolidation, takeover or other business combination involving the Company or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company. See "Description of Capital Stock -- Certain Anti-takeover and Charter Provisions." 13 Restrictions on Dividends The Company presently does not intend to pay dividends or make other distributions with respect to the Common Stock for the foreseeable future. In addition, the New Credit Agreement and the indentures governing the New Notes contain limitations on the ability of the Company to pay dividends. See "Market Price and Dividend Policy" and "Description of Capital Stock." Limited Public Market On March 2, 1995 the Common Stock was listed for trading on the Nasdaq Small Cap Market under the symbol "KASH." Prior to such date, there was no established public trading market for its Common Stock. There is no assurance that an active trading market in the Common Stock will continue. Accordingly, no assurance can be given as to the price at which any holder may sell his Common Stock or whether a liquid market in the Common Stock will exist at the time of any given sale. THE COMPANY The Company is a Delaware corporation, formed as a vehicle for the October 1988 leveraged acquisition of 121 food and 25 liquor stores in two separate transactions from Lucky Stores, Inc., a subsidiary of American Stores Company, and Superx Drugs Corporation, a subsidiary of The Kroger Co. The Company's original equity capitalization was provided by The Fulcrum III Limited Partnership and The Second Fulcrum III Limited Partnership (collectively, the "Fulcrum Partnerships") (the Fulcrum Partnerships are investment funds managed by Gibbons, Goodwin, van Amerongen, L.P. ("GGvA") (formerly known as Gibbons, Green, van Amerongen, L.P.)), certain affiliates of Merrill Lynch & Co., Inc. and members of management. In November 1991, Green Equity Investors, L.P. ("GEI"), an investment fund managed by Leonard Green & Partners, L.P., invested $27.7 million in cash in exchange for an equity interest in the Company. At the same time, the Fulcrum Partnerships invested an additional $2.3 million and exchanged certain preferred stock of the Company for common stock of the Company. After the November 1991 equity infusion, and until the Restructuring was consummated, GEI owned approximately 60.9%, and the Fulcrum III Partnerships owned approximately 33.8%, of the outstanding Common Stock of the Company. The principal executive offices of the Company are located at 6422 Harney Road, Tampa, Florida 33610, and its telephone number is (813) 621-0200. The Company's symbol for trading on the Nasdaq Small Cap Market is "KASH." 14 THE RESTRUCTURING On November 9, 1994 (the "Petition Date") the Company filed with the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code and a "prepackaged" plan of reorganization (the "Prepackaged Plan"). During the pendency of the bankruptcy case, the Company, with the approval of the Bankruptcy Court, operated its business in the ordinary course, and paid all pre-petition and post-petition claims of its general unsecured creditors, trade creditors and employees in full. The Prepackaged Plan was confirmed by the Bankruptcy Court on December 12, 1994, and the Company emerged from bankruptcy on December 29, 1994 (the "Effective Date"). Pursuant to the Prepackaged Plan, on the Effective Date: (1) Each $1,000 principal amount of the Company's $85.0 million Senior Floating Rate Notes due August 2, 1996 (the "Old Senior Floating Rate Notes") was exchanged for (a) new Senior Floating Rate Notes due February 1, 2003 (the "New Senior Floating Rate Notes") in an original principal amount equal to $1,000 plus 100% of the accrued interest under the Old Senior Floating Rate Notes from and including February 3, 1994, through but not including the Petition Date, or, at such holder's election, (b) new 11.5% Senior Fixed Rate Notes due February 1, 2003 (the "New Senior Fixed Rate Notes") in the same original principal amount, or, at such holder's election, (c) an amount of New Senior Floating Rate Notes and an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of such claim; (2) Each $1,000 principal amount of the Company's $50.0 million 12 3/8% Senior Fixed Rate Notes due February 1, 1999 (the "Old Senior Fixed Rate Notes") was exchanged for (a) New Senior Floating Rate Notes in an original principal amount equal to $1,000 plus 100% of the accrued interest under the Old Senior Fixed Rate Notes from and including February 2, 1994, through but not including the Petition Date, or, at such holder's election, (b) New Senior Fixed Rate Notes in the same original principal amount, or, at such holder's election, (c) an amount of New Senior Floating Rate Notes and an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of such claim; (3) the Company's $105.0 million 14% Subordinated Debentures due February 1, 2001 (the "Old Subordinated Debentures") were exchanged for the aggregate amount of 2,635,000 shares of newly-issued Common Stock, representing 85 percent of the Common Stock outstanding on the Effective Date; (4) GEI invested $10.0 million cash in exchange for 465,000 shares of newly-issued Common Stock, representing 15 percent of the Common Stock outstanding on the Effective Date; and (5) all of the existing preferred stock, common stock, and options and warrants to purchase common stock of the Company were extinguished. 15 Pursuant to the Prepackaged Plan, the Company is required within four months after the Effective Date, or such longer time as may be required to prepare the necessary financial statements, to take the necessary steps to register the newly-issued shares of Common Stock in a "shelf registration," to be effective for a period of three years, pursuant to the appropriate requirements of the Securities and Exchange Commission. The Registration Statement, of which this Prospectus is a part, has been filed to satisfy that requirement. Also pursuant to the Prepackaged Plan, the Company refinanced its principal bank indebtedness on the Effective Date by entering into a new Credit Agreement with The CIT Group/Business Credit, Inc., as administrative agent for itself and certain other lenders (the "New Credit Agreement"). The New Credit Agreement provides the Company with a 3-year $35.0 million term loan facility and a 3-year $50.0 million revolving credit facility, and is secured by liens upon substantially all of the Company's real and personal property. As a result of such refinancing, the obligations of the Company under the Credit Agreement dated October 12, 1988, as restated on September 14, 1989, and thereafter amended, with Bank of America National Trust and Savings Association (as successor by merger to Security Pacific National Bank), as administrative agent, and certain other senior lenders (the "Old Credit Agreement"), were satisfied, and the Old Credit Agreement was terminated. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition." MARKET PRICE AND DIVIDEND POLICY On March 2, 1995 the Common Stock was listed for trading on the Nasdaq Small Cap Market under the symbol "KASH." Prior to such date, there was no established public trading market for its Common Stock. For the period of March 2, 1995 through April 26, 1995, the range of high and low bids for a single share of Common Stock was $20 - $18.25, as quoted in the Nasdaq Small Cap Market. As of April 26, 1995, the average of the low bid and high ask prices as quoted on the Nasdaq Small Cap Market was $19.25. Such over-the-market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. As of April 26, 1995, there were approximately 21 holders of record of shares of Common Stock. The Company has not in the past paid cash dividends to its stockholders and does not intend to pay any cash dividends in the foreseeable future. The Company's ability to declare cash dividends on its Common Stock is materially limited by prohibitions or restrictions in the New Credit Agreement and the indentures governing the New Senior Fixed Rate Notes and the New Senior Floating Rate Notes. See "Description of Capital Stock." 16 CAPITALIZATION The following table sets forth the unaudited capitalization of the Company as of January 29, 1995 on an actual basis after giving effect to the transactions in connection with the Restructuring and the application of fresh-start reporting. This table should be read in conjunction with the detailed information and financial statements and related notes appearing elsewhere in this Prospectus. As of January 29, 1995 (dollars in thousands) Current portion of long-term debt (1). . . . $12,764 ======= Long-term debt: Term Loan Facility. . . . . . . . . . . . . $35,000 Revolving Loan Facility (2) . . . . . . . 12,000 Mortgages payable, bearing interest at rates from 7.50% to 10.35%, in equal monthly installments of $355, with maturities from 1999 through 2003 . . 33,555 Capital lease obligations . . . . . . . . . 8,410 Senior Floating Rate Notes due 2003 . . . . 22,953 11.5% Senior Fixed Rate Notes Due 2003. . . 121,162 Other . . . . . . . . . . . . . . . . . . . 7,206 Less current portion . . . . . . . . . . . (12,764) -------- Total long-term debt . . . . . . . . . . . $227,522 -------- Stockholders' equity: Common Stock of $.01 par value: authorized 5,500,000 shares; outstanding 3,100,000 shares . . . . . . . 31 Capital in excess of par value. . . . . . . 46,464 Retained Earnings (3) . . . . . . . . . . . 807 -------- Total stockholders' equity . . . . . . . . 47,302 -------- Total capitalization . . . . . . . . . . . $274,824 ======== _______________ (1) Includes term loan facility under the New Credit Agreement, $7.0 million; mortgages payable, $.9 million; and capital lease obligations and other, $4.9 million. (2) The New Credit Agreement has a revolving credit facility with an individual sublimit of $25.0 million for letters of credit (of which $17.3 million were outstanding at January 29, 1995), with a maximum of the lesser of (i) 85% of eligible receivables and 80% of eligible inventories (as defined in the New Credit Agreement), or (ii) $50.0 million permitted to be outstanding under the revolving credit facility at any one time. (3) Reflects the application of fresh-start reporting. 17 SELECTED FINANCIAL INFORMATION The following table presents selected financial information of the Company as of and for each of the fiscal years ended on the Sunday nearest to July 31, 1994, 1993, 1992, 1991 and 1990 and as of and for the periods ended January 29, 1995, January 1, 1995 and January 30, 1994, and should be read in conjunction with the financial statements and related notes thereto appearing elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The financial statements as of and for the periods ended January 29, 1995, January 1, 1995 and January 30, 1994 from which the selected financial information has been derived, have not been audited by independent accountants in accordance with generally accepted auditing standards, but, in the opinion of management, the financial statements as of and for the period ended January 30, 1994 include all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the Company's financial position and results of operations. As discussed herein, the Company's Prepackaged Plan was consummated on December 29, 1994 (the "Effective Date"). The financial statements as of and for the periods ended January 29, 1995 and January 1, 1995 reflect the Company's emergence from Chapter 11 and were prepared utilizing the principles of fresh-start reporting contained in the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." Operations during the period from the Effective Date through January 1, 1995 had no significant impact on the emergence transactions and as a result have not been separately identified. As a result of the implementation of fresh-start accounting, certain of the selected financial data as of and for the periods ended January 29, 1995 and January 1, 1995 is not comparable to the selected financial data of prior periods due to the change in reporting entity resulting from the application of fresh-start accounting. Therefore, selected financial data for the "Reorganized Company" has been separately identified from that of the "Predecessor Company." Results for the periods ended January 29, 1995 or January 1, 1995 are not necessarily indicative of the results for the full year. The selected store data have been derived from the Company's management reporting records. 18 Reorganized Predecessor Company Company Period Ended January 29, January 1, January 30, 1995 1995 1994 (4 weeks) (22 weeks) (26 weeks) (In Thousands, Except Per Share Amounts) Statement of Operations Data Sales . . . . . . . . . . . $86,354 $426,681 $534,801 Cost of sales . . . . . . . 68,940 340,802 425,915 ------- -------- ------- Gross profit. . . . . . . . 17,414 85,879 108,886 Selling, general and administrative expenses 12,226 68,819 90,128 Depreciation and amortization 1,979 10,234 12,111 Store closing and other costs -- -- 11,016 ------- -------- ------- Operating income (loss) . . 3,209 6,826 (4,369) Net interest expense (1). . 2,402 13,719 22,513 ------- -------- ------- Income (loss) from operations before reorganization items, income taxes, extraordinary items and change in accounting principle 807 (6,893) (26,882) Reorganization items. . . . -- (219) -- Extraordinary items - gain on debt discharge -- 70,166 -- Cumulative effect of change in accounting principle. . . . . . . . -- (2,000) -- ------- -------- ------- Net income (loss) . . . . . $807 $61,054 $(26,882) ======= ======== ======== Income per common share (2), (3) $0.26 -- -- Predecessor Company Fiscal Year Ended Sunday Nearest July 31, (4) 1994 1993 1992 1991 1990 Statement of Operations (In Thousands) Data Sales . . . . . . $1,065,165 $1,086,125 $1,071,038 $1,059,636 $1,039,209 Cost of sales . . . . . . 845,597 856,156 848,441 842,687 831,644 ---------- ---------- ---------- ---------- ---------- Gross profit. . . . . . . 219,568 229,969 222,597 216,949 207,565 Selling, general and administrative expenses 176,945 175,177 164,897 159,359 151,970 Depreciation and amortization 24,112 23,455 20,132 54,435 31,416 Store closing and other costs 11,016 -- -- -- -- ---------- ---------- ---------- ---------- ---------- Operating income. . . . . 7,495 31,337 37,568 3,155 24,179 Net interest expense (1). 45,390 43,257 44,869 45,610 50,692 ---------- ---------- ---------- ---------- ---------- Loss from operations before extraordinary items (37,895) (11,920) (7,301) (42,455) (26,513) ---------- ---------- ---------- ---------- ---------- Extraordinary gain 0 0 0 3,427 943 Net loss. . . . . . . . .$(37,895) $(11,920) $(7,301) $(39,028) $(25,570) ========== ========== ========== ========== ========== 19 Reorganized Predecessor Company Company Period Ended January 29, January 1, January 30, 1995 1995 1994 (4 weeks) (22 weeks) (26 weeks) (Dollar Amounts In Thousands) Balance Sheet Data Total assets. . . . . . . . $381,751 $381,492 $408,154 Inventories . . . . . . . . 78,756 87,115 85,952 Property and equipment, net 143,813 144,979 165,518 Working capital . . . . . . 7,207 7,045 (367) Total long-term debt and capital leases (including current maturities)(5) 240,286 242,786 353,723 Preferred stock . . . . . . -- -- 4,650 Total stockholders' equity (deficit) 47,302 46,495 (50,041) Other Data Operating cash flow (EBITDA) (6) 5,188 17,060 18,758 Capital expenditures (7). . 162 665 10,606 Store Data Food stores open at end of period (8). . . . . . . . 99 99 101 Avg. selling sq. ft. during period (in thousands) (9). . . . . . 2,903 2,903 3,096 Avg. sales per store week (10) $218 $196 $190 Predecessor Company Fiscal Year Ended Sunday Nearest July 31, (4) 1994 1993 1992 1991 1990 (Dollar Amounts in Thousands) Balance Sheet Data Total assets. . . . . . . $389,893 $423,208 $399,419 $401,860 $455,204 Inventories . . . . . . . 76,094 95,385 91,226 92,451 92,474 Property and equipment, net . 160,491 164,937 145,372 146,513 148,100 Working capital . . . . . . . (12,747) 19,137 26,031 15,684 11,959 Total long-term debt and capital leases (including current maturities)(5) 360,121 351,890 316,220 342,826 337,861 Preferred stock . . . . . . . 4,650 4,650 4,650 45,991 45,991 Total stockholders' deficit (61,054) (23,159) (11,239) (72,640) (33,609) Other Data Operating cash flow(EBITDA)(6) $42,623 $54,792 $57,700 $57,590 $55,595 Capital expenditures (7). . . 15,471 37,703 15,385 15,672 16,079 Store Data Food stores open at end of period (8). . . . . . . . . 100 115 111 113 112 Avg. selling sq. ft. during period (in thousands) (9) . 3,084 3,100 2,970 2,949 2,918 Avg. sales per store week(10) $196 $183 $181 $180 $175 20 Notes to Selected Financial Information (Dollar Amounts in Thousands) (1) Includes amortization of deferred financing costs of $182, $1,152 and $1,549 for the four weeks ended January 29, 1995, 22 weeks ended January 1, 1995, and 26 weeks ended January 30, 1994, respectively; and $2,950, $2,850, $2,932, $3,017 and $6,346 for the 1994, 1993, 1992, 1991 and 1990 fiscal years, respectively. (2) Based on 3,100,00 shares (the weighted average number of shares of Common Stock outstanding). (3) Net income per share of Common Stock is not meaningful prior to January 1, 1995 due to the significant change in the capital structure in connection with the Restructuring. (4) The Company's fiscal year is based on a 52/53 week fiscal year ending on the Sunday nearest to July 31. Therefore, the 1992 fiscal year included 53 weeks of operations. The 1994, 1993, 1991 and 1990 fiscal years each had 52 weeks of operations. (5) Total long-term debt includes long-term debt, current maturities of long-term debt, capital lease obligations and certain other debt. (6) Represents earnings before net interest expense (which includes amortization of deferred financing costs), provision for income taxes, depreciation and amortization, store closing and other costs, reorganization items, extraordinary items, and cumulative effect of change in accounting principle. Operating cash flow (EBITDA) is presented here as a measure of the Company's debt service ability, and should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) or to cash flows from operating activities (as determined on the Statements of Cash Flows in the Company's financial statements). (7) Capital expenditures consist of cash expenditures, additions to capital leases and, for the 1994, 1993 and 1992 fiscal years, amounts funded under the capital improvements revolving credit facility under the Old Credit Agreement (as defined in "The Restructuring"). (8) Data relating to the number of stores is expressed in actual numbers. (9) Represents the average of the selling square footage of the Company's stores on the first and last day of the respective periods. Selling square footage includes adjacent liquor stores where applicable but does not include backroom and receiving areas. (10) Represents, for each of the respective periods, sales for such period divided by the sum of the number of weeks for which each of the Company's stores was open during such period. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This analysis should be read in conjunction with the financial statements and related notes thereto included elsewhere in this document. The Company follows a 52/53 week fiscal year ending on the Sunday nearest to July 31. The fiscal year ended August 2, 1992 included 53 weeks of operations. Historical results of operations are given for the Company's fiscal years ended July 31, 1994, August 1, 1993 and August 2, 1992 (respectively, the "1994, 1993 and 1992 Fiscal Years"), the four weeks ended January 29, 1995 and the 22 weeks ended January 1, 1995 (combined, the "1995 Six-Month Period"), and the 26 weeks ended January 30, 1994 (the "1994 Six-Month Period"). On November 9, 1994, the Company filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code; on December 12, 1994, the Bankruptcy Court confirmed the Company's "prepackaged" plan of reorganization. The Prepackaged Plan became effective on December 29, 1994, when the Company emerged from bankruptcy. The financial statements as of and for the periods ended January 29, 1995 and January 1, 1995 reflect the Company's emergence from Chapter 11 proceedings and were prepared utilizing the principles of fresh-start reporting contained in the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (the "SOP 90-7"). Operations during the three-day period from the Effective Date through January 1, 1995 had no significant impact on the emergence transactions and as a result have not been separately identified. The Company acquired substantially all of its assets in October 1988. The acquisitions were accounted for as purchases and the assets were recorded at fair market value based on independent appraisals, resulting in an increase in the carrying value of the assets of approximately $215.4 million. The write-up was allocated to property and equipment ($22.6 million), favorable lease interests ($26.2 million), depreciable intangible assets ($53.6 million), and excess of cost over net assets acquired ($113.0 million). As a result, the Company has since incurred a significant amount of noncash charges. In addition, during the first quarter of 1994, the Company recorded a non-recurring charge of $11.0 million, which reflects expenses associated with a program of closing 12 underperforming stores, reducing administrative staff, and expensing costs associated with unsuccessful financing activities. The financial statements as of and for the periods ending January 29, 1995 and January 1, 1995 are not comparable to the financial statements of prior periods due to the change in reporting entity resulting from the application of fresh-start accounting. For the reasons outlined above, the Company believes that the most relevant measure of its operating results is earnings before interest, taxes, depreciation and amortization, store closing and other costs, reorganization items, extraordinary items, and the cumulative effect of change in accounting principle (operating cash flow): 22 Four Twenty-two Weeks Weeks Twenty-six Ended Ended Weeks Ended Sunday Nearest July 31 January January January 30, Fiscal Year Ended 29, 1995 1, 1995 1994 1994 1993 1992 1991 (In Thousands) Operating income (loss) $3,209 $6,826 $(4,369) $ 7,495 $31,337 $37,568 $3,155 Depreciation and amortization 1,979 10,234 12,111 24,112 23,455 20,132 54,435 Store closing and other costs -- -- 11,016 11,016 -- -- -- ------ ------ ------- ------ ------ ------ ------ Operating cash flow $5,188 $17,060 $18,758 $42,623 $54,792 $57,700 $57,590 ====== ======= ======= ======= ======= ======= ======= Results of Operations of the Company The discussion below compares the results of operations for the 1995 Six-Month Period with the 1994 Six-Month Period. Except as specifically acknowledged below, management believes that the impact of the Restructuring and the implementation of fresh-start reporting did not significantly affect the results of operations for the 1995 Six-Month Period, and that the operating results of the individual four-week period and 22-week period ended January 29, 1995 and January 1, 1995, respectively, are indicative of the results of operations for the 26-week period ended January 29, 1995. Operating cash flow for the 1995 Six-Month Period was $22.2 million compared to $18.8 million for the 1994 Six-Month Period. The increase in operating cash flow was attributable to the factors indicated below. Sales 26 Weeks Ended January 29, January 30, 1995 1994 Sales (in millions). . . . . . . . . . . . . $513.0 $534.8 Change in same store sales . . . . . . . . . (0.22%) (2.96%) Average sales per store week (in thousands). $199 $190 The Company closed 17 stores and opened two new stores over the last year as part of an overall strategic consolidation of its store network. The Company was able to mitigate the sales impact of these store closings by transferring a portion of the sales of the closed stores to operating stores; therefore, there was not a substantial adverse impact on the Company's operating cash flow. In addition, sales have been positively impacted as a result of a recently-initiated store remodelling program and aggressive sales promotional activities. 23 Gross Profit The Company had gross profit of $103.3 million, or 20.1% as a percentage of sales, for the 1995 Six-Month Period; and gross profit of $108.9 million, or 20.4% of sales, for the 1994 Six-Month Period. The decrease in gross margin as a percentage of sales was due to the effect of lower investment in forward buy inventory and receipt of less promotional funds, offset by improved perishable margins and increased efficiency in warehouse and distribution operations. Selling, General and Administrative Expenses The Company had selling, general and administrative expenses of $81.0 million, or 15.8% as a percentage of sales, for the 1995 Six-Month Period and $90.1 million, or 16.9% as a percentage of sales, for the 1994 Six-Month Period. The reduction of selling, general and administrative expenses was due to lower store labor costs, reduced corporate overhead expenses and lower advertising expenditures associated with a comprehensive operational restructuring of the Company initiated during the year; and reduced operating costs associated with stores that were closed during the last 12 months. These improvements were partially offset by an increase in workers' compensation insurance reserves. Depreciation and Amortization The Company's depreciation and amortization expenses were $12.2 million for the 1995 Six-Month Period compared to $12.1 million for the 1994 Six-Month Period. The increase is primarily attributable to new stores and major remodels, partially offset by the retirement of assets of stores closed. Store Closing and Other Costs During the first quarter of fiscal 1994, the Company recorded a non-recurring charge of $11.0 million. This charge included $1.9 million of costs associated with unsuccessful financing activities, $4.2 million of favorable lease interests written off in connection with the closing of 12 underperforming stores, $4.0 million representing an adjustment to the expected lease liability on closed stores, net of sublease income, and $.9 million of other store closing and related expenses. Interest Expense Interest expense for the 1994 Six-Month Period was primarily comprised of interest under the Old Credit Agreement, the Old Senior Floating Rate Notes, the Old Senior Fixed Rate Notes, the Old Subordinated Debentures, and various mortgages and capital leases. For the 24 1995 Six-Month Period, interest expense was reported on the Old Senior Floating Rate Notes, the Old Senior Fixed Rate Notes, and the Old Subordinated Debentures through the Petition Date; and interest expense was reported on the New Senior Floating Rate Notes and the New Senior Fixed Rate Notes from the Effective Date through January 29, 1995. In accordance with the Prepackaged Plan, no interest was due to the holders of the Old Senior Floating Rate Notes, Old Senior Fixed Rate Notes, or Old Subordinated Debentures for the period between the Petition Date and the Effective Date, and therefore no interest expense allocable to such instruments was recorded for this period. As provided in the Prepackaged Plan, interest accrued from and including February 2, 1994, in the case of the Old Senior Fixed Rate Notes, and from and including February 3, 1994, in the case of the Old Senior Floating Rate Notes, through the Petition Date, was paid by issuing additional New Senior Floating Rate Notes and New Senior Fixed Rate Notes. Interest on the Old Subordinated Debentures accrued from and including February 2, 1994 through the Petition Date was converted into stockholders' equity. Reorganization Costs In accordance with SOP 90-7, income and costs directly related to the reorganization have been segregated and are separately disclosed. The major components are restructuring costs, adjustments to fair value, professional fees and other expenses. Gain on Debt Discharge The gain on debt discharge reflects the conversion of $105.0 million of Old Subordinated Debentures, plus accrued interest from and including February 2, 1994 through the Petition Date, into $39.5 million of stockholders' equity, resulting in a $70.2 million gain. The gain is presented net of write-offs and costs associated with the repayment of borrowings on the Effective Date. 1994, 1993 and 1992 Fiscal Years During the three year period ended July 31, 1994, the Company opened seven new food stores, acquired one food store and three super warehouse food stores (operating under the "Save 'n Pack" name), and completed major expansion remodels on three existing food stores. However, sales growth was constrained primarily by the opening of 54 competitive supermarkets and the closing of 24 of the Company's stores during this three year period. The Company experienced a net loss in each of the 1994, 1993 and 1992 Fiscal Years primarily due to depreciation and amortization resulting from, and interest costs associated with, financing the 1988 acquisition of the Kash n' Karry and Superx stores. The following table sets forth certain items from the Company's Statements of Operations as a percentage of sales for the periods indicated: 25 52 Weeks 52 Weeks 52 Weeks Ended Ended Ended July 31, 1994 August 1, 1993 August 2, 1992 Sales 100.00% 100.00% 100.00% Gross profit 20.6% 21.2% 20.8% Selling, general and administrative expenses 16.6% 16.1% 15.4% Depreciation and amortization 2.3% 2.2% 1.9% Interest expense 4.3% 4.0% 4.2% Net loss -3.6% -1.1% -0.7% Operating cash flow (EBITDA) 4.0% 5.0% 5.4% The Company generated operating cash flow of $42.6 million for the 52 weeks ended July 31, 1994, compared to operating cash flow of $54.8 million for the 52 weeks ended August 1, 1993 and $57.7 million for the 53 weeks ended August 2, 1992. Sales 52 Weeks 52 Weeks 53 Weeks Ended Ended Ended July 31, 1994 August 1, 1993 August 2, 1992 Sales (in millions) $1,065 $1,086 $1,071 Number of stores: Food stores opened or acquired 2 8 1 Food stores closed 17 4 3 Expansion remodels 1 2 -- Total food stores at period end 100 115 111 Average selling square feet during year (in thousands) 3,084 3,100 2,970 Average sales per store week (in thousands) $196 $183 $181 The Company maintained a relatively stable level of sales during the three year period. Sales were positively impacted by opening and acquiring new stores, expanding and upgrading existing stores and increasing promotional activities and advertising expenditures. However, sales were adversely affected by a weak economy, price deflation in certain commodities, ongoing competitive new store and remodel activity, pricing and promotional changes by certain competitors, and the closing of 24 of the Company's stores. Store closings adversely impacted sales, but did not cause a substantial adverse impact on the Company's operating cash flow. 26 Gross Profit Gross profit as a percentage of sales was 20.6% in the 1994 Fiscal Year, 21.2% in the 1993 Fiscal Year, and 20.8% in the 1992 Fiscal Year. The decrease in gross profit as a percentage of sales from the 1993 Fiscal Year to the 1994 Fiscal Year was attributable to the impact of eliminating investment in forward buy inventory (estimated to be approximately 57 basis points), receipt of fewer promotional funds, and generally lower retail prices, partially offset by improved perishable margins and efficiencies in product preparation and handling. The improvement from the 1992 Fiscal Year to the 1993 Fiscal Year was primarily attributable to the receipt of more promotional funds and increased efficiencies in product acquisition and warehousing and distribution operations, partially offset by low inflation and the competitive factors mentioned above. Selling, General and Administrative Expenses Selling, general and administrative expenses of the Company, as a percentage of sales, were 16.6% in the 1994 Fiscal Year, 16.1% in the 1993 Fiscal Year, and 15.4% in the 1992 Fiscal Year. The increase of $1.8 million from the 1993 Fiscal Year to the 1994 Fiscal Year was primarily the result of increased occupancy costs and other expenses related to stores opened, acquired or remodeled, and an increase in insurance reserves and advertising expenses, offset by reduced operating costs due to store closings. The increase as a percentage of sales was attributable to operating costs of comparable stores in the aggregate declining at a lesser rate than the rate of sales decline in those stores. The increase, as a percentage of sales, for the 1993 Fiscal Year compared to the 1992 Fiscal Year was primarily attributable to certain expenses, such as employee benefits, utilities, and repairs and maintenance, which increased at a faster rate than the rate of growth in sales, offset partially by lower average cost per hour and improved labor productivity in the stores. Depreciation and Amortization The Company's depreciation and amortization expenses were $24.1 million, or 2.3% of sales, for the 1994 Fiscal Year; $23.5 million, or 2.2% of sales, for the 1993 Fiscal Year; and $20.1 million, or 1.9% of sales, for the 1992 Fiscal Year. The increase in depreciation and amortization for the three year period was attributable to the new stores and major remodels, and accelerated amortization of favorable lease interests on certain stores closed during the period. 27 Interest Expense Fiscal Year ended Sunday Nearest July 31, 1994 1993 1992 (In Thousands) Interest expense, net. . . . . . . . . .$42,917 $41,211 $42,292 Amortization of deferred financing costs 2,950 2,850 2,932 Capitalized interest . . . . . . . . . . . (477) (804) (355) ------- ------- ------- Interest expense, net. . . . . . .$45,390 $43,257 $44,869 ======= ======= ======= Interest expense for the 1994 Fiscal Year was primarily comprised of interest under the Old Credit Agreement, the Old Senior Floating Rate Notes, the Old Senior Fixed Rate Notes, the Old Subordinated Debentures, various mortgages and capital leases. The increase in interest expense for the 1994 Fiscal Year was primarily attributable to increased average borrowings under the revolving credit facility under the Old Credit Agreement, additional capital leases on store equipment, and slightly higher interest rates on bank borrowings. Losses For the reasons set forth above, the Company experienced net losses of $37.9 million for the 1994 Fiscal Year, $11.9 million for the 1993 Fiscal Year, and $7.3 million for the 1992 Fiscal Year. Financial Condition During the pendency of its bankruptcy case discussed above, the Company operated its business in the ordinary course, and paid all pre-petition and post-petition claims of the Company's general unsecured creditors, trade creditors, and employees in full. The provisions of the Prepackaged Plan, which are discussed in footnote 1 to the accompanying condensed financial statements, have had an immediate beneficial impact on the Company's financial condition, primarily as a result of significantly deleveraging the Company's balance sheet. Prior to the Petition Date, the Company's Old Credit Agreement provided for a revolving credit facility with individual sublimits of $30.0 million for working capital loans and $25.0 million for letters of credit, with a maximum of $50.0 million outstanding under the total facility at any one time. During the weeks preceding the bankruptcy filing, the Company, with the approval of its bank lenders, increased its cash position by fully drawing the remaining availability under its working capital line. On November 9, 1994, the Bankruptcy Court approved the use of cash collateral and a letter of credit facility of $17.7 million under the Old Credit Agreement, and additional debtor-in-possession financing provided by BankAmerica Business Credit, Inc. of $11.2 million, subject to certain terms and conditions. The outstanding 28 borrowings under those facilities were refinanced on the Effective Date, when the Company entered into the New Credit Agreement with The CIT Group/Business Credit Inc. and certain bank lenders to provide a 3-year $35.0 million term loan facility and a 3-year $50.0 million revolving credit facility. Beginning August 1, 1994, the Company implemented a new short-term business strategy to improve the Company's financial performance. The focus of this strategy is to conserve capital, reduce administrative and operating expenses, and direct management attention toward the operation of existing stores. During the first six months of fiscal 1995 the Company significantly improved its liquidity as a result of the payment moratorium on interest due on the Old Senior Fixed Rate Notes, Old Senior Floating Rate Notes, and Old Subordinated Debentures; managing working capital; and reducing operating expenses and capital expenditures by $12.0 million on an annualized basis. In addition, the Company expects to exercise its option of paying interest in kind under the New Senior Floating Rate Notes through August 1, 1995, and on the New Senior Fixed Rate Notes through February 1, 1996, which will further increase its liquidity through the first half of fiscal 1996. The Company also has an agreement in principle for a $28.0 million sale-leaseback transaction on 11 of its fee-owned store properties. The Company intends to apply $13.0 million of the proceeds to reduce the term loan facility under the New Credit Agreement, and $14.0 million of such proceeds to reduce its mortgage obligations. As a result of its increased liquidity, the Company expects to invest $6.0 million in forward buy inventory in fiscal 1995, has made prepayments totalling $7.0 million on its term loan facility, and intends to repay the balance of the term loan facility under the New Credit Agreement by the end of fiscal 1995. As of April 21, 1995, the outstanding principal balance under the term loan facility was $28.0 million, and the Company had $7.4 million in borrowings and $12.6 million in letters of credit outstanding under the revolving credit facility under the New Credit Agreement. Consistent with its short-term business strategy, the Company does not anticipate opening or acquiring any new stores during the current fiscal year, but expects that capital expenditures of approximately $6.0 million will be used to upgrade its existing store facilities, including minor remodelling projects at 41 stores. The Company's capital expenditure plans through the end of fiscal 1996 include the completion of major remodelling projects at 19 stores, minor remodelling projects at 25 additional stores and the construction of two new stores. The Company has entered into an interest rate swap through August 1995 to reduce its exposure to increases in short-term interest rates on the majority of its floating rate debt. The Company does not believe that there would be any material impact on the accompanying financial statements as of January 29, 1995 as a result of liquidating this contract. Based upon the Company's ability to generate working capital through its operations and its new $50.0 million revolving credit facility, the Company believes that it has the financial resources necessary to pay its capital obligations and implement its business plan. 29 Effects of Inflation The Company's primary costs, inventory and labor, are affected by a number of factors that are beyond its control, including availability and price of merchandise, the competitive climate and general and regional economic conditions. As is typical of the supermarket industry, the Company has generally been able to maintain margins by adjusting its retail prices, but competitive conditions may from time to time render it unable to do so while maintaining its market share. BUSINESS General The Company is the third largest food retailer in west central Florida, operating 92 multi-department supermarkets, five conventional supermarkets and 33 liquor stores under the "Kash n' Karry" name and two super warehouse stores under the "Save 'n Pack" name, all supported by a centrally-located warehouse and distribution facility. More than one-half of the Company's stores are located in the Tampa-St. Petersburg area, which is Florida's largest retail food sales market, with the balance located between Gainesville, approximately 130 miles to the north, and Bonita Springs, approximately 150 miles to the south. The west central Florida area has a diverse and growing economy, which includes high technology and financial centers, an insurance industry presence, retirement communities, coastal resorts and commercial agricultural activity. The region's population is estimated to be increasing at an annual rate of approximately 2%. Company Store Profile The following table presents a profile of the Company's stores: Number of Stores At Fiscal Year End Total Square Store Type Footage(1) 1994 1993 1992 1991 1990 ---------- ------------ ---- ---- ---- ---- ---- Kash n' Karry Food Stores 40,000--57,000 50 48 42 42 39 25,000--39,999 43(2) 55 57 57 58 less than 25,000 5 9 12 14 15 Save 'n Pack Super Warehouse Stores 76,000--88,000 2 3 -- -- -- Kash n' Karry Liquor Stores 1,800-- 2,700 33 35 30 31 26 _______________ (1) Includes selling and backroom areas. (2) Includes one store that was closed subsequent to July 31, 1994. 30 Supermarket stores The Company currently operates 92 multi-department supermarkets, with an average size of approximately 40,000 total square feet. The Company also operates five conventional supermarkets which average approximately 18,000 total square feet. All of the Company's supermarket stores offer a wide selection of items typically sold in grocery stores, including staple groceries, fresh fruits and vegetables, bakery and dairy products, delicatessen items, frozen foods and fresh meats. Each of the Company's supermarket stores also sells certain non-food items such as health and beauty care items, paper and tobacco products, soaps and detergents, drugs, sundries and housewares. The Company's multi-department stores offer, in addition, a wider variety of non-food items, including cosmetics and toiletries, small hardware and a limited selection of soft goods. Most of the Company's multi-department stores also feature expanded perishable goods departments, delicatessens and in-store bakeries, and many contain pharmacies and full-service seafood, full-service floral and video rental departments. All of the Company's stores feature national brands and also carry a selection of corporate brand merchandise. Most of the Company's food stores are located in shopping centers. The Company's food stores are open seven days a week, and most operate 24 hours a day. Super warehouse stores In 1993, the Company acquired three super warehouse stores (one of which was subsequently closed) operating under the "Save 'n Pack" name. The two existing super warehouse stores, which are 76,000 and 88,000 square feet in size, respectively, feature among the lowest prices on basic items carried by supermarkets and are designed to cater to the needs of the low-income household. In its super warehouse store promotions, the Company encourages consumers to verify the stores' tag line, "No One Has Lower Prices." The assortment of packaged goods carried by the super warehouse stores is more limited than that of a supermarket and is frequently augmented by one-time purchases of specially priced products that may not be available on a regular basis. Store decor is austere compared to that of a traditional supermarket, and product is displayed on warehouse racking and on floor pallets to enhance productivity and promote a low-price impression. The stores provide a full complement of perishable departments, including meat, produce, bakery, deli and fresh seafood, which also feature low prices and are frequently self-service. The super warehouse stores do not have certain specialty departments such as pharmacies, video rental departments or full-service floral departments and do not provide supermarket services such as grocery bagging, carry-out service, check cashing services and electronic funds transfer. Because of reduced display, labor and advertising costs and the more limited services, the Company is able to operate its super warehouse stores successfully with lower gross margins than the Kash n' Karry supermarket stores. The super warehouse stores operate 24 hours a day, seven days a week. Liquor stores Each of the Company's 33 liquor stores is located on property adjacent to one of the Company's supermarket stores and is operated as a department of such store, although, in 31 accordance with Florida law, each liquor store must maintain a separate entrance. Liquor stores complement the Company's core business, as they can be advertised through existing media without incremental expense, pay supermarket (as compared to shopping center) rents and benefit from operating and marketing synergies with the adjacent supermarkets. The liquor stores offer a wide variety of wines, beers and hard liquors, as well as mixers, soft drinks, snacks, ice and other party accessories and a limited number of traditional grocery items. Sales from the Company's liquor stores represent approximately 2% of the Company's total sales. The Company's liquor stores range in size from 1,800 to 2,700 square feet, and most are open seven days a week. Operations Strategy The Company believes that up-to-date, strategically located facilities, well-trained associates and information management systems are key elements to the Company's future success. The Company operates a modern, 687,000 square foot warehouse, distribution and office facility in Tampa with sufficient capacity to service anticipated store expansion for the foreseeable future. The warehouse enables the Company to reduce costs by purchasing in large quantities, taking advantage of special promotional prices offered by vendors and purchasing prior to impending price increases, and reducing delivery costs through cross docking and backhauls. The central location of the warehouse facility to its stores also provides the Company with operating efficiencies. The Company relies on information technology to enhance operating efficiency. The Company recently entered into an agreement to outsource its information systems development in order to minimize costs, accelerate the implementation period for systems improvements, facilitate future software upgrades, reduce personnel issues and eliminate equipment lease costs. Specifically, the agreement provides for the acquisition of new procurement, billing, labor scheduling and accounts payable systems and new point-of-sale equipment in the stores within the next 18 months. Marketing Strategy The Company emphasizes competitive prices on everyday items, strong weekly features, high quality perishables and a broad assortment of both national and corporate brands. The Company's food stores are open seven days a week, with most operating 24 hours a day. The Company seeks to be either first or second among its competitors in assortment of branded merchandise, stocking over 29,000 SKU's (stock keeping units) of national brand and corporate brand items. In addition to a full range of grocery and general merchandise items, most of the Company's multi-department supermarkets also feature expanded perishable goods departments, delicatessens and in-store bakeries, and many contain pharmacies and full-service seafood, full-service floral and video rental departments. 32 In 1992, the Company introduced its own corporate brand merchandise. The Company's corporate brand strategy is to offer a product comparable in quality to the best-selling national brand at a lower price. The Kash n' Karry brand item generally sells for approximately 10% less than the competing best-selling national brand but generates a higher per unit gross profit contribution to the Company. Over 1,100 SKU's in a wide variety of product categories carry the Kash n' Karry brand name. Competition The food retailing business is highly competitive. The Company operates in an environment where more than 90% of sales are by chains. The principal competitive factors include store locations, product selection and quality, price, cleanliness of stores, customer service and overall store image. Based on its marketing research, the Company believes that consumers perceive the Company as having a favorable value image in the markets that it serves and offering a wide variety of quality products and services in a pleasant environment. The Company believes that its competitive strengths include desirable store locations combined with a strong consumer franchise and efficient warehousing and distribution facilities. The Company competes with several national, regional and local supermarket chains, particularly Publix, Winn-Dixie, Albertson's and Food Lion. The Company is also in competition with convenience stores, stores owned and operated or otherwise affiliated with large food wholesalers, unaffiliated independent food stores, merchandise clubs, discount drugstore chains and discount general merchandise chains. The Company's principal competitors have greater financial resources than the Company and could use those resources to take steps which could adversely affect the Company's competitive position and financial performance. For example, operating results generally and sales growth in particular were adversely affected by approximately eight, 21, 25 and 30 store openings by principal grocery competitors during the 1994, 1993, 1992 and 1991 fiscal years, respectively. In the first six months of fiscal 1995, there were approximately four such competitive store openings, and it is anticipated that competitive store openings will continue. Another example of the highly competitive nature of the food retailing business is the practice of competitors to reposition their pricing structure. Over the past several years, each of the Company's major competitors has changed its pricing practices in a manner that has adversely affected general retail pricing in the market. Winn-Dixie discontinued double coupons and introduced its everyday low-price program in the spring of 1991. In the spring of 1993, Publix began a campaign focused on "surprisingly low prices," and Food Lion began a double coupon program which has since been discontinued. The Company has had to deal with each of these changes in a manner that has, in some instances, adversely affected its operating results and may continue to do so in the future. In addition, the Company's ability to compete may be adversely affected by its high leverage and the limitations imposed by the New Credit Agreement and other debt agreements. 33 Seasonality The Company's sales and related inventory levels tend to increase during the winter months due to the holidays, increased tourism and the influx of winter residents, and to decrease during the summer months. Typically, approximately 60% of the Company's operating cash flow is recorded during the second and third quarters of its fiscal year. Employees The Company currently employs approximately 3,700 full-time and 5,600 part-time associates, none of whom is covered by a collective bargaining agreement. The Company believes that it has good relations with its associates. Trademarks and Licenses The Company employs various trademarks, trade names and service marks in its business, including the "Kash n' Karry" logo and trade name. Except for "Kash n' Karry" and its derivatives, and "So Much More to Pay Less For!," "Kash $aver," "$mart Buy," "Five Star Meat," "Nature Friendly" and "Save 'n Pack," the Company does not believe that any of such trademarks or service marks are material to the business of the Company. Certain governmental licenses and permits, including alcoholic beverage licenses, health permits and various business licenses, are necessary in the Company's operations. The Company believes it has all material licenses and permits necessary to enable it to conduct its business. Properties The Company's 92 multi-department supermarkets and five conventional supermarket stores have an aggregate selling area of approximately three million square feet. Thirteen of the food stores (comprising approximately 504,000 square feet) are owned by the Company. The remaining 84 supermarket stores are leased by the Company. Six of the leased stores are operated under long-term ground leases with the Company owning the improvements at such locations. Seventeen leases expire during the next five years, with the Company having options to renew all but two. Most of the Company's food store leases have minimum rentals with additional rentals based on a percentage of sales. In March 1995, the Company entered into an agreement in principle to sell 11 of its fee-owned stores to a third party, and to simultaneously enter into long-term leases for those sites. The Company expects to consummate the sale-leaseback transaction before the end of the 1995 fiscal year. 34 The Company's two Save 'n Pack super warehouse stores have an aggregate selling area of approximately 119,000 square feet. One of the stores is leased, with the remaining store operated under a long-term ground lease with the Company owning the improvements at the location. Neither of the leases expires within the next five years. The Company's liquor stores have an aggregate selling area of approximately 53,000 square feet. Four of the liquor stores are owned by the Company. The remaining 29 liquor stores are leased by the Company. Three of the leases expire during the next five years, with the Company having an option to renew. The Company's warehouse, distribution and office facility is located on 53.6 acres of land, which the Company owns. Legal Proceedings For information regarding the Company's reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code, see "The Restructuring" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." On December 30, 1994, the Company's former chief executive officer, Ronald J. Floto, filed a proof of claim in the bankruptcy proceeding seeking payments allegedly owed to him in connection with his severance from the Company. The total principal amount of Mr. Floto's claim is less than $1.5 million. On March 31, 1995, the Company filed an objection to the proof of claim, and on April 29, 1995, Mr. Floto filed a response to the Company's objection. A hearing on the Company's objection is scheduled for May 18, 1995. The Company has been engaged in various other legal actions and claims arising in the ordinary course of business. Management believes, after discussions with legal counsel, that the ultimate outcome of such litigations and claims will not have a material adverse affect on the Company's financial position. 35 MANAGEMENT BOARD OF DIRECTORS Set forth below is certain information regarding each of the directors of the Company as of April 24, 1995: Name Age Everett L. Buckardt. . . . . . . . . . . . . . . . . 61 John J. Delucca. . . . . . . . . . . . . . . . . . . 52 Jennifer Holden Dunbar . . . . . . . . . . . . . . . 32 Ben Evans. . . . . . . . . . . . . . . . . . . . . . 65 Thomas W. Harberts . . . . . . . . . . . . . . . . . 50 Ronald E. Johnson. . . . . . . . . . . . . . . . . . 45 Robert Spiegel . . . . . . . . . . . . . . . . . . . 58 Christopher V. Walker. . . . . . . . . . . . . . . . 48 Peter Zurkow . . . . . . . . . . . . . . . . . . . . 41 Ms. Dunbar, Mr. Evans and Mr. Zurkow comprise the Company's Compensation Committee, its Stock Option Committee, and its Nominating Committee, and Mr. Buckardt, Ms. Dunbar, Mr. Evans and Mr. Harberts comprise the Company's Audit Committee. Pursuant to an understanding among the Company, Green Equity Investors, L.P. ("GEI") and the unofficial committee of the holders of the Old Senior Fixed Rate Notes, the Old Senior Floating Rate Notes and the Old Subordinated Debentures (the "Bondholder Committee"), as of December 29, 1994 the Company's Board of Directors was reconstituted to consist of nine members selected as follows: GEI selected Ms. Dunbar and Mr. Walker, the Bondholder Committee selected Messrs. Buckardt, Delucca, Evans, Harberts, Spiegel and Zurkow, and the Company selected its then acting Chief Executive Officer, Anthony R. Petrillo. No such understanding exists as to the election of directors following the expiration of the terms of the incumbent directors, or upon their resignation or removal as directors. On March 9, 1995, Mr. Petrillo resigned as a director and Mr. Johnson was appointed to succeed him. Biographical Information Everett L. Buckardt has been a Director of the Company since December 29, 1994. Mr. Buckardt has been Chairman and Chief Executive Officer of Warehouse Club, Inc. since January 1993. On February 3, 1995, Warehouse Club, Inc. filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In 1992, Mr. Buckardt retired from a 33 year career with Sears Roebuck and Company, where he served in various capacities, most recently as President of Sears Catalog and Direct Marketing Division. 36 John J. Delucca has been a Director of the Company since December 29, 1994. Mr. Delucca has been the Senior Vice President and Treasurer of RJR Nabisco since October 1993. He served as Managing Director and Chief Financial Officer of HASCO Associates, Inc., a Greenwich, Connecticut-based private holding company, from May 1991 to October 1993, as President and Chief Financial Officer of the Lexington Group, a workout and restructuring advisory group, from January 1990 to May 1991, and as Senior Vice President of Finance and Managing Director of the Trump Group from June 1988 to January 1990. Mr. Delucca is a director of Edison Controls Corp. and Enzo Biochem, Inc. Jennifer Holden Dunbar has been a Director of the Company since November 1991. Ms. Dunbar has been a general partner of Leonard Green & Partners, L.P. since 1994, and was a principal of Leonard Green & Partners, L.P. from January 1992 to January 1994 and an associate of Leonard Green & Partners, L.P. from November 1989. Prior to that time, Ms. Dunbar was an associate of Gibbons, Green, van Amerongen, L.P. and a financial analyst with Morgan Stanley & Co., Incorporated in its mergers and acquisitions department. Ms. Dunbar is a director of Big 5 Holdings Inc., UMC Corporation, Thrifty Payless, Inc., and Thrifty PayLess Holdings, Inc. Ben Evans has been a Director of the Company since December 29, 1994. Mr. Evans has been a consultant for the firm of Ernst & Young in its financial advisory services group since 1989. He is a director of Revco D.S., Inc., Jamesway Corporation and Megafoods Stores, Inc. Thomas W. Harberts has been a Director of the Company since December 29, 1994. Mr. Harberts is the owner of Cub Foods, a single outlet retail food store in Oshkosh, Wisconsin. From 1970 to 1994, he served in various capacities for Byerly's, an upscale retail food chain based in Minnesota, most recently as its Chief Executive Officer. Ronald E. Johnson has been Chairman of the Board of the Company since March 1995 and has been its President and Chief Executive Officer since January 1995. Mr. Johnson served as Chief Operating Officer of Farm Fresh from December 1993 to January 1995 and as its Senior Vice President of Store Operations from 1990 to 1993. Robert Spiegel has been a Director of the Company since December 29, 1994. Mr. Spiegel has served as Chairman and Chief Executive Officer of RJR Drug Distributors, a Louisville, Kentucky franchisee of Drug Emporium, since 1984. Mr. Spiegel is a director of Graham Field Health Products, Inc., and Hoenig Group, Inc. Christopher V. Walker has been a Director of the Company since November 1991. Mr. Walker also served as a Director of the Company from April 1988 to July 1991, and from November 1991 to present. Mr. Walker is a Managing Director of Trust Company of the West. He was a general partner of Leonard Green & Partners, L.P. from November 1989 to March 1995, was a general partner of Gibbons, Green, van Amerongen, L.P. from January 1989 to August 1989, and was a limited partner of Gibbons, Green, van Amerongen, L.P. from 37 October 1985 to January 1989. Mr. Walker is a director of Foodmaker, Inc., and Australian Resources and Mining Company NL. Peter Zurkow has been a Director of the Company since December 29, 1994. Mr. Zurkow has been a member of the High Yield Department of PaineWebber Incorporated since August 1994. He was an Associate Managing Director and served as a portfolio manager in the risk arbitrage department of Wertheim Schroder for more than five years prior to joining PaineWebber Incorporated. All Directors hold office until their successors are duly elected and qualified or until their earlier resignation or removal. Director Compensation Each member of the Board of Directors (excluding management) receives $12,500 per year (payable quarterly), plus $2,500 for each Board meeting attended in person, and $1,000 for each meeting of a committee to which such director is a member attended in person. In addition, each director is reimbursed for reasonable and necessary out-of-pocket expenses incurred in connection with attending such meetings in person. The cash compensation payable to directors affiliated with Leonard Green & Partners, L.P. ("LGP") is credited against the annual management fee payable to LGP. See "Certain Relationships and Related Transactions." As of April 24, 1995, Ms. Dunbar and Mr. Walker are the only directors who are affiliated with LGP. On March 9, 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (the "Director Plan"), and, pursuant to the Director Plan, granted to certain of its directors options to purchase a total amount of 36,000 shares of Common Stock. Messrs. Buckardt, Delucca, Evans, Harberts, Spiegel and Zurkow each received options to purchase 3,000 shares of Common Stock for $15.00 per share, vesting on July 30, 1995, and options to purchase an additional 3,000 shares of Common Stock for $20.00 per share, vesting on July 28, 1996. All of such options expire on March 8, 2005, or earlier upon the occurrence of certain events. On the same date, in lieu of granting options to Ms. Dunbar and Mr. Walker under the Director Plan, the Company granted to Green Equity Investors, L.P. ("GEI") options to purchase 6,000 shares of Common Stock for $15.00 per share, vesting on July 30, 1995, and options to purchase an additional 6,000 shares of Common Stock for $20.00 per share, vesting on July 28, 1996. GEI is a principal stockholder of the Company. See "Principal Stockholders." The terms of the options granted to GEI are substantially the same as the terms of the options granted under the Director Plan. 38 EXECUTIVE OFFICERS Set forth below is certain information regarding each of the executive officers of the Company as of April 24, 1995. Name Age Position Ronald E. Johnson. . . 45 Chairman of the Board, President and Chief Executive Officer Raymond P. Springer. . 44 Senior Vice President, Chief Financial Officer, Treasurer and Secretary Edward Kolodzieski . . 35 Senior Vice President, Operations Gary M. Shell. . . . . 47 Senior Vice President, Marketing/Nonperishables Clifford C. Smith Jr.. 35 Senior Vice President, Marketing/Perishables Richard D. Coleman . . 40 Vice President, Controller Biographical Information See "-- Board of Directors; Biographical Information" for biographical information concerning Ronald E. Johnson. Raymond P. Springer has been Senior Vice President, Chief Financial Officer, and Treasurer of the Company since March 1995, and Secretary of the Company since January 1995. Mr. Springer served as Executive Vice President, Administration of the Company from October 1988 to March 1995. Mr. Springer also served as a Director of the Company from October 1988 to July 1991, and from November 1991 to December 1994. Edward Kolodzieski has been Senior Vice President of Operations of the Company since March 1995. Mr. Kolodzieski served in various capacities with the Company since October 1988, including Vice President, Operations and Regional Manager. Gary M. Shell has been Senior Vice President of Marketing of Nonperishables of the Company since March 1995. Mr. Shell served as Vice President of Marketing and Merchandising of B. Green & Company, a food wholesaler and retailer, from May 1991 to February 1995, and as Vice President of Purchasing and Promotions of Rich Foods, Inc. from 1987 to 1991. 39 Clifford C. Smith Jr. has been Senior Vice President of Marketing of Perishables of the Company since March 1995. Mr. Smith served as the Director of Deli, Bakery and Food Service for Harris-Teeter from 1992 to March 1995, and as the Vice President of Deli, Bakery and Food Service for Mayfair Supermarkets, Inc. from 1981 to 1992. Richard D. Coleman has been Vice President and Controller of the Company since October 1988, and Director of Risk Management of the Company since January 1995. From October 1988 to January 1995, Mr. Coleman also served as Secretary of the Company. Compensation of Executive Officers Summary Compensation The following table sets forth compensation for the fiscal years ended July 31, 1994, August 1, 1993 and August 2, 1992, respectively, awarded to, earned by, or paid to the Chief Executive Officer and the acting Chief Executive Officer of the Company during fiscal year 1994, and the individuals who, in fiscal year 1994, were the other four most highly compensated executive officers of the Company (collectively, the "Named Executive Officers"). 40 Summary Compensation Table Long-Term Compensation Annual Compensation Awards All Other Name & Principal Position(1) Year Salary(2) Bonus Options Compensation Ronald J. Floto Chairman of the Board, President and Chief Executive Officer...1994 $346,056 $ 0 0 $ 8,978(3),(4) 1993 248,358 41,400 0 100,990 1992 358,270 267,720 39,485 24,265 Raymond P. Springer Executive Vice President, Administration............1994 $177,298 $ 0 0 $ 11,910(3) 1993 131,233 15,000 0 51,832 1992 186,923 87,300 18,120 12,617 Dennis V. Carter Executive Vice President, Operations ...............1994 $133,356 $ 0 0 $ 7,514(3) 1993 123,250 17,000 4,162 8,764 1992 139,038 91,665 15,351 9,618 Thomas A. Whipple Executive Vice President, Marketing.................1994 $118,331 $ 0 0 $ 3,073(3) 1993 60,923 0 0 787 1992 186,923 87,300 12,165 12,962 Richard D. Coleman Vice President, Controller and Secretary..1994 $100,000 $ 0 0 $ 2,574(3) 1993 95,481 5,000 0 6,682 1992 103,846 27,160 4,515 6,948 ____________________________ (1) The principal position held by the Named Executive Officers as of July 31, 1994 is given, except in the case of Mr. Floto. Mr. Floto's employment with the Company terminated on July 29, 1994, and Anthony R. Petrillo was appointed to replace him on an interim basis on August 1, 1994. Since the Restructuring was consummated on December 29, 1994, Ronald E. Johnson joined the Company as Chairman of the Board, President and Chief Operating Officer, replacing Mr. Petrillo, Messrs. Carter and Whipple resigned from the Company, Mr. Springer's title was re-designated as Senior Vice President, Chief Financial Officer, and Edward Kolodzieski, Gary M. Shell and Clifford C. Smith Jr. became executive officers. The current annual salaries of Messrs. Johnson, Kolodzieski, Shell and Smith are $325,000, $150,000, $130,000 and $130,000, respectively. During his tenure as acting Chairman of the Board, President and Chief Executive Officer, Mr. Petrillo received a weekly salary of $13,462 and a bonus of $200,000. Mr. Petrillo continues to serve as a consultant to the Company, for which he is compensated at the rate of $200 per hour. 41a (2) Includes amounts deferred at the election of the Named Executive Officers under the Company's Retirement Estates 401(k) Plan (the "Retirement Plan"), a trusteed defined contribution plan, and its nonqualified unfunded supplemental salary deferral plan (the "Supplemental Retirement Plan"). (3) Represents (i) matching contributions by the Company under its Retirement Plan of $2,587 for the benefit of Mr. Floto, $1,292 for the benefit of Mr. Whipple, $1,321 for the benefit of Mr. Springer, $990 for the benefit of Mr. Carter and $741 for the benefit of Mr. Coleman; (ii) matching allocations by the Company under its Supplemental Retirement Plan of $5,175 for the benefit of Mr. Floto, $1,453 for the benefit of Mr. Whipple, $9,854 for the benefit of Mr. Springer, $6,075 for the benefit of Mr. Carter and $1,500 for the benefit of Mr. Coleman; and (iii) above-market interest recorded by the Company under its Supplemental Retirement Plan of $1,216 for the benefit of Mr. Floto, $328 for the benefit of Mr. Whipple, $735 for the benefit of Mr. Springer, $449 for the benefit of Mr. Carter and $333 for the benefit of Mr. Coleman. 41b (4) Mr. Floto filed a proof of claim against the Company seeking payments allegedly owed to him in connection with his severance from the Company. See "Business -- Legal Proceedings." Due to the contingency of such claim, it is not reflected in this table. Stock Option Grants in Last Fiscal Year Prior to the Restructuring, the Company administered two stock option plans for the benefit of its executive officers and other valued employees -- the Restated 1988 Management Stock Option Plan and the 1991 Management Stock Option Plan (the "Old Option Plans"). No options were granted in fiscal year 1994 under either of the Old Option Plans. Pursuant to the Prepackaged Plan, all of the outstanding options under the Old Option Plans were extinguished on December 29, 1994. In March 1995, the Company adopted the 1995 Key Employee Stock Option Plan (the "New Option Plan"), which authorizes the issuance to eligible participants of options to purchase up to 236,946 shares of Common Stock of the Company. (Capitalized terms not otherwise defined in this paragraph are defined in the New Option Plan.) Thereafter, the Stock Option Committee granted to certain executive officers options to purchase the aggregate amount of 125,240 shares of Common Stock under the New Option Plan (the "Initial Options"). The Initial Options vest in serial increments in the amount of 20% per year, on the last day of each of the 1995, 1996, 1997, 1998 and 1999 fiscal years of the Company. However, upon the occurrence of a Merger Event or a Change of Control, the Initial Options become 100% vested. In addition, upon the termination of Mr. Johnson's employment Without Cause (as defined in his employment agreement), all of Mr. Johnson's Initial Options become 100% vested. The Initial Options expire, to the extent not exercised, on the tenth anniversary of the date of grant. However, upon termination of an optionee's employment with the Company, all unvested Initial Options lapse, and all vested Initial Options expire 180 days after the termination of employment, if such termination is due to the death, Disability or Retirement of the optionee, or 45 days after the termination of employment, if such termination is due to any other reason, other than a Termination for Cause. If a Termination for Cause occurs, all vested and unvested Initial Options expire immediately. The following table sets forth certain information with respect to the Initial Options: Number of Securities Underlying Options Exercise Price Name Granted (Dollars/Share) Expiration Date Ronald E. Johnson 33,849 $15.00 March 8, 2005 Raymond P. Springer 30,464 $15.00 March 8, 2005 Edward Kolodzieski 20,309 $15.00 March 8, 2005 Gary M. Shell 20,309 $15.00 March 8, 2005 Clifford C. Smith Jr. 20,309 $15.00 March 25, 2005 42 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values None of the options granted under the Old Option Plans were exercised before they were extinguished pursuant to the Prepackaged Plan on December 29, 1994. The following table shows information concerning the value of the unexercised options granted under the Old Option Plans held by the Named Executive Officers as of July 31, 1994: Value of Number of Unexercised Name Unexercised In-the-Money Options at Options at Fiscal Year End Fiscal Year End Exercisable/ Exercisable/ Unexercisable Unexercisable Ronald J. Floto -0-/-0- (1) Thomas A. Whipple 1,877/12,349 (1) Raymond P. Springer 1,877/18,304 (1) Dennis V. Carter 1,102/19,697 (1) Richard D. Coleman 610/4,569 (1) (1) As of July 31, 1994, the Company had reached an agreement in principle with the Unofficial Bondholders' Committee with respect to the Restructuring. Accordingly, the fair market value of the Common Stock underlying the options was nil and none of the options were in-the-money. On December 29, 1994, all of such options were extinguished pursuant to the Prepackaged Plan. Employment Contracts and Termination of Employment and Change-of-Control Arrangements Messrs. Johnson, Shell and Smith have each entered into employment agreements with the Company for a three-year term. Mr. Johnson's term commenced in January 1995 and Messrs. Shell's and Smith's terms each commenced in March 1995. Under the employment agreements, the Company agrees to pay a base salary and to allow the employee to participate proportionally in all fringe benefit plans available to the most senior executive officers of the Company from time to time during the term, including the Company's current bonus plan. Employment under the agreements may be terminated for cause or without cause in certain circumstances, as defined therein, including the employee's death or disability. Upon a termination without cause, the employee is entitled to continuation of salary and, in certain circumstances, benefits and bonus, through the term of the employment agreement. Mr. Johnson's agreement also provides that options granted to him under the New Option Plan will become fully vested upon a termination of his employment without cause. The agreements also 43 contain certain requirements of noncompetition, including a requirement of noncompetition for a period of one year following a termination of employment, other than a termination without cause. The Company has severance pay agreements with certain members of its senior management and other key employees. The severance pay agreements provide, among other things, that if the employee is terminated without Cause (as defined therein) in connection with a Change of Control (as defined therein) then such employee will be entitled to payment ranging from 50% to 100% of that employee's annual compensation. The Company maintains the Kash n' Karry Retirement Estates ("KKRE"), a trusteed defined contribution retirement plan. KKRE is a tax savings/profit sharing plan maintained for the purpose of providing retirement income for eligible employees of the Company. KKRE is qualified under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as amended. Generally, all employees who have attained the age of 21 years and complete one year of participation service (as defined under KKRE) are eligible to participate in KKRE. During the 1994 fiscal year, each of the Named Executive Officers participated in KKRE. Certain members of senior management and other key employees also participate in the Kash n' Karry Executive Supplemental Retirement Plan ("KESP"), a non-qualified, unfunded salary deferral plan. During the 1994 fiscal year, each of the Named Executive Officers participated in KESP. Prior to the beginning of each plan year, a participant may elect to defer an amount not to exceed 15% of such participant's annual base compensation (as defined under KESP). The Company matches a certain portion of the amount deferred by the participant, but the amount of the match may not exceed 6% of such participant's annual base compensation. The Company records income to the participant's account at an annual rate as determined by the Board of Directors, but the rate of such income shall not be less than 8% per annum. The vested percentage of the amounts recorded in the participant's account will be paid to the participant upon the earlier of: (i) such participant's death, disability, retirement or other separation of service from the Company; (ii) the date the Plan is terminated; or (iii) the date that a change in control occurs (as defined under KESP). Compensation Committee Interlocks and Insider Participations The Board of Directors has established a Compensation Committee and a Stock Option Committee. The Compensation Committee approves compensation payable to the executive officers and the Stock Option Committee administers the Company's stock option plans. Currently, Jennifer Holden Dunbar, Ben Evans and Peter Zurkow comprise both such committees. During the 1994 fiscal year, Ronald J. Floto, Leonard I. Green, Christopher V. Walker and Edward W. Gibbons (each of whom was a director during the 1994 fiscal year) performed the functions of the Compensation Committee and Messrs. Floto, Green and Gibbons served on the Stock Option Committee. 44 Mr. Green and Ms. Dunbar are each controlling shareholders of general partners of LGP, and Mr. Green is a former partner of Gibbons, Green, van Amerongen, L.P. ("Gibbons, Green"), now known as Gibbons, Goodwin, van Amerongen, L.P. ("GGvA"). Mr. Walker is a former general partner of LGP and of Gibbons, Green. Mr. Gibbons is a general partner of GGvA. LGP is the general partner of Green Equity Investors, L.P., which owned 60.9% of the Company's common stock during the 1994 fiscal year, and which currently owns 27.7% of the Company's Common Stock. See "Principal Stockholders." GGvA is the general partner of the Fulcrum Partnerships, which collectively owned 33.8% of the Company's common stock during the 1994 fiscal year. The equity interest of the Fulcrum Partnerships was extinguished in December 1994 pursuant to the Prepackaged Plan. Gibbons, Green is a predecessor of GGvA. Mr. Floto was the Chairman of the Board, President and Executive Officer of the Company until July 29, 1994. During fiscal 1994, as consideration for the provision of financial advisory services, the Company agreed to pay an annual fee of $554,000, plus related out-of-pocket expenses, to LGP and an annual fee of $232,000, plus related out-of-pocket expenses, to GGvA. From September 1993 through December 1994, the Company did not pay the annual fees to LGP or GGvA, but reimbursed them for out-of-pocket expenses billed to the Company. Pursuant to the Prepackaged Plan, on December 29, 1994 the Company entered into a Management Services Agreement with LGP, pursuant to which LGP agreed to provide management, consulting, financial planning and financial advisory services for a two year term, in consideration for an annual fee of $200,000. 45 Security Ownership of Management The following table sets forth as of April 24, 1995, the number and percentage of all shares of Common Stock owned by each of the directors of the Company, each of the Named Executive Officers, each of the current executive officers of the Company, and all directors, Named Executive Officers and current executive officers as a group. Number of Name Shares Owned Percent (1) Everett L. Buckardt -0- -0- John J. Delucca -0- -0- Dennis V. Carter -0- -0- Richard D. Coleman -0- -0- Jennifer Holden Dunbar (2) 857,629 27.7 Ben Evans 2,500 * Ronald J. Floto -0- -0- Thomas W. Harberts -0- -0- Ronald E. Johnson -0- -0- Edward Kolodzieski -0- -0- Gary M. Shell -0- -0- Clifford C. Smith Jr. -0- -0- Robert Spiegel 10,000 * Raymond P. Springer -0- -0- Christopher V. Walker (2) 857,378 27.7 Thomas A. Whipple -0- -0- Peter Zurkow -0- -0- All Directors, Named Executive Officers and current executive officers as a group (17 persons) (2). . . . . . . . 870,129 28.1 - ---------------------- * Less than 1% (1) Based on 3,100,000 shares of Common Stock outstanding. (2) Includes 857,378 shares owned by Green Equity Investors, L.P., of which Leonard Green & Partners, L.P. ("LGP"), is the sole general partner. Ms. Dunbar may be deemed to be the beneficial owner of such shares by reason of her being the controlling shareholder of a general partner of LGP, and Mr. Walker may be deemed to be the beneficial owner of such shares by reason of his being a former general partner of LGP. 46 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During fiscal 1994, 1993, and 1992, respectively, as consideration for the provision of financial advisory services, the Company agreed to pay an annual fee of $554,000, plus related out-of-pocket expenses, to Leonard Green & Partners, L.P. ("LGP"), and an annual fee of $232,000, plus related out-of- pocket expenses, to Gibbons, Goodwin, van Amerongen, L.P. ("GGvA"). From September 1993 through December 1994, the Company did not pay the annual fees to LGP or GGvA, but reimbursed them for out-of-pocket expenses billed to the Company. Pursuant to the Prepackaged Plan, on December 29, 1994 the Company entered into a Management Services Agreement with LGP, pursuant to which LGP agreed to provide management, consulting, financial planning and financial advisory services for a two year term, in consideration for an annual fee of $200,000. LGP is the sole general partner of Green Equity Investors, L.P., which owned approximately 60.9% of the Company's outstanding common stock immediately prior to the consummation of the Prepackaged Plan. GGvA is the general partner of The Fulcrum III Limited Partnership and The Second Fulcrum III Limited Partnership, which collectively owned 33.8% of the Company's outstanding common stock immediately prior to the consummation of the Prepackaged Plan. Jennifer Holden Dunbar, who is a director of the Company, is the controlling shareholder of a general partner of LGP. Christopher V. Walker, who is also a director of the Company, is a former general partner of LGP and of GGvA. 47 PRINCIPAL STOCKHOLDERS The following table sets forth, as of April 24, 1995 (unless otherwise specified), the name and address of each person known by the Company to be the beneficial owner of more than five percent of the outstanding Common Stock (the only class of voting securities of the Company): Name and Address Number of Shares Percent American Express Company 652,470(1) 21.1% American Express Tower World Financial Center New York, NY 10285 American Express Financial Corporation 652,470(1) 21.1 IDS Tower 10 Minneapolis, MN 55440 Green Equity Investors, L.P. 857,378(2) 27.7 333 S. Grand Avenue Suite 5400 Los Angeles, CA 90071 IDS Extra Income Fund 552,090(1) 17.8 IDS Tower 10 Minneapolis, MN 55440 The Prudential Insurance Company 435,384(3) 14.0 of America Prudential Plaza Newark, NJ 07102-3777 PaineWebber Incorporated 402,568(4) 13.0 1285 Avenue of the Americas New York, NY 10019 (1) Based upon information supplied by American Express Company, American Express Financial Corporation and IDS Extra Income Fund. Represents shares over which each such person shares dispositive power, with respect to which American Express Company has advised the Company that it disclaims beneficial ownership. (2) Based upon information supplied by Green Equity Investors, L.P. (3) Based upon information supplied by The Prudential Insurance Company of America ("Prudential"). Includes 32,233 shares held for the benefit of clients of Prudential over which Prudential may have direct or indirect voting and/or investment discretion, with 48 respect to which Prudential has advised the Company that it disclaims beneficial ownership. (4) Based upon information supplied by PaineWebber Incorporated, as of April 15, 1995. PaineWebber Incorporated, a registered broker-dealer, makes a market in the Common Stock of the Company. DESCRIPTION OF CAPITAL STOCK Authorized Capital Stock The authorized capital stock of the Company consists of 5,500,000 shares of Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock, par value $.01 per share. The authorized Preferred Stock includes 35,000 shares of Series A Junior Participating Preferred Stock (the "Series A Preferred"). As of April 24, 1995, 3,100,000 shares of Common Stock and no shares of Preferred Stock were outstanding, an additional 173,240 shares of Common Stock were reserved for issuance pursuant to outstanding options granted to GEI and to certain directors and executive officers pursuant to the Director Plan and New Option Plan, and all 35,000 shares of Series A Preferred were reserved for issuance to the holders of Rights. See "Management" and "-- Certain Anti-Takeover and Charter Provisions; Rights Plan." The following description of those terms and provisions of the capital stock of the Company which are deemed material to an investment in the Common Stock is intended to be a summary thereof and does not purport to be a complete description of the terms and conditions of such capital stock. Reference is made to the Company's Restated Certificate of Incorporation, the Certificate of Designations of the Series A Preferred, and the Rights Agreement dated as of April 13, 1995 (the "Rights Agreement") between the Company and Shawmut Bank Connecticut, N.A., as Rights Agent (the "Rights Agent"). Copies of each of the foregoing documents have been filed as exhibits to the Registration Statement of which this Prospectus is a part. Common Stock Each holder of Common Stock is entitled to one vote per share on all matters to be voted on by the stockholders, including elections of directors, and, except as otherwise provided by law or as may be provided with respect to any series of Preferred Stock created by the Board of Directors from time to time, the holders of such shares of Common Stock exclusively possess all voting power. See "Description of Capital Stock -- Preferred Stock." Holders of Common Stock are not entitled to cumulate their votes. 49 Subject to certain preferential rights of any outstanding series of Preferred Stock created by the Board of Directors from time to time, holders of Common Stock are entitled to dividends and other distributions as and when declared by the Board of Directors out of assets legally available therefor, and upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock would be entitled to share equally in the distribution of all of the Company's assets. The holders of Common Stock have no preemptive rights to purchase shares of Common Stock of the Company. The transfer agent and registrar for the Company's Common Stock is Shawmut Bank Connecticut, N.A., of 777 Main Street, MSN 238, Hartford, Connecticut 06115. The Common Stock is listed on the Nasdaq Small Cap Market under the symbol "KASH." Preferred Stock Blank check authority The Board of Directors has the authority, without action by the stockholders, to issue shares of Preferred Stock in one or more series and, within certain limitations, to determine the dividend rights, dividend rate, rights and terms of redemption, liquidation preferences, sinking fund terms, conversion rights and voting rights of any series of Preferred Stock, the number of shares constituting any such series, the designation thereof, and the price therefor. As of April 24, 1995, the Board of Directors has not authorized the issuance of any Preferred Stock other than the Series A Preferred. See "-- Series A Preferred." The Company believes that the ability of its Board of Directors to issue one or more series of Preferred Stock will provide the Company with flexibility in structuring possible future financings and acquisitions, and in meeting other corporate needs which might arise. The authorized shares of Preferred Stock, as well as Common Stock, will be available for issuance without further action by the Company's stockholders, unless such action is required by applicable law or the rules of any exchange or automated quotation system on which the Company's securities may be listed or traded. Series A Preferred There are 35,000 authorized shares of Series A Preferred. As of April 24, 1995, none of the Series A Preferred is outstanding, but all of such shares are reserved for issuance pursuant to an exercise of Rights. See "-- Certain Anti-Takeover and Charter Provisions; Rights Plan." 50 The Series A Preferred is not redeemable and has no sinking fund. Each share of Series A Preferred will be entitled to a minimum preferential quarterly dividend payment of $1 per share but will be entitled to an aggregate dividend equal to the dividends on 100 shares of Common Stock. In addition, each share of Series A Preferred will have a liquidation preference of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per share of Common Stock. Each share of Series A Preferred will have 100 votes, voting together with the shares of Common Stock. Finally, in the event of any merger, consolidation or other transaction in which shares of Common Stock are exchanged, each share of Series A Preferred will be entitled to receive 100 times the amount received per share of Common Stock. These rights are protected by customary anti-dilution provisions. Restrictions on Dividends The indentures governing the New Senior Fixed Rate Notes and the New Senior Floating Rate Notes (the "Indentures") provide that the Company will not, directly or indirectly, (i) declare or pay any dividend on or make any distributions in respect of the capital stock of the Company or any Subsidiary thereof (except for (x) dividends or distributions payable solely to the Company or any Subsidiary of the Company and (y) dividends or distributions of a Subsidiary of the Company solely on the capital stock of such Subsidiary), or purchase, redeem or retire for value, or make any payment on account of the purchase, redemption or other acquisition or retirement for value of, any capital stock or warrants, rights or options to purchase such capital stock, (ii) make any principal payment on, or redeem, repurchase or defease, or otherwise acquire or retire for value, Subordinated Debt (as defined in the Indentures), prior to any scheduled principal payment, scheduled sinking fund payment or maturity thereof, or (iii) make any loan or advance to, or any other Investment (as defined in the Indentures) in, any of its Affiliates other than a Subsidiary of the Company (such payments or any other actions described in (i), (ii) and (iii), collectively, "Restricted Payments") unless (1) at the time of and after giving effect to the proposed Restricted Payment, no Event of Default (as defined in the Indentures) or event that, after notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing, and (2) at the time of and after giving effect to the proposed Restricted Payment (the amount of any such payment, if other than cash, to be determined by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution (as defined in the Indentures)) (A) the Consolidated Net Worth (as defined in the Indentures) of the Company shall be at least $75,000,000 and (B) the aggregate amount of all Restricted Payments after January 29, 1995 shall not exceed 50% of Cumulative Net Available Cash (as defined in the Indentures) of the Company and (C) the Fixed Charge Coverage Ratio (as defined in the Indentures) calculated on a pro forma basis for the full twelve-month period ending on the last day of the Company's fiscal quarter immediately preceding such proposed Restricted Payment shall be at least 1.50 to 1. Notwithstanding the foregoing, this provision will not prohibit the redemption, by the Company, of its common stock (on a fully diluted basis) from time to time under the terms and conditions of management equity subscription agreements or stock option agreements and related exhibits, so long as such 51 redemption does not otherwise result in an Event of Default or event that, after notice or lapse of time or both, would become an Event of Default. The foregoing provisions shall not be deemed to prohibit (1) the payment of any dividend within 60 days after the date of declaration thereof, if at such declaration date such declaration complied with the provisions of the Indentures, or (2) the redemption, repurchase or other acquisition or retirement (a "retirement") of any shares of any class of capital stock of the Company or of any Subsidiary thereof in exchange for (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares or scrip), or out of the proceeds of a substantially concurrent issue and sale (other than to a Subsidiary of the Company) of, other shares of capital stock of the Company, or (3) the retirement of Subordinated Debt out of the proceeds of a substantially concurrent sale (other than to a Subsidiary of the Company) of shares of capital stock of the Company or issuance other than to a Subsidiary of the Company of new Indebtedness which has a weighted average life to maturity at least as long as the Stated Maturity of the New Notes and no sinking fund or scheduled principal payments prior to the maturity of the New Notes and the payment of which is subordinated in right of payment and otherwise to the New Notes at least to the same extent as such Subordinated Debt, or (4) the payment of dividends or the making of distributions on shares of capital stock of the Company solely in shares of capital stock of the Company. The New Credit Agreement provides that the Company will not declare or make any Dividend Payment (as defined in the New Credit Agreement) at any time (other than Dividend Payments in respect of the Company's obligations to repurchase capital stock or Equity Rights (as defined in the New Credit Agreement) of the Company of retired, terminated or deceased directors, officers or employees of the Company, provided that (a) the aggregated amount of such payments in any fiscal year of the Company shall not exceed the sum of (i) $500,000 plus (ii) for each fiscal year of the Company beginning after the Effective Date, an amount equal to the excess (if any) of $500,000 over the amount of such payments made by the Company in its immediately preceding fiscal year and (b) no such Dividend Payments may be made after the occurrence and during the continuance of any Default (as defined in the New Credit Agreement)). Certain Anti-Takeover and Charter Provisions Delaware General Corporation Law The Company is subject to Section 203 of the Delaware General Corporation Law, as amended ("Section 203"). Section 203 provides that, subject to certain exceptions specified therein, an "interested stockholder" of a Delaware corporation shall not engage in any business combination, including mergers or consolidations or acquisitions of additional shares of the corporation, with the corporation for a three-year period following the date that such stockholder becomes an "interested stockholder" unless (i) prior to such date, the board of directors of the 52 corporation approved either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder," (ii) upon consummation of the transaction which resulted in the stockholder becoming an "interested stockholder," the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares), or (iii) on or subsequent to such date, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the "interested stockholder." Except as otherwise specified in Section 203, an "interested stockholder" is defined to include (x) any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date and (y) the affiliates and associates of any such person. Under certain circumstances, Section 203 makes it more difficult for a person who would be an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders may elect to exclude a corporation from the restrictions imposed thereunder. The Certificate of Incorporation does not exclude the Company from the restrictions imposed under Section 203. The provisions of Section 203 may encourage companies interested in acquiring the Company to negotiate in advance with the Board of Directors, since the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction which results in the shareholder becoming an interested shareholder. Such provisions also may have the effect of preventing changes in the management of the Company. It is possible that such provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests. Severance arrangements Certain executive officers of the Company have severance arrangements with the Company, which may have the effect of increasing the costs of acquiring the Company in a hostile takeover. See "Management -- Termination of Employment and Change-of-Control Arrangements." Rights Plan On April 13, 1995, the Company adopted a preferred stock purchase rights plan (the "Rights Plan"). Under the Rights Plan, the Board declared a dividend in the form of one right (a "Right" and, collectively, the "Rights") for each outstanding share of Common Stock. The dividend was payable on April 27, 1995 (the "Record Date") and was declared with respect to both the shares then outstanding and shares that shall become outstanding between the Record Date and the earliest of the Distribution Date (as defined below) and the date on which the 53 Rights are redeemed or expire. The certificates representing any such shares of Common Stock so issued will bear a legend to the effect that the certificates also evidence the Rights. Subject to adjustment upon the occurrence of certain events described below, each Right entitles the holder thereof to purchase one one-hundredth of a share of Series A Preferred (the "Preferred Shares") for $76.00 (the "Purchase Price"), ten days after a person or group (an "Acquiring Person") acquires 25% or more of the Company's Common Stock (or, subject to the terms of the Rights Agreement, more than 29% in the case of Leonard Green & Partners, L.P. ("LGP") or any person or entity which at any time purchases all of the shares of Common Stock owned by LGP), or certain actions are taken in respect of such acquisition. The first date on which the right to purchase Preferred Shares could be exercised is referred to herein as the Distribution Date. The Purchase Price payable, and the number of Preferred Shares or other securities issuable, upon exercise of the Rights shall be adjusted in the event (i) of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Shares, (ii) of a grant to holders of the Preferred Shares of certain rights or warrants to subscribe for or purchase Preferred Shares at a price, or securities convertible into Preferred Shares with a conversion price, less than the then-current market price of the Preferred Shares or (iii) of a distribution to holders of the Preferred Shares of evidences of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained earnings or dividends payable in Preferred Shares) or of subscription rights or warrants (other than those referred to above). The number of outstanding Rights and the number of one one-hundredths of a Preferred Share issuable upon exercise of each Right are also subject to adjustment in the event of a stock split of the shares of Common Stock or a stock dividend on the shares of Common Stock payable in shares of Common Stock or subdivisions, consolidations or combinations of shares of the Common Stock occurring, in any such case, prior to the Distribution Date. In the event any person or group becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter have the right to receive (subject to adjustment) upon exercise that number of shares of Common Stock having a market value of two times the exercise price of the Right. In addition, if there is a merger or other business combination between the Company and an Acquiring Person, or if certain other events occur involving an Acquiring Person, each Right (if not previously exercised) would entitle the holder to purchase that number of shares of common stock of the Acquiring Person which at the time of such transaction will have a market value of two times the exercise price of the Right. Prior to the Distribution Date, the Rights cannot be transferred apart from the Common Stock and will be represented solely by the Common Stock certificates. If the Distribution Date occurs, separate certificates representing the Rights will be mailed to holders of the Common 54 Stock as of such date, and the Rights could then begin to trade separately from the Common Stock. At any time after any person or group becomes an Acquiring Person and prior to the acquisition by such person or group of 50% or more of the outstanding shares of Common Stock, the Company may exchange the Rights (other than Rights owned by an Acquiring Person, which will have become void), in whole or in part, at an exchange ratio of one share of Common Stock, or one one-hundredth of a Preferred Share (or of a share of a class or series of the Company's preferred stock having equivalent rights, preferences and privileges), per Right (subject to adjustment). The Rights are redeemable by the Company at $.01 per Right at any time prior to the occurrence of the Distribution Date. In the event the Company receives a written notice from the holder or holders of at least ten percent of the shares of Common Stock then outstanding directing the Board of Directors to submit to a vote of stockholders at the Company's next annual meeting of stockholders a resolution authorizing the redemption of all the then outstanding Rights at the Redemption Price (the "Resolution") and the written notice complies with certain procedural requirements, then the Board of Directors is required to take such actions as are necessary or desirable to cause the Resolution to be so submitted to a vote of stockholders, including by including a proposal relating to the adoption of the Resolution in the Board of Directors' proxy materials relating to such annual meeting of stockholders. Subject to the requirements of applicable law, the Board of Directors of the Company may take a position in favor of or opposed to the adoption of the Resolution, or no position with respect to the Resolution, as it deems appropriate. If at the annual meeting the Resolution receives the affirmative vote of a majority of the shares of Common Stock outstanding as of the record date for such annual meeting, and provided that no person or entity has become an Acquiring Person prior to the redemption date, then all of the Rights will be redeemed by such stockholder action at the Redemption Price, effective as of the close of business on the tenth business day following the date on which the results of the vote on the Resolution at the annual meeting are certified as official. The Rights will automatically expire on April 13, 2000 (the "Final Expiration Date"), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by the Company. The Rights will not have any voting rights and will not be entitled to dividends. The terms of the Rights may be amended without the consent of the holders of the Rights, provided that after the Distribution Date the amendment does not adversely affect the interest of the holders. The Preferred Shares are not redeemable and have no sinking fund. Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $1 per share but will be entitled to an aggregate dividend equal to the dividends on 100 shares of Common Stock. In addition, each Preferred Share will have a liquidation preference of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per share of Common Stock. 55 Each Preferred Share will have 100 votes, voting together with the shares of Common Stock. Finally, in the event of any merger, consolidation or other transaction in which shares of Common Stock are exchanged, each Preferred Share will be entitled to receive 100 times the amount received per share of Common Stock. These rights are protected by customary anti-dilution provisions. The Rights may have certain anti-takeover effects. The Rights will cause substantial dilution to any person or group which becomes an Acquiring Person or if an Acquiring Person attempts to merge with, or engage in certain other transactions with, the Company. The Rights should not, however, interfere with any merger or other business combination approved by the Company's Board of Directors prior to the occurrence of a Distribution Date because the Rights may be redeemed prior to such time. Limitation of Liability of Directors The Certificate of Incorporation provides that a director of the Company will not be personally liable to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, which concerns unlawful payments of dividends, stock purchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. While the Certificate of Incorporation provides directors with protection from awards for monetary damages for breaches of their duty of care, it does not eliminate such duty. Accordingly, the Certificate of Incorporation will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his or her duty of care. The provisions of the Certificate of Incorporation described above apply to an officer of the Company only if he or she is a director of the Company and is acting in his or her capacity as director, and do not apply to officers of the Company who are not directors. 56 SELLING STOCKHOLDERS Certain holders of Common Stock (the "Selling Stockholders") may offer such securities hereby on a continuous or delayed basis pursuant to Rule 415 promulgated under the Securities Act. The following table sets forth certain information as of April 26, 1995 with respect to each Selling Stockholder for whose account Common Stock may be sold pursuant to this Prospectus, which information has been furnished to the Company by the Selling Stockholders and other sources that the Company has not certified. Because the Selling Stockholders may sell, pursuant to this Prospectus, all or some part of the Common Stock that they hold, no estimate can be given as to the amount of Common Stock that will be held by the Selling Stockholders at any time subsequent to the date of this Prospectus. See "Plan of Distribution." As of April 26, 1995, none of the Selling Stockholders except Green Equity Investors, L.P. ("GEI") has had a material relationship within the past three years with the Company, other than as a result of the ownership of securities of the Company. For a discussion of the relationship between GEI and the Company, see "Certain Relationships and Related Transactions." Beneficial Ownership Prior Beneficial to Offering (1) Ownership After Number of Percentage Shares Offering Name of Selling Stockholder Shares of Class Offered Hereby (1), (2) American Express Company 652,470(3) 21.1 652,470 -0- American Express Financial Corporation 652,470(3) 21.1 652,470 -0- Eugene Aspy and Helen Breland, as joint tenants 10 * 10 -0- William H. Bartman and 251 * 251 -0- Margaret L. Bartman, as Trustees u/a dated July 28, 1971 Wayne R. Bernhardt 125 * 125 -0- Harold Buchhalter 501 * 502 -0- Gino J. Caccanisi and 250 * 250 -0- Barbara V. Caccanisi, as joint tenants Cede & Co. 3,076,283(4) 99.24 3,076,283 -0- Jennifer Holden Dunbar 251 * 251 -0- 57 Mary J. Eichhorn, as Trustee 502 * 502 -0- u/a dated May 21, 1991 f/b/o Walter J. Eichhorn, Sr. Revocable Trust Ruth E. Geniesse 50 * 50 -0- Green Equity Investors, L.P. 857,378 27.7 857,378 -0- Paul J. Green & Joan Green, 125 * 125 -0- as joint tenants Florence T. Harlow and 251 * 251 -0- Joseph E. Harlow, as joint tenants Letitia Haugen, as Trustee 250 * 250 -0- u/a dated April 30, 1980 f/b/o Letitia Haugen Trust IDS Extra Income Fund 552,090(3) 17.8 Kray & Co. 5,321 * 5,321 -0- Lewis J. Lamm 2,761 * 2,761 -0- Malcom W. Morris, Jr. 176 * 176 -0- Edward J. Mytkowicz and 627 * 627 -0- Esther Mytkowicz, as trustee f/b/o Edward J. Mytkowicz and Esther Mytlowicz Family Trust dated April 29, 1980 PaineWebber Incorporated 402,568(5) 13.0 402,568 -0- Philadep & Co. 1,004 * 1,004 -0- The Prudential Insurance 435,384 14.0 435,384 -0- Company of America Richard H. Rohlwing and 627 * 627 -0- Linda Rohlwing, as joint tenants George A. Shurick 6,526 * 6,526 -0- Ellen M. Skaggs and Delois 125 * 125 -0- V. Skaggs, as joint tenants Geoffrey Skinner 2,000 * 2,000 -0- 58 Raymond L. Valente, as 376 * 376 -0- Trustee f/b/o Loretta S. Valente Trust u/a dated July 12, 1990 * Less than 1% (1) Information with respect to beneficial ownership was obtained from the Selling Stockholders. Except to the extent otherwise provided herein, the persons named in the table have sole voting and dispositive power with respect to all shares of Common Stock shown as beneficially owned by them. (2) Assumes sale of all, and no other purchases of, Common Stock. See "Plan of Distribution." (3) Represents shares over which American Express Company, American Express Financial Corporation and IDS Extra Income Fund share dispositive power, and as to which American Express Company has indicated that it disclaims beneficial ownership. (4) Includes 857,378 shares beneficially owned by Green Equity Investors, L.P., 652,470 shares beneficially owned by American Express Company, American Express Financial Corporation and IDS Extra Income Fund, 435,384 shares beneficially owned by the Prudential Insurance Company of America, 402,568 shares beneficially owned by PaineWebber Incorporated, and 251 shares beneficially owned by Jennifer Holden Dunbar. (5) As of April 15, 1995. All of the shares offered hereby were acquired by the Selling Stockholders (or their authorized assignors) pursuant to the Prepackaged Plan. The shares of Common Stock are being registered to satisfy a condition set forth in the Prepackaged Plan. Pursuant to the Prepackaged Plan, the Company is required to use its best efforts to keep such Registration Statement continuously effective until the third anniversary of its original effectiveness. However, there can be no assurance that the Selling Stockholders will sell any or all of the shares of Common Stock which may be offered pursuant to this Prospectus. 59 PLAN OF DISTRIBUTION The Company will not receive any of the proceeds from the sale by the Selling Stockholders of the Common Stock offered by this Prospectus. Any or all of such Common Stock may be sold by the Selling Stockholders from time to time (i) to or through underwriters or dealers, (ii) directly to one or more other purchasers, (iii) through agents on a best-efforts basis, or (iv) through a combination of any such methods of sale. The Selling Stockholders and any such underwriters, dealers or agents that participate in the distribution of the Common Stock may be deemed to be underwriters within the meaning of the Securities Act, and any profit on the sale of the Common Stock by them, and any discounts, commissions or concessions received by them, may be deemed to be underwriting discounts and commissions under the Securities Act. The Common Stock may be sold from time to time in one or more transactions at a fixed offering price, which may be changed, or at varying prices determined at the time of sale or at negotiated prices. Such prices will be determined by the Selling Stockholders or by agreement between the Selling Stockholders and underwriters or dealers. Brokers or dealers acting in connection with the sale of Common Stock contemplated by this Prospectus may receive fees or commissions in connection therewith. At the time a particular offer of Common Stock is made, to the extent required, a supplement to this Prospectus will be distributed which will identify and set forth the aggregate number of shares of Common Stock being offered and the terms of the offering, including the name or names of any underwriters, dealers or agents, the purchase price paid by any underwriter for Common Stock purchased from the Selling Stockholders, any discounts, commissions and other items constituting compensation from the Selling Stockholders and/or the Company and any discounts, commissions or concessions allowed or reallowed or paid to dealers, including the proposed selling price to the public. Each supplement to this Prospectus and, if necessary, a post-effective amendment to the Registration Statement of which this Prospectus is a part, will be filed with the Commission to reflect the disclosure of additional information with respect to the distribution of Common Stock. The outstanding Common Stock is, and the Common Stock offered hereby will be, listed on the Nasdaq Small Cap Market. Under applicable rules and regulations under the Exchange Act, any person engaged in a distribution of Common Stock may not simultaneously engage in market making activities with respect to the Common Stock for a period of nine business days prior to the commencement of such distribution. In addition and without limiting the foregoing, the Selling Stockholders and any person participating in the distribution of the Common Stock will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of the Common Stock by the Selling Stockholders or any such other person. 60 In order to comply with certain states' securities laws, if applicable, the Common Stock will be sold in such jurisdictions only through registered or licensed brokers or dealers. In certain states the Common Stock may not be sold unless it has been registered or qualified for sale in such state, or unless an exemption from registration or qualification is available. The Registration Statement, of which the Prospectus is a part, is being filed by the Company to satisfy a condition set forth in the Prepackaged Plan. Pursuant to the Prepackaged Plan, the Company is required to use its best efforts to keep such Registration Statement continuously effective until the third anniversary of its original effectiveness. Pursuant to the Prepackaged Plan, the Company has paid or will pay any and all expenses incident to the performance of or compliance with its registration obligations, including, among other things, registration and filing fees, fees and expenses incurred in connection with compliance with securities or blue sky laws of the applicable states, fees and disbursements of counsel and independent public accountants for the Company, but excluding underwriting discounts and commissions, the fees and expenses of counsel to the Selling Stockholders and transfer taxes, if any. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon by Milbank, Tweed, Hadley & McCloy. EXPERTS The financial statements of the Company as of July 31, 1994 and August 1, 1993 and for the 52 weeks ended July 31, 1994 and August 1, 1993 and the 53 weeks ended August 2, 1992, have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP ("KPMG"), independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. On February 17, 1995, KPMG, the Company's independent accountants who were previously engaged as the principal accountants to audit the Company's financial statements, were dismissed. KPMG's report on the financial statements of the Company for the past two years contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG's report on the 1994 financial statements of the Company contained a separate paragraph stating that "Kash n' Karry Food Stores, Inc. has suffered recurring losses from operations and has a net capital deficiency. As discussed in note 1 to the financial statements, Kash n' Karry Food Stores, Inc. filed a pre-packaged petition under Chapter 11 of the United 61 States Bankruptcy Code on November 9, 1994. These matters raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty." The Company's plan of reorganization was approved by the bankruptcy court on December 12, 1994 and became effective on December 29, 1994. The decision to change accountants was approved by the Board of Directors of the Company. During the Company's two most recent fiscal years and any subsequent interim period preceding the dismissal, there were no disagreements between the Company and KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of KPMG would have caused KPMG to make reference to the subject matter of the disagreement in connection with its report. Also, during the aforementioned period, there occurred no "reportable event" within the meaning of Item 304(a)(1)(v) of Regulation S-K of the Commission. On February 17, 1995, the Company engaged Coopers & Lybrand L.L.P. as the principal accountants to audit the Company's financial statements for the fiscal year ending July 30, 1995. The Company did not consult with Coopers & Lybrand, L.L.P. regarding accounting advice prior to its engagement. 62 INDEX TO FINANCIAL STATEMENTS UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS Page Condensed Balance Sheets as of January 29, 1995, and July 31, 1994 . . . . F- 3 Condensed Statements of Operations for the four weeks ended January 29, 1995, the 22 weeks ended January 1, 1995, and the 26 weeks ended January 30, 1994 . . . . . . . . . . . . . . . F- 5 Condensed Statements of Cash Flows for the four weeks ended January 29, 1995, the 22 weeks ended January 1, 1995, and the 26 weeks ended January 30, 1994 . . . . . . . . . . . . . . . F- 7 Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . . F- 9 AUDITED FINANCIAL STATEMENTS Page Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-15 Balance Sheets as of July 31, 1994 and August 1, 1993. . . . . . . . . . . F-16 Statements of Operations for the fiscal years ended July 31, 1994, August 1, 1993 and August 2, 1992 . . . . . . . . . . . . . . . . . . F-17 Statement of Stockholders' Deficit for the fiscal years ended July 31, 1994, August 1, 1993 and August 2, 1992 . . . . . . . . . . . . . . . . . . F-18 Statements of Cash Flows for the fiscal years ended July 31, 1994, August 1, 1993 and August 2, 1992 . . . . . . . . . . . . . . . . . . F-19 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-21 F-1 UNAUDITED PRO FORMA FINANCIAL STATEMENTS Page Pro Forma Financial Information. . . . . . . . . . . . . . . . . . . . . . F-36 Unaudited Pro Forma Balance Sheet as of July 31, 1994. . . . . . . . . . . F-37 Notes to Unaudited Pro Forma Balance Sheet . . . . . . . . . . . . . . . . F-39 Unaudited Pro Forma Statement of Operations for the fiscal year ended July 31, 1994 . . . . . . . . . . . . . . . F-40 Notes to Unaudited Pro Forma Statement of Operations . . . . . . . . . . . F-41 F-2 KASH N' KARRY FOOD STORES, INC. BALANCE SHEETS (Dollar Amounts in Thousands, Except Per Share Amounts) ASSETS Reorganized Predecessor Company Company ------------ ----------- January 29, July 31, 1995 1994 ------------ ----------- (Unaudited) (Note 1) Current assets: Cash and cash equivalents $ 10,517 $ 6,852 Accounts receivable 6,701 8,084 Inventories 78,756 76,094 Prepaid expenses and other current assets 3,246 12,805 --------- --------- Total current assets 99,220 103,835 Property and equipment, at cost, less accumulated depreciation 143,813 160,491 Favorable lease interests, less accumulated amortization of $192 and $13,543 29,762 12,312 Deferred financing costs, less accumulated amortization of $182 and $22,572 4,043 12,630 Reorganization value in excess of amount allocable to identifiable assets, less accumulated amortization of $460 at January 29, 1995 102,059 -- Excess of cost over net assets acquired, less accumulated amortization of $16,288 at July 31, 1994 -- 96,758 Other assets 2,854 3,867 --------- --------- Total assets $381,751 $389,893 ========= ========= See accompanying notes to condensed financial statements. F-3 KASH N' KARRY FOOD STORES, INC. BALANCE SHEETS (Dollar Amounts in Thousands, Except Per Share Amounts) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Reorganized Predecessor Company Company ------------ ----------- January 29, July 31, 1995 1994 ------------ ----------- (Unaudited) (Note 1) Current liabilities: Current portion of long-term debt $ 12,764 $ 42,740 Accounts payable 39,883 34,908 Accrued payroll and benefits 9,023 5,579 Accrued interest 4,618 15,849 Taxes, other than income 4,052 6,056 Other accrued expenses 21,673 11,450 --------- --------- Total current liabilities 92,013 116,582 Long-term debt, less current obligations 227,522 317,381 Other long-term liabilities 14,914 12,334 Old Series B Cumulative Preferred Stock of $.01 par value and a stated value of $100 a share. Authorized 50,000 shares; 38,750 shares outstanding at July 31, 1994. -- 3,875 Old Series C Convertible Preferred Stock of $.01 par value. Authorized 100,000 shares; 77,500 shares outstanding at July 31, 1994. -- 775 Stockholders' equity (deficit): New Common Stock of $.01 par value. Authorized 5,500,000 shares; 3,100,000 shares outstanding at January 29, 1995. 31 -- Old Common Stock of $.01 par value. Authorized 4,000,000 shares; 2,819,589 shares outstanding at July 31, 1994. -- 28 Capital in excess of par value 46,464 77,695 Retained earnings (deficit) 807 (138,740) Less cost of treasury stock - 2,437 shares at July 31, 1994 -- (37) --------- --------- Total stockholders' equity (deficit) 47,302 (61,054) --------- --------- Total liabilities & stockholders' equity $381,751 $389,893 ========= ========= See accompanying notes to condensed financial statements. F-4 KASH N' KARRY FOOD STORES, INC. CONDENSED STATEMENTS OF OPERATIONS (In Thousands) (Unaudited) Reorganized Predecessor Company Company ----------- -------------------------- Four Nine Thirteen Weeks Ended Weeks Ended Weeks Ended January 29, January 1, January 30, 1995 1995 1994 ----------- ----------- ----------- Sales $ 86,354 $186,535 $278,166 Cost of sales 68,940 149,070 221,706 --------- ----------- ---------- Gross profit 17,414 37,465 56,460 Selling, general and administrative expenses 12,226 28,319 45,300 Depreciation and amortization 1,979 4,161 6,220 --------- --------- ---------- Operating income 3,209 4,985 4,940 Interest expense 2,402 3,159 11,372 --------- --------- ---------- Income (loss) before reorganization items, income taxes, extra- ordinary item and change in accounting principle 807 1,826 (6,432) Reorganization items -- (219) -- --------- --------- ---------- Income (loss) before income taxes, extraordinary item and change in accounting principle 807 1,607 (6,432) Provision for income taxes -- -- -- --------- --------- ---------- Income (loss) before extra- ordinary item and change in accounting principle 807 1,607 (6,432) Extraordinary item - gain on debt discharge -- 70,166 -- Cumulative effect of change in accounting principle - postretirement medical benefits -- (2,000) -- --------- --------- ---------- Net income (loss) $ 807 $69,773 $ (6,432) ========= ========= ========== Net income per common share (A)(B) $ 0.26 ========= (A) Based on a weighted average number of shares of common stock of 3,100,000 outstanding. (B) Net income per common share is not meaningful prior to January 1, 1995 due to the significant change in the capital structure in connection with the Restructuring. See accompanying notes to condensed financial statements. F-5 KASH N' KARRY FOOD STORES, INC. CONDENSED STATEMENTS OF OPERATIONS (In Thousands) (Unaudited) Reorganized Predecessor Company Company ----------- -------------------------- Four Twenty-Two Twenty-Six Weeks Ended Weeks Ended Weeks Ended January 29, January 1, January 30, 1995 1995 1994 ----------- ----------- ----------- Sales $ 86,354 $426,681 $534,801 Cost of sales 68,940 340,802 425,915 --------- ----------- ---------- Gross profit 17,414 85,879 108,886 Selling, general and administrative expenses 12,226 68,819 90,128 Depreciation and amortization 1,979 10,234 12,111 Store closing and other costs -- -- 11,016 --------- --------- ---------- Operating income (loss) 3,209 6,826 (4,369) Interest expense 2,402 13,719 22,513 --------- --------- ---------- Income (loss) before reorganization items, income taxes, extra- ordinary item and change in accounting principle 807 (6,893) (26,882) Reorganization items -- (219) -- --------- --------- ---------- Income (loss) before income taxes, extraordinary item and change in accounting principle 807 (7,112) (26,882) Provision for income taxes -- -- -- --------- --------- ---------- Income (loss) before extra- ordinary item and change in accounting principle 807 (7,112) (26,882) Extraordinary item - gain on debt discharge -- 70,166 -- Cumulative effect of change in accounting principle - postretirement medical benefits -- (2,000) -- --------- --------- ---------- Net income (loss) $ 807 $ 61,054 $ (26,882) ========= ========= ========== Net income per common share (A)(B) $ 0.26 ========= (A) Based on a weighted average number of shares of common stock of 3,100,000 outstanding. (B) Net income per common share is not meaningful prior to January 1, 1995 due to the significant change in the capital structure in connection with the Restructuring. See accompanying notes to condensed financial statements. F-6 KASH N' KARRY FOOD STORES, INC. STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) Reorganized Predecessor Company Company ------------ ----------------------- Four Weeks Twenty-Two Twenty-Six Ended Weeks Ended Weeks Ended January 29, January 1, January 30, 1995 1995 1994 ----------- ----------- ----------- Net cash flow from operating activities: Net income (loss) $ 807 $61,054 $(26,882) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization, excluding deferred financing costs 1,979 11,234 12,111 Store closing and other costs -- -- 11,016 Amortization of deferred financing costs 182 1,152 1,549 Reorganization expense -- 4,329 -- Adjustment of accounts to fair value -- (4,110) -- Change in accounting principle -- 2,000 -- Write-off of transaction costs -- 12,989 -- Gain on discharge of debt -- (70,166) -- (Increase) decrease in assets: Accounts receivable (939) 2,322 660 Inventories 8,358 (5,917) 9,433 Prepaid expenses and other assets (149) (270) (454) Increase (decrease) in liabilities: Accounts payable 3,175 1,800 1,652 Accrued expenses and other liabilities (1,072) (4,012) 2,697 --------- -------- --------- Net cash provided (used) by operating activities 12,341 12,405 11,782 ---------- -------- --------- Cash used by investing activities: Additions to property and equipment (162) (665) (6,194) Leased/financed asset additions -- -- (4,412) Proceeds from sale of property and equipment -- -- 359 ---------- -------- --------- Net cash used by investing activities (162) (665) (10,247) ---------- -------- --------- See accompanying notes to condensed financial statements. F-7 KASH N' KARRY FOOD STORES, INC. STATEMENTS OF CASH FLOWS (Continued) (In Thousands) (Unaudited) Reorganized Predecessor Company Company ------------ ----------------------- Four Weeks Twenty-Two Twenty-Six Ended Weeks Ended Weeks Ended January 29, January 1, January 30, 1995 1995 1994 ----------- ----------- ----------- Cash provided (used) by financing activities: Borrowings under revolving loan facility $ 4,200 $ 800 $ 15,700 Additions to obligations under capital leases and notes payable -- -- 799 Repayments on revolving loan facility (6,700) (18,000) (9,100) Repayments on term loan facility -- (3,098) (2,925) Repayments of other long-term liabilities (151) (2,235) (2,642) Sale of Common Stock -- 10,000 -- Other financing activities -- (5,070) (512) --------- --------- ---------- Net cash provided (used) by financing activities (2,651) (17,603) 1,320 --------- --------- ---------- Net increase (decrease) in cash and cash equivalents 9,528 (5,863) 2,855 Cash and cash equivalents at beginning of period 989 6,852 2,145 --------- --------- ---------- Cash and cash equivalents at end of period $ 10,517 $ 989 $ 5,000 ========= ========= ========== See accompanying notes to condensed financial statements. F-8 KASH N' KARRY FOOD STORES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (In Thousands) (Unaudited) 1. On September 3, 1994, the Company began to solicit acceptances of all impaired parties of a restructuring of the Company which would be implemented through the consummation of a "prepackaged" plan of reorganization under Chapter 11 of the United States Bankruptcy Code (the "Restructuring"). As a result of this solicitation, the voting requirements prescribed by Section 1126 of the Bankruptcy Code were satisfied, and on November 9, 1994 (the "Petition Date") the Company filed with the Bankruptcy Court a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. On December 12, 1994, the Bankruptcy Court confirmed the plan of reorganization, and the Company emerged from bankruptcy on December 29, 1994 (the "Effective Date"). During the pendency of the bankruptcy case, the Company, with the Bankruptcy Court's approval, operated its business in the ordinary course, and paid all pre-petition and post-petition claims of the Company's general unsecured creditors, trade creditors and employees in full. In connection with the Restructuring: (i) Each $1,000 principal amount of the Company's Old Senior Floating Rate Notes was exchanged for (a) new Senior Floating Rate Notes due February 1, 2003 (the "New Senior Floating Rate Notes") in an original principal amount equal to $1,000 plus 100% of the accrued interest under the Old Senior Floating Rate Notes from and including February 3, 1994, through but not including the Petition Date, or, at such holder's election, (b) new 11.5% Senior Fixed Rate Notes due February 1, 2003 (the "New Senior Fixed Rate Notes") in the same original principal amount, or, at such holder's election, (c) an amount of New Senior Floating Rate Notes and an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of such claim; (ii) Each $1,000 principal amount of the Company's Old Senior Fixed Rate Notes was exchanged for (a) New Senior Floating Rate Notes in an original principal amount equal to $1,000 plus 100% of the accrued interest under the Old Senior Fixed Rate Notes from and including February 2, 1994, through but not including the Petition Date, or, at such holder's election, (b) New Senior Fixed Rate Notes in the same original principal amount, or, at such holder's election, (c) an amount of New Senior Floating Rate Notes and an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of such claim; (iii) the Old Subordinated Debentures were exchanged for newly-issued common stock of the Company representing 85 percent of the common stock outstanding on the Effective Date; (iv) Green Equity Investors, L.P. invested $10,000 cash in exchange for newly-issued common stock of the Company representing 15 percent of the common stock outstanding on the Effective Date; (v) the Company entered into a new credit agreement with The CIT Group/Business Credit, Inc. as Administrative Agent, and the lenders under its old bank credit agreement; and F-9 KASH N' KARRY FOOD STORES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (In Thousands) (Unaudited) (vi) all of the existing preferred stock, common stock, and options and warrants to purchase common stock of the Company was extinguished. 2. The condensed financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the fiscal 1994 Form 10-K filed by the Company. The accompanying condensed financial statements have not been audited by independent accountants in accordance with generally accepted auditing standards, but in the opinion of management the condensed financial statements for the period ended January 30, 1994 includes all adjustments, consisting only of normal recurring adjustments, necessary to summarize fairly the Company's financial position and results of operations. The condensed financial statements as of and for the period ended January 29, 1995 reflect the Company's emergence from Chapter 11 and were prepared according to the principles of fresh start reporting contained in American Institute of Certified Public Accountants' Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Operations during the period from the Effective Date through January 1, 1995 had no significant impact on the emergence transactions and as a result have not been separately identified. As a result of the implementation of fresh start accounting, the Company's condensed financial statements are not comparable to the Company's condensed financial statements of prior periods. Results for the periods ended January 29, 1995 or January 1, 1995 are not necessarily indicative of the results for the full year. The total reorganization value assigned to the Company's assets was estimated by calculating projected cash flows before debt service requirements discounted back to present value using a discount rate of 13.3% (representing the estimated weighted cost of capital), as well as by analyzing market cash flow multiples applied to the Company's adjusted 12-month trailing cash flows. After extensive negotiations between independent investment banking firms representing the Company and an ad hoc committee of bondholders, the reorganization value was agreed to by the parties and confirmed by the Bankruptcy Court. The excess of the reorganization value over the value of the identifiable assets is reported as "Reorganization Value in Excess of Amounts Allocable to Identifiable Assets" and is being amortized over twenty years. Under the principles of fresh start accounting, the Company's total assets were recorded at this assumed reorganization value, with the reorganization value allocated to identifiable tangible and intangible assets on the basis of their estimated fair value. In addition, the Company's accumulated deficit was eliminated. The effect of the Restructuring and the implementation of fresh start accounting on the Company's condensed balance sheet as of January 1, 1995 was as follows: F-10 KASH N' KARRY FOOD STORES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (In Thousands) (Unaudited) Fresh Start Pre-Fresh Balance Start Balance Adjustments Sheet Sheet January of Fair Value January 1, 1995 Restructuring Adjustment 1, 1995 (A) (B) ------------- ------------- ---------- -------- Cash and cash equivalents $ 9,166 $ (8,177) $ -- $ 989 Accounts receivable 5,762 -- -- 5,762 Inventories 82,011 -- 5,104 87,115 Prepaid expenses and other current assets 3,088 -- -- 3,088 --------- --------- --------- -------- Total current assets 100,027 (8,177) 5,104 96,954 Property and equipment, net 162,754 -- (17,775) 144,979 Favorable lease interests, net 11,673 -- 18,280 29,953 Deferred financing costs 17,769 (7,456) (6,088) 4,225 Reorganization value in excess of amount alloc- able to identifiable assets -- -- 102,519 102,519 Excess of cost over net assets acquired 95,560 -- (95,560) -- Other assets 3,790 -- (928) 2,862 --------- --------- --------- -------- Total assets $391,573 $(15,633) $ 5,552 $381,492 ========= ========== ========= ======== Current liabilities, excluding current portion of long- term debt $ 82,983 $(12,617) $ 6,779 $ 77,145 Long-term debt, including current obligations 366,231 (119,486) (3,959) 242,786 Other long-term liabilities 6,226 -- 8,840 15,066 Redeemable Preferred Stock 4,650 (4,650) -- -- Stockholders' equity (deficit) (68,517) 121,120 (6,108) 46,495 --------- --------- --------- -------- Total liabilities and stockholders' equity $391,573 $(15,633) $ 5,552 $381,492 ========= ========== ========= ======== (A) To record the transactions applicable to the Restructuring as outlined in footnote 1 and eliminate the deficit in accumulated deficit. (B) To record the adjustments to state assets and liabilities at fair value, and to record the cumulative effect of adopting SFAS No. 106 as of the Effective Date. 3. Inventories consist of merchandise held for resale and are stated at the lower of cost or market; cost is determined using average cost, which approximates the first-in, first-out (FIFO) method. F-11 KASH N' KARRY FOOD STORES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (In Thousands) (Unaudited) 4. The Company had a policy of classifying capital expenditures to be refinanced within one year as prepaid expenses and other current assets. These amounts have been classified as property and equipment at January 29, 1995. At July 31, 1994, prepaid expenses and other current assets included $9,987 of expenditures for construction in progress expected to be financed within one year. 5. Long-term debt consists of the following: January 29, July 31, 1995 1994 ----------- -------- New term loan and revolving credit facilities (A) $ 47,000 $ -- Old bank term and revolving credit facilities (A) -- 59,629 New Senior Floating Rate Notes (B) 22,953 -- New Senior Fixed Rate Notes (C) 121,162 -- Old Senior Floating Rate Notes (B) -- 85,000 Old Senior Fixed Rate Notes (C) -- 50,000 Subordinated Debentures -- 105,000 Mortgages payable 33,555 34,368 Capital lease obligations 8,410 13,877 Other 7,206 12,247 --------- --------- Long-term debt including current portion 240,286 360,121 Less current portion (12,764) (42,740) --------- --------- Long-term debt $227,522 $317,381 ========= ========= (A) In connection with the Restructuring, the Company entered into a new term loan and revolving credit agreement (the "New Credit Agreement") on December 29, 1994. At January 29, 1995, the Company's New Credit Agreement provides for borrowings of up to $35,000 under a term loan facility (with quarterly principal repayments of $1,750 and a $14,000 repayment due when the facility terminates on December 29, 1997) and a $50,000 revolving credit facility with a $25,000 sublimit for letters of credit. At January 29, 1995, the Company had $12,000 in borrowings under the working capital line, and had $17,300 of letters of credit issued against the revolving credit facility. Amounts outstanding under the term facility bear interest (11.0% at January 29, 1995) equal to the prime rate (as defined) plus 250 basis points. Amounts outstanding under the revolving credit facility bear interest (9.50% at January 29, 1995) equal to the prime rate plus 100 basis points. F-12 KASH N' KARRY FOOD STORES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (In Thousands) (Unaudited) (B) The New Senior Floating Rate Notes mature on February 1, 2003, and bear interest (7.31% at January 29, 1995) payable semiannually, at a rate equal to six-month LIBOR (as defined in the New Senior Floating Rate Note Indenture) plus 200 basis points. The New Senior Floating Rate Notes are redeemable in whole or in part, at the option of the Company, on not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple thereof, at 100% of the principal amount and unpaid interest, if any, to the redemption date. Through August 1, 1995, all interest on the New Senior Floating Rate Notes may, at the option of the Company, be paid by issuing in lieu of cash additional New Senior Floating Rate Notes in an aggregate principal amount equal to the amount of interest due. The Old Senior Floating Rate Notes bore interest (5.88% at July 31, 1994) payable semiannually, at a rate equal to six-month LIBOR plus 250 basis points. (C) The New Senior Fixed Rate Notes mature on February 1, 2003, and bear interest at 11.5% per annum, payable semiannually. The New Senior Fixed Rate Notes are redeemable in whole or in part, at the option of the Company, on not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple thereof, at 100% of the principal amount and unpaid interest, if any, to the redemption date. Through February 1, 1996, all interest on the New Senior Fixed Rate Notes may, at the option of the Company, be paid by issuing in lieu of cash additional New Senior Fixed Rate Notes in an aggregate principal amount equal to the amount of interest due. The Old Senior Fixed Rate Notes bore interest, payable semiannually, at an annual rate of 12.375%. 6. Reorganization items included in the condensed statements of operations consist of restructuring costs, adjustments to fair value, professional fees and other expenses. 7. The Company has a retiree medical plan under which medical coverage is available to current retirees and those active employees who, on August 1, 1993, had attained age 65 with at least 15 years of service. In accordance with SOP 90-7, which the Company adopted on the Effective Date of the Restructuring, the provisions of Financial Accounting Standards Board Statement 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" were also adopted as of that date. The following table sets forth the projected actuarial present value of unfunded postretirement benefit obligations for the plan at January 29, 1995: Accumulated postretirement benefit obligation: Retirees $1,915 Fully eligible active plan participants 85 ------- Accrued postretirement benefit obligation $2,000 ======= F-13 KASH N' KARRY FOOD STORES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (In Thousands) (Unaudited) The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.0%. 8. During the first quarter of fiscal 1994, the Company recorded a non-recurring charge of $11,016 which reflects expenses associated with a program of closing twelve underperforming stores and expensing costs associated with unsuccessful financing activities. F-14 Independent Auditors' Report The Board of Directors Kash n' Karry Food Stores, Inc.: We have audited the accompanying balance sheets of Kash n' Karry Food Stores, Inc. as of July 31, 1994 and August 1, 1993, and the related statements of operations, stockholders' deficit, and cash flows for the fifty-two weeks ended July 31, 1994 and August 1, 1993, and fifty-three weeks ended August 2, 1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kash n' Karry Food Stores, Inc. at July 31, 1994 and August 1, 1993, and the results of its operations and its cash flows for the fifty-two weeks ended July 31, 1994 and August 1, 1993, and fifty-three weeks ended August 2, 1992, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Kash n' Karry Food Stores, Inc. will continue as a going concern. However, Kash n' Karry Food Stores, Inc. has suffered recurring losses from operations and has a net capital deficiency. As discussed in Note 1 to the financial statements, Kash n' Karry Food Stores, Inc. filed a pre-packaged petition under Chapter 11 of the United States Bankruptcy Code on November 9, 1994 and these matters raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG Peat Marwick LLP - ----------------------------------- Tampa, Florida September 16, 1994, except with respect to Notes 1 and 5, which are as of November 9, 1994 F-15 KASH N' KARRY FOOD STORES, INC. BALANCE SHEETS (Dollar Amounts in Thousands, Except Per Share Amounts) ASSETS July 31, August 1, 1994 1993 -------- --------- Current assets: Cash and cash equivalents $ 6,852 $ 2,145 Accounts receivable 8,084 10,888 Inventories 76,094 95,385 Prepaid expenses and other current assets 12,805 13,151 -------- -------- Total current assets 103,835 121,569 Property and equipment, at cost, net 160,491 164,937 Favorable lease interests, less accumulated amortization of $13,543 and $7,506 12,312 18,349 Deferred financing costs, less accumulated amortization of $22,572 and $19,622 12,630 15,153 Excess of cost over net assets acquired, less accumulated amortization of $16,288 and $13,457 96,758 99,589 Other assets 3,867 3,611 -------- -------- Total assets $389,893 $423,208 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt $ 42,740 $ 22,628 Accounts payable 34,908 42,561 Accrued expenses 38,934 37,243 -------- -------- Total current liabilities 116,582 102,432 Long-term debt, less current portion 317,381 329,262 Other long-term liabilities 12,334 10,023 Series B Cumulative Preferred Stock of $.01 par value and a stated value of $100 a share. Authorized 50,000 shares; 38,750 shares outstanding. 3,875 3,875 Series C Convertible Preferred Stock of $.01 par value. Authorized 100,000 shares; 77,500 shares outstanding. 775 775 Stockholders' deficit: Common Stock of $.01 par value. Authorized 4,000,000 and 3,200,000 shares; 2,819,589 shares outstanding. 28 28 Capital in excess of par value 77,695 77,695 Accumulated deficit (138,740) (100,845) Less cost of Treasury Stock - 2,437 shares (37) (37) -------- -------- Total stockholders' deficit (61,054) (23,159) -------- -------- Total liabilities and stockholders' deficit $389,893 $423,208 ======== ======== See accompanying notes to financial statements. F-16 KASH N' KARRY FOOD STORES, INC. STATEMENTS OF OPERATIONS (In Thousands) Fifty-two Fifty-two Fifty-three Weeks Ended Weeks Ended Weeks Ended July 31, 1994 August 1, 1993 August 2, 1992 ------------- -------------- -------------- Sales $1,065,165 $1,086,125 $1,071,038 Cost of sales 845,597 856,156 848,441 ---------- ---------- ---------- Gross profit 219,568 229,969 222,597 Selling, general and administrative expenses 176,945 175,177 164,897 Depreciation and amortization 24,112 23,455 20,132 Store closing and other costs 11,016 -- -- ---------- ---------- ---------- Operating income 7,495 31,337 37,568 Interest expense (net of interest income of $4, $1 and $25) 45,390 43,257 44,869 ---------- ---------- ---------- Net loss (37,895) (11,920) (7,301) Undeclared dividends on Preferred Stock 464 464 474 ---------- ---------- ---------- Loss attributable to Common Stock $ (38,359) $ (12,384) $ (7,775) ========== ========== ========== See accompanying notes to financial statements. F-17 KASH N' KARRY FOOD STORES, INC. STATEMENT OF STOCKHOLDERS' DEFICIT Fiscal Years Ended July 31, 1994, August 1, 1993 and August 2, 1992 (Dollar Amounts In Thousands) Capital in Excess Common of Par Accumulated Treasury Stock Value Deficit Stock Total ------ --------- ----------- -------- --------- Balance at July 28, 1991 $ 9 $ 8,994 $(81,624) $ (19) $(72,640) Purchase of 250 shares for Treasury -- -- -- (3) (3) Reclassification of Series A Preferred Stock to -- 40,000 -- (11) 39,989 Common Stock Conversion of 11,250 shares of Series B Preferred Stock and 22,500 shares of Series C Preferred Stock to 22,500 shares of Common Stock -- 1,350 -- -- 1,350 Sale of 1,859,531 shares of Common Stock for cash 19 27,347 -- -- 27,366 Loss for period -- -- (7,301) -- (7,301) ---- ------- --------- ----- -------- Balance at August 2, 1992 $ 28 $77,691 $(88,925) $ (33) $(11,239) Purchase of 2,713 shares for Treasury -- -- -- (40) (40) Sale of 2,436 shares of Treasury Stock -- 4 -- 36 40 Loss for period -- -- (11,920) -- (11,920) ---- ------- --------- ----- -------- Balance at August 1, 1993 $ 28 $77,695 $(100,845) $ (37) $(23,159) Loss for period -- -- (37,895) -- $(37,895) ---- ------- --------- ----- -------- Balance at July 31, 1994 $ 28 $77,695 $(138,740) $ (37) $(61,054) ==== ======= ========= ===== ======== See accompanying notes to financial statements. F-18 KASH N' KARRY FOOD STORES, INC. STATEMENTS OF CASH FLOWS (In Thousands) Fifty-two Fifty-two Fifty-three Weeks Ended Weeks Ended Weeks Ended July 31, 1994 August 1,1993 August 2, 1992 ------------- ------------- -------------- Net cash flows from operating activities: Net loss $ (37,895) $ (11,920) $ (7,301) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization, excluding deferred financing costs 24,112 23,455 20,132 Store closing and other costs 11,016 -- -- Amortization of deferred financing costs 2,950 2,850 2,932 Senior Subordinated Extendible Reset Notes ("Reset Notes") issued in lieu of cash interest -- -- 2,222 (Increase) decrease in assets: Accounts receivable 2,804 (3,778) (2,090) Inventories 19,291 (4,159) 1,225 Prepaid expenses and other assets (278) (5,426) (842) Increase (decrease) in liabilities: Accounts payable (7,653) 3,722 3,283 Accrued expenses and other liabilities (1,565) (3,684) 822 --------- --------- -------- Net cash provided by operating activities 12,782 1,060 20,383 --------- --------- -------- Cash provided (used) by investing activities: Additions to property and equipment (10,942) (13,103) (11,660) Leased asset additions (4,529) (24,600) (3,725) Sale of property and equipment 504 91 570 --------- --------- -------- Net cash used by investing activities (14,967) (37,612) (14,815) --------- --------- -------- F-19 KASH N' KARRY FOOD STORES, INC. STATEMENTS OF CASH FLOWS (CONTINUED) (In Thousands) Fifty-two Fifty-two Fifty-three Weeks Ended Weeks Ended Weeks Ended July 31, 1994 August 1,1993 August 2, 1992 ------------- ------------- -------------- Cash provided (used) by financing activities: Borrowings under term and revolving loan facilities 17,700 38,100 16,000 Additions to obligations under capital leases and notes payable 5,230 14,867 3,725 Sale of Senior Notes -- -- 49,750 Sale of Common Stock (net of Treasury Stock transactions and transaction costs) -- -- 27,362 Repurchase of Reset Notes -- -- (32,426) Repayments of term and revolving loan facilities (5,488) (12,881) (62,497) Repayments of other long-term liabilities (9,212) (4,415) (3,632) Financing costs (1,338) (1,453) (3,160) --------- --------- --------- Net cash provided (used) by financing activities 6,892 34,218 (4,878) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 4,707 (2,334) 690 Cash and cash equivalents at beginning of year 2,145 4,479 3,789 --------- --------- --------- Cash and cash equivalents at the end of year $ 6,852 $ 2,145 $ 4,479 ========= ========= ========= See accompanying notes to financial statements. F-20 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (1) Subsequent Event. On September 3, 1994, the Company began to solicit acceptances of all impaired parties of a restructuring of the Company which would be implemented through the consummation of a "prepackaged" plan of reorganization under Chapter 11 of the United States Bankruptcy Code (the "Plan"). As a result of such solicitation, the voting requirements prescribed by Section 1126 of the Bankruptcy Code were satisfied, and the Company filed with the Bankruptcy Court a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code, and is seeking, as promptly as is practicable, confirmation by the Bankruptcy Court of the Plan. During the pendency of the bankruptcy case, the Company intends to operate its business in the ordinary course, and to pay all pre-petition claims of the Company's secured lenders, general unsecured creditors, trade creditors and employees in full. The Plan also provides that: (i) Each $1,000 principal amount of the Company's Old Senior Floating Rate Notes would be exchanged for (a) new Senior Floating Rate Notes due February 1, 2003 (the "New Senior Floating Rate Notes") in an original principal amount equal to $1,000 plus 100% of the accrued interest under the Old Senior Floating Rate Notes from and including February 3, 1994, through but not including the petition date, or, at such holder's election, (b) new 11.5% Senior Fixed Rate Notes due February 1, 2003 (the "New Senior Fixed Rate Notes") in the same original principal amount, or, at such holder's election, (c) an amount of New Senior Floating Rate Notes and an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of such claim. (ii) Each $1,000 principal amount of the Company's Old Senior Fixed Rate Notes would be exchanged for (a) New Senior Floating Rate Notes in an original principal amount equal to $1,000 plus 100% of the accrued interest under the Old Senior Fixed Rate Notes from and including February 2, 1994, through but not including the petition date, or, at such holder's election, (b) New Senior Fixed Rate Notes in the same original principal amount, or, at such holder's election, (c) an amount of New Senior Floating Rate Notes and an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of such claim. (iii) the Old Subordinated Debentures would be exchanged for newly-issued common stock of the Company representing 85 percent of the common stock to be outstanding on the effective date of the Plan (the "Effective Date"); (iv) Green Equity Investors, L.P., would invest $10 million cash in exchange for newly-issued common stock of the Company representing 15 percent of the common stock to be outstanding on the Effective Date; and (v) all of the existing preferred stock, common stock, and options and warrants to purchase common stock of the Company would be extinguished. See also Footnote 5 - "Long-Term Debt," Footnote 6 - "Redeemable Preferred Stock," Footnote 7 - "Common Stock," Footnote 8 - "Stock Option Plans," and Footnote 10 - "Income Taxes." F-21 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (2) Summary of Significant Accounting Policies Fiscal Year End. The Company follows a 52/53 week fiscal year ending on the Sunday nearest July 31. The fiscal year ended August 2, 1992 included 53 weeks of operations. Inventories. Inventories consist of merchandise held for resale and are stated at the lower of cost or market; cost is determined using average cost, which approximates the first-in, first-out (FIFO) method. Prepaid Expenses and Other Current Assets. Prepaid expenses and other current assets include expenditures for construction in progress expected to be financed ($9,987 at July 31, 1994 and $9,246 at August 1, 1993) and prepaid expenses to be recognized over the next twelve months. Depreciation, Amortization, and Maintenance and Repairs. Depreciation is provided principally using the composite method based on the estimated useful lives of the respective asset groups. Amortization of leasehold improvements is based on the estimated useful lives or the remaining lease terms, whichever is shorter. Property under capital leases consists of buildings and fixtures and equipment. Interest costs of property under development are capitalized during the development period. Capitalized amounts were $477, $804, and $355 for the fiscal years ended July 31, 1994, August 1, 1993, and August 2, 1992, respectively. The approximate annual rates used to compute depreciation and amortization are: Rate ---- Buildings and improvements 5% Fixtures and equipment 10% Transportation equipment 25% Leasehold improvements 8% Maintenance and repairs are charged to expense as incurred. The Company capitalizes expenditures for renewals and betterments. Favorable Lease Interests. Favorable lease interests represent the present value of the excess of current market rental rates over rents that existed under the Company's operating leases of store locations as of October 12, 1988. Such costs are amortized on the straight-line method over the average life of the favorable leases, which was approximately 20 years. Deferred Financing Costs. Deferred financing costs represent fees and expenses related to various financing activities and are amortized on a straight-line basis over the life of the related debt and classified as interest expense. Excess of Cost Over Net Assets Acquired. Excess of cost over net assets acquired represents the excess of amounts paid over the fair value of net assets acquired, and is being amortized over forty years. As discussed in Footnote 1, the Company filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. Management of the Company believes that, based on the proposed restructuring, the excess of cost over net assets acquired has not been permanently impaired, and that an appropriate valuation of such amounts is reflected in the accompanying financial statements as of July 31, 1994 and August 1, 1993. F-22 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) Costs of Opening and Closing Stores. Preopening costs of new stores are charged to expense in the year the store opens. These costs are primarily labor to stock the store, preopening advertising, store supplies and other expendable items. When operations are discontinued and a store is closed, the remaining investment, net of realizable value, is charged against earnings, and, for leased stores, a provision is made for the remaining lease liability, net of expected sublease income. Store Closing and Other Costs. During the first quarter of fiscal 1994 the Company recorded a non-recurring charge of $11,016. This charge included $1,900 of costs associated with unsuccessful financing activities, $4,159 of favorable lease interests written off in connection with the closing of twelve underperforming stores, $4,000 representing an adjustment to the expected lease liability on closed stores, net of sublease income, and $957 of other store closing and related expenses. Income Taxes. The Company is in a loss position for income tax purposes, and, consequently, no income taxes have been provided. The Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS 109") as of August 2, 1993. No cumulative effect of this change in accounting was required as of August 2, 1993 and prior years' financial statements have not been restated to apply the provisions of SFAS 109. The effect on prior years' financial statements of retroactively implementing SFAS 109 would be immaterial. Interest Rate Hedge Agreements. The Company enters into interest rate hedging agreements which involve the exchange of fixed and floating rate interest payments periodically over the life of such agreements without the exchange of the underlying principal amounts. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements as an adjustment to interest expense. Cash and Cash Equivalents. The Company considers all highly liquid investment instruments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at July 31, 1994 or August 1, 1993. Cash interest paid (excluding financing costs) was $41,545, $41,675, and $39,202, for the fiscal years ended July 31, 1994, August 1, 1993, and August 2, 1992, respectively. F-23 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (3) Property and Equipment Property and equipment is summarized as follows: July 31, August 1, 1994 1993 -------- --------- Land $ 19,543 $ 18,713 Buildings and improvements 63,517 56,421 Fixtures and equipment 100,717 104,686 Transportation equipment 2,593 2,595 Leasehold improvements 28,402 25,957 Construction in progress 4,115 4,275 -------- -------- 218,887 212,647 Less accumulated depreciation (70,196) (61,831) -------- -------- 148,691 150,816 Property under capital leases (less accumulated amortization of $11,154 and $8,032) 11,800 14,121 -------- -------- $160,491 $164,937 ======== ======== (4) Accrued Expenses Accrued expenses consist of the following: July 31, August 1, 1994 1993 -------- --------- Accrued payroll and benefits $ 5,579 $ 4,492 Accrued interest 15,849 15,080 Taxes, other than income 6,056 5,708 Accrued insurance reserves 4,886 5,684 Other accrued expenses 6,564 6,279 -------- -------- $ 38,934 $ 37,243 ======== ======== F-24 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (5) Long-Term Debt Long-term debt consists of the following: July 31, August 1, 1994 1993 -------- --------- Bank term and revolving loan facilities (a) $ 59,629 $ 47,417 Senior Floating Rate Notes (b) 85,000 85,000 Senior Fixed Rate Notes (c) 50,000 50,000 Subordinated Debentures (d) 105,000 105,000 Mortgages payable, bearing interest at rates from 7.50% to 10.35%, in equal monthly installments of $355, with maturities from 1999 through 2003 (e) 34,368 34,772 Capital lease obligations 13,877 16,999 Other 12,247 12,702 -------- -------- Long-term debt including current portion 360,121 351,890 Less current portion (f) (42,740) (22,628) -------- -------- Long-term debt $317,381 $329,262 ======== ======== (a) At July 31, 1994, the Bank Credit Agreement (as amended and restated) provides for borrowings of up to $17,229 under a term loan facility (with principal repayments varying from $1,463 to $4,409 per quarter until the Bank Credit Agreement terminates in April 1996), and a revolving credit facility with individual sublimits of $30,000 for working capital, $25,000 for letters of credit, and $13,700 for capital improvement loans, with a maximum of $60,000 outstanding under the revolving credit facility at any time. At July 31, 1994, the Company had $28,700 in borrowings under the working capital line, $13,700 in borrowings under the capital improvement line, and had $16,358 of letters of credit issued against the revolving credit facility. On August 1, 1994, the outstanding balance of capital improvement loans converted into a term loan amortizing to maturity in April 1996 (with principal repayments varying from $1,713 to $2,283 per quarter) and the maximum borrowings under the revolving credit facility was reduced to $50,000. Amounts outstanding under the Bank Credit Agreement bear interest (8.36% at July 31, 1994) equal to the bank's prime rate plus 1.0%. Prior to December 15, 1993, amounts outstanding under the Bank Credit Agreement bore interest (6.27% at August 1, 1993) equal to, at the Company's option, (1) the bank's prime rate plus 1.0%, (2) the certificate of deposit rate plus 2.25% or (3) the Eurodollar rate plus 2.0%. (b) The Senior Floating Rate Notes mature on August 2, 1996, and bear interest (5.88% at July 31, 1994 and August 1, 1993) payable semiannually, at a rate equal to six-month LIBOR (as defined in the Senior Floating Rate Note Indenture) plus 250 basis points. The Senior Floating Rate Notes are redeemable in whole or in part (subject to a minimum redemption of $9,000), at the option of the Company, on any interest payment date at a redemption price equal to 101% of the principal amount with accrued interest to the redemption date. F-25 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (c) The Senior Fixed Rate Notes mature on February 1, 1999, and bear interest at 12.375% per annum, payable semiannually. The Senior Fixed Rate Notes will be subject to redemption, otherwise than through operation of the sinking fund, at any time on and after February 1, 1996 or from time to time thereafter, at the option of the Company, as a whole or in part, on not less than 30 nor more than 60 days notice, at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning February 1, of the years indicated: Redemption Year Price ---- ---------- 1996 104.125% 1997 102.000% 1998 100.000% and thereafter at 100% of the principal amount, together in the case of any such redemption with accrued interest to the redemption date. The Senior Fixed Rate Notes are subject to redemption on February 1, 1998 through the operation of a sinking fund, at a redemption price equal to the principal amount and accrued interest at the redemption date. The sinking fund provides for the redemption in such year of $25,000 aggregate principal amount of the Senior Fixed Rate Notes, calculated to retire 50% of the notes prior to maturity. Senior Fixed Rate Notes acquired or redeemed by the Company (other than through the operation of the sinking fund) may be credited against sinking fund requirements. The Senior Fixed Rate Notes are also subject to mandatory redemption upon a change in control of the Company (as defined in the Senior Fixed Rate Note Indenture). (d) The Subordinated Debentures will mature on February 1, 2001, and bear interest, payable semiannually, at the rate of 14% per annum. The Subordinated Debentures are redeemable, in whole or in part, at the option of the Company, at any time and from time to time on and after February 1, 1994 at the following redemption prices together with accrued interest to the date of redemption: Year Redemption Price ---- ---------------- 1994 106.22% 1995 104.67% 1996 103.11% 1997 101.56% 1998 100.00% Mandatory sinking fund payments on the Subordinated Debentures, commencing February 1, 1999, are calculated to retire 50% of the original principal amount prior to maturity. (e) In September 1989, the Company completed a $17,000 mortgage financing of its warehouse, distribution, and office facility; in November 1989, seven fee-owned store properties were mortgaged for $13,200; and in January 1990, an additional fee-owned store property was mortgaged for $2,000. The net proceeds of these transactions were used to reduce existing bank debt. Final payments of $12,529 and $13,895 are due October 1999 and November 1999, respectively, on these mortgages. F-26 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (f) Approximate principal payments for the next five fiscal years are: Senior Capital Year Ending Term Loans Notes Mortgages Leases Other Total* - ----------- ---------- ------- --------- ------- ------ ------- 1995 $11,504 $ -- $ 1,260 $4,114 $2,162 $19,040 1996 19,425 -- 960 4,357 949 25,691 1997 -- 85,000 1,057 2,694 752 89,503 1998 -- 25,000 1,163 734 640 27,537 1999 -- 25,000 1,282 370 540 27,192 * Does not include $28,700 outstanding under the working capital line at July 31, 1994. The revolving credit facility under the Bank Credit Agreement requires the Company to pay down its outstanding working capital borrowings for a 30 day period in each fiscal year to an average daily balance not to exceed $5,000 with all such borrowings required to be repaid prior to termination of the Bank Credit Agreement in April 1996. Therefore, the Company classifies any outstanding balance in excess of $5,000 as current portion of long-term debt. In August 1994, the outstanding balance of capital improvement loans of $13,700 converted into a term loan amortizing to maturity in April 1996, and these amounts are included as term loans in the table above. The Bank Credit Agreement, which is secured by a pledge of substantially all assets of the Company, requires the Company to maintain a minimum net worth and to satisfy certain other financial ratios, and provides for certain restrictions on nonstock distributions and certain other restrictions. The Senior Floating Rate Notes, the Senior Fixed Rate Notes, the Subordinated Debentures, and certain other of the Company's indebtedness also contain compliance covenants that are less restrictive than the covenants under the Bank Credit Agreement. Due to the non-recurring charges incurred during the first quarter as well as its operating performance, the Company breached several financial covenants under its Bank Credit Agreement for each of the reporting periods during the fiscal year ended July 31, 1994. The Company has received all necessary waivers from the banks through the petition date discussed in Note 1. Additionally, the Company has not paid $2,511, $3,094, and $7,350 in interest due on the Senior Floating Rate Notes, the Senior Fixed Rate Notes, and the Subordinated Debentures, respectively. These amounts have been accrued on the accompanying financial statements, and as provided in the plan of reorganization discussed in Footnote 1, all interest on the Senior Floating Rate Notes and the Senior Fixed Rate Notes which is accrued and unpaid as of the date the Company filed its voluntary petition with the Bankruptcy Court shall be capitalized into New Senior Floating Rate Notes or New Senior Fixed Rate Notes and all interest which is accrued and unpaid on the Subordinated Debentures will be converted into equity. Given the automatic stay provisions of the Chapter 11 filing discussed in Note 1 the creditors discussed above are not able to declare these obligations in default and currently due. Therefore, certain portions of these obligations have been classified as long-term debt in the July 31, 1994 balance sheet. The Company has entered into a series of interest rate hedging transactions to reduce its exposure to fluctuations in short-term interest F-27 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) rates on the majority of its floating rate indebtedness. Financial Accounting Standards Board Statement of Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair Value of Financial Instruments", requires disclosure of estimated fair values of financial instruments, whether recognized or not in the balance sheets, for which it is practical to estimate such value. In calculating the fair value of each material class of financial instrument, the value is estimated by the Company to be the current carrying value adjusted to estimate the cost to liquidate the financial instruments. The Company does not intend to dispose of a significant portion of its financial instruments and thus any aggregate unrealized gains and losses should not be interpreted as a forecast of future earnings or cash flows. The Company estimates the cost to liquidate its interest rate hedging agreements to be approximately $2,600 at July 31, 1994. Carrying value is considered a reasonable estimate of the fair value of the remainder of the Company's financial instruments. Fair value estimates do not include the value of nonfinancial instruments, such as fixed assets, the value of customer relationships and various other factors. As a result, these fair values are not comprehensive and, therefore, do not reflect the underlying value of the Company. (6) Redeemable Preferred Stock The Series B Preferred Stock shareholders are entitled to receive, when, as, and if declared by the Board of Directors of the Company, cash dividends at the rate of 12% per annum on the face amount per share, and such dividends shall be cumulative and shall accrue whether or not earned or declared from the date of issue or from the most recent preceding dividend payment date through which dividends have been paid, as the case may be. Cumulative undeclared dividends are $2,562 from October 12, 1988 through July 31, 1994. Shares of Series B Preferred Stock are not entitled to any voting rights with respect to matters voted on by stockholders of the Company, except as otherwise required by Delaware law. The Series C Preferred Stock ranks junior to all classes and series of stock of the Company other than Common Stock. The holders of Common Stock and Series C Preferred Stock are entitled to share equally in such dividends (other than dividends in Common Stock) as may be declared by the Board of Directors and paid by the Company out of funds legally available therefor. Upon the voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series C Preferred Stock shall be entitled, before any payment is made in respect of the Common Stock, to be paid a liquidation preference in cash equal to $4.00 per share. After payment of the liquidation preference to the holders of the Series C Preferred Stock, the holders of shares of Common Stock then outstanding shall be entitled to be paid an amount in cash equal to $4.00 per share, following which each outstanding share of Series C Preferred Stock and Common Stock shall share in the distribution of the remaining assets of the Company, each share of Series C Preferred Stock being entitled to the amount it would have received had it been converted to Common Stock immediately prior to such distribution. Except as otherwise provided by Delaware law, holders of Series C Preferred Stock have no right to vote for the election of directors or on any other matters that may be submitted to a vote of the Company's stockholders except in the case of a proposal to merge or consolidate the Company with or into another F-28 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) entity, to sell, lease or exchange all or substantially all of the assets of the Company as an entirety, to dissolve or liquidate the Company or to adopt a plan to do any of the foregoing. In any such event, holders of shares of Series C Preferred Stock shall be entitled to one vote per share and shall vote together as a class with the Common Stock and not as a separate class. The payment of cash dividends by the Company is prohibited by the terms of the Bank Credit Agreement and restricted by the Indentures relating to the Company's Senior Floating Rate Notes, Senior Fixed Rate Notes and Subordinated Debentures. The Company has certain mandatory redemption requirements applicable to the Series B Preferred Stock, and certain repurchase obligations on the Series B Preferred Stock and Series C Preferred Stock, provided that such redemption or repurchase does not, among other things, violate any terms of an existing or future financing agreement. The Company's current Bank Credit Agreement and its current Indentures prohibit or significantly restrict the redemption or repurchase by the Company of any shares of its capital stock. However, due to these redemption requirements, preferred stock has been excluded from the stockholders' deficit section of the accompanying balance sheets. If or when such redemption or repurchase is allowed to occur, the Company, at its option, may consummate the transaction in the form of cash or by issuing subordinated notes. (7) Common Stock In November 1991, Green Equity Investors, L.P. ("GEI"), an investment fund managed by Leonard Green & Partners, L.P. ("LGP"), purchased 1,716,967 newly issued shares of the Company's Common Stock, or approximately 55.4% on a fully-diluted basis, for $27,700 in cash and The Fulcrum III Limited Partnership and The Second Fulcrum III Limited Partnership (collectively, the "Fulcrum Partnerships"), investment funds managed by Gibbons, Goodwin, van Amerongen ("GGvA"), collectively purchased 142,564 newly issued shares of the Company's Common Stock, or approximately 4.5% on a fully-diluted basis, for $2,300 in cash. Contemporaneously, a majority of the holders of the Company's Series A Preferred Stock voted to amend the Company's Certificate of Incorporation to reclassify each share of Series A Preferred Stock and all cumulative and unpaid dividends thereon into one-tenth (1/10) of a share of Common Stock. As a result of the reclassification, all shares of Series A Preferred Stock, together with all cumulative and unpaid dividends thereon, were converted into an aggregate of 40,000 shares of Common Stock, representing 1.3% of the Common Stock, on a fully-diluted basis. In addition, the Fulcrum Partnerships exchanged shares of the Company's Series B Preferred Stock, and all cumulative and unpaid dividends thereon, and Series C Preferred Stock for Common Stock. As a result, cumulative undeclared dividends as of the date of these transactions were reduced from $16,648 to $1,304. In February 1994, GEI loaned the Company $2,000 in cash in exchange for warrants to purchase 63,235 shares of Common Stock. At the time of this transaction, the warrant was deemed to have nominal value, and therefore no adjustment was made to equity in the accompanying financial statements. F-29 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (8) Stock Option Plans Certain key employees, including all executive officers, are eligible to receive nonqualified stock options to purchase Common Stock under the Restated 1988 Management Stock Option Plan (the "1988 Option Plan") and/or the 1991 Management Stock Option Plan (the "1991 Option Plan" and, together with the 1988 Option Plan, the "Option Plans"). Options granted under the 1988 Option Plan have an exercise price of the greater of 85% of fair market value at the date of grant or $10 per share and options granted under the 1991 Option Plan have an exercise price of (a) $16.13 per share for options granted within 30 days of the approval of the 1991 Option Plan by the stockholders of the Company and (b) thereafter at 100% of the fair market value at the date of grant. The 1988 Option Plan terminates at the end of the Company's 1995 fiscal year and the 1991 Option Plan terminates on November 26, 2001. A three-person committee of the Board of Directors (the "Option Committee"), which includes one officer of the Company, administers both Option Plans. The Option Committee designates the class of employees eligible to participate in the Option Plans and, during each fiscal year of the Option Plans, designates eligible employees who will be granted options and the number of shares subject to such options. Members of the Option Committee are eligible to receive options. The Option Plans provide for tenure-vesting based upon a participant's employment with the Company and, in addition, the 1988 Option Plan provides for performance-vesting based on the Company meeting certain earnings targets. Once exercised, the transfer of the shares subject to the options will be restricted pursuant to the terms of a Restricted Stock Agreement to be entered into among the Company and each holder. A summary of changes in the Option Plans for the fiscal years ended July 31, 1994, August 1, 1993, and August 2, 1992, are presented below: 1988 Option Plan Fiscal Year ----------- 1994 1993 1992 ---- ---- ---- Stock options outstanding at beginning of year 27,147 27,976 28,924 Granted -- -- -- Exercised -- -- -- Forfeited 1,136 829 948 Outstanding at end of year 26,011 27,147 27,976 Exercisable at end of year 25,061 18,255 15,972 Average option price per share $11.45 $11.54 $11.50 Reserved for future grant -- -- -- F-30 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) 1991 Option Plan Fiscal Year ----------- 1994 1993 1992 ---- ---- ---- Stock options outstanding at beginning of year 118,597 110,722 -- Granted -- 8,875 110,722 Exercised -- -- -- Forfeited 1,000 1,000 -- Outstanding at end of year 117,597 118,597 110,722 Exercisable at end of year -- -- -- Average option price per share $16.16 $16.16 $16.13 Reserved for future grant 1,000 1,000 8,875 For the 1988 Option Plan, compensation expense is determined based on the difference between the fair market value (as determined by the Option Committee) and exercise price upon performance-vesting, such compensation expense to be recognized over the tenure-vesting period on a pro rata basis. For the 1991 Option Plan, options are granted at the fair market value of Common Stock (as determined by the Option Committee) at the date of grant and therefore no compensation expense will be recorded. (9) Leases The Company leases certain stores, other facilities and equipment under leases that are not cancelable. Such leases generally contain renewal options exercisable at the Company's option. In addition to minimum rental payments, certain leases provide for payments of taxes, maintenance and percentage rentals based upon sales in excess of stipulated amounts. The future minimum payments under leases that are not cancelable, as of July 31, 1994, are: F-31 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) Operating Capital Year Ending in leases leases -------------- --------- -------- 1995 $ 23,200 $ 5,430 1996 22,900 5,238 1997 21,800 3,163 1998 20,600 1,030 1999 20,400 965 Thereafter 212,400 2,329 -------- -------- Total minimum lease payments $321,300 18,155 ======== Less portion representing interest (4,278) Present value of net minimum lease payments at -------- July 31, 1994 $13,877 ======== Total rent expense was $26,642, $25,475, and $24,059 for the fiscal years ended July 31, 1994, August 1, 1993, and August 2, 1992, respectively. Included in total rent expense are percentage rents totaling $241, $446, and $534, for 1994, 1993, and 1992, respectively. (10) Income Taxes The Company has reported a pretax loss for all fiscal years since October 12, 1988, and, consequently, no income tax expense has been reported. Financial Accounting Standards Board Statement 109 (SFAS 109) was adopted by the Company as of August 2, 1993. There was no cumulative effect of this change in accounting for income taxes determined as of August 2, 1993. Prior years' financial statements have not been restated to apply the provisions of SFAS 109. The effect on prior years' financial statements of retroactively implementing SFAS 109 would be immaterial. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of July 31, 1994 are presented as follows: Deferred tax assets: Inventory, principally due to reserves and additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 $ 900 Insurance and other reserves 8,100 Net operating loss carryforward 35,000 General business credit carryforward 1,600 Charitable contributions carryforward 3,200 Other, net 1,800 -------- Total gross deferred tax assets 50,600 Less valuation allowance (50,600) -------- Net deferred tax assets $ -- ======== F-32 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) Upon adoption of SFAS 109, effective August 2, 1993, the Company determined a valuation allowance requirement in the amount of $36,200. The valuation allowance as of July 31, 1994 has been determined to be $50,600, resulting in a change in the valuation allowance in the amount of $14,400. The Company has net operating loss ("NOL") carryforwards for federal income tax purposes of $93,000 which are available to offset future taxable income, if any, through the year 2009. The Company has general business credit carryforwards of $1,600 which are also available to reduce future federal income taxes, if any, through the year 2009. The Company anticipates that, in connection with the restructuring discussed in Footnote 1, it will undergo an ownership change pursuant to Internal Revenue Code Section 382 that will result in an annual limitation on the amount of the NOL and general business credit carryforwards that the Company may utilize to offset future federal taxable income. In addition, should the Company fail to emerge from bankruptcy by December 31, 1994, its NOL and general business credit carryforwards will be eliminated to the extent of any income realized from the cancellation of debt by the Company. (11) Supplementary Statements of Operations Information Supplementary Statements of Operations information is as follows: Fifty-two Fifty-two Fifty-three Weeks Ended Weeks Ended Weeks Ended July 31, 1994 August 1, 1993 August 2, 1992 -------------- -------------- -------------- Amortization of: Lease interests $ 6,037 $ 2,576 $ 1,293 Deferred financing costs 2,950 2,850 2,932 Goodwill 2,831 2,832 2,886 ------- ------- ------- Total amortization of intangible assets $11,818 $ 8,258 $ 7,111 ======= ======= ======= Advertising costs $14,099 $13,530 $12,428 ======= ======= ======= (12) Employee Benefit Plans Kash n' Karry Retirement Estates ("KKRE"), a trusteed defined contribution retirement plan, was authorized by the Company's Board of Directors in 1988. KKRE is a tax savings/profit sharing plan maintained primarily for the purpose of providing retirement income for eligible employees of the Company. KKRE is qualified under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986. Generally, all employees who have attained the age of 21 years and complete one year of participation F-33 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) service (as defined under KKRE) are eligible to participate in KKRE. Participants may, subject to certain federal limitations, elect to defer an amount not to exceed 15% of their base compensation and have such amount contributed to KKRE. The Company may match all or a portion of the participant's deferred compensation, but the amount of the matching contribution may not exceed 3% of such participant's compensation. Additional non-matching contributions may be made to KKRE by the Company in such amount as determined by the Company's Board of Directors based on the Company's operating performance. Funds that participants elect to defer are invested, at the participant's option, into various investment accounts. The vested percentage of the amounts allocated to a participant's account will be payable to the participant upon such participant's death, disability, retirement, or other separation of service from the Company. Plan expenses were $573, $573, and $461, for the fiscal years ended July 31, 1994, August 1, 1993, and August 2, 1992, respectively. Kash n' Karry Executive Supplemental Retirement Plan ("KESP"), a non- qualified, unfunded salary deferral plan, was authorized by the Company's Board of Directors in November 1989. Certain Key Employees (as defined under KESP) of the Company as selected by its Board of Directors participate in KESP. Currently, nineteen Key Employees participate in KESP. Prior to the beginning of each plan year, a participant may elect to defer an amount not to exceed 15% of such participant's annual base compensation (as defined under KESP). The Company will match a certain portion of the amount deferred by the participant, but the amount of the match may not exceed 6% of such participant's annual base compensation. The Company will record income to the participant's account at an annual rate (11% for the 1994, 1993 and 1992 plan years) as determined by the Company's Board of Directors, but the rate of such income shall not be less than 8% per annum. The vested percentage of the amounts recorded in the participant's account will be paid to the participant upon the earlier of: (i) such participant's death, disability, retirement, or other separation of service from the Company; (ii) the date the plan is terminated; or (iii) the date that a change in control occurs (as defined under KESP). Expense for this plan was $135, $149, and $172, for the fiscal years ended July 31, 1994, August 1, 1993, and August 2, 1992, respectively. (13) Commitments and Contingencies The Company had letters of credit outstanding totaling $16,358 and $19,118 at July 31, 1994 and August 1, 1993, respectively, which amounts have been reflected as reductions of the available revolving loan facility as of those dates. These letters of credit primarily guarantee various insurance and financing activities. F-34 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (14) Related Party Transactions Leonard Green & Partners ("LGP"), the sole general partner of Green Equity Investors, L.P., which owns approximately 55.4% of the Company's Common Stock on a fully-diluted basis, received a closing fee on November 26, 1991 as compensation in connection with its equity investment in the Company and was also reimbursed for its out-of-pocket expenses. In addition, as consideration for the provision of ongoing financial advisory services, the Company agreed to pay LGP an annual fee plus related out-of-pocket expenses. Three of the Company's Directors are general partners of LGP. The Company has made $143, $598 and $489 in such payments for the fiscal years ended July 31, 1994, August 1, 1993 and August 2, 1992, respectively. Gibbons, Goodwin, van Amerongen ("GGvA"), the sole general partner of The Fulcrum III and The Second Fulcrum III Limited Partnerships, which combined own approximately 30.7% of the Company's Common Stock on a fully-diluted basis, received a closing fee on November 26, 1991 as compensation in connection with its equity investment in the Company and was also reimbursed for its out-of-pocket expenses. In addition, GGvA receives, as consideration for the provision of ongoing financial advisory services, an annual fee plus related out-of-pocket expenses. One of the Company's Directors is a general partner of GGvA. The Company made total payments to GGvA for on-going services of $42, $235, and $262, for the fiscal years ended July 31, 1994, August 1, 1993, and August 2, 1992, respectively. F-35 KASH N' KARRY FOOD STORES, INC. PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma financial statements have been prepared using the principles of "fresh-start" accounting pursuant to the American Institute of Certified Public Accountants Statement of Position No. 90-7, entitled "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOS No. 90-7"). The unaudited pro forma statement of operations of the Company for the fiscal year ended July 31, 1994 gives effect to the Restructuring as if it had occurred on August 2, 1993. The unaudited pro forma balance sheet of the Company as of July 31, 1994 gives effect to the Restructuring as if such Restructuring had occurred on July 31, 1994. The pro forma data are not necessarily indicative of the financial position or results of operations that would have been reported had the Restructuring occurred on the dates referred to, nor are they necessarily indicative of the financial position or results of operations to be expected in the future. KPMG Peat Marwick LLP, the Company's independent auditors, have neither examined, reviewed nor compiled the pro forma information and, consequently, do not express an opinion or any other form of assurance or other association with respect thereto. The pro forma data should be read together with the other information contained herein under the headings "Selected Financial Data," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements of the Company and the notes thereto. F-36 KASH N' KARRY FOOD STORES, INC. UNAUDITED PRO FORMA BALANCE SHEET As of July 31, 1994 (In Thousands) ASSETS Pro Forma Adjustments --------------------- July 31, Discharge Fresh Pro Forma 1994 and Exchange Start Reorganized Current assets: --------- -------------- ------ ----------- Cash and cash equivalents $ 6,852 $ (2,312)(a)$ $ 5,600 10,000 (b) (4,500)(c) (4,440)(d) Accounts receivable 8,084 8,084 Inventories 76,094 5,104(g) 81,198 Prepaid expenses and other current assets 12,805 12,805 --------- ---------- -------- -------- Total currents assets 103,835 (1,252) 5,104 107,687 Property and equipment, at cost, net 160,491 (17,775)(g) 142,716 Favorable lease interest, net 12,312 18,280 (g) 30,592 Deferred financing costs, net 12,630 (10,717)(e) 4,225 2,312 (a) Excess of cost over fair value of net assets acquired, net 96,758 (96,758)(f) -- Reorganization value in excess of amounts allocated to net assets -- 102,521 (g) 102,521 Other assets 3,867 (928)(g) 2,939 --------- -------- -------- ------- Total assets $ 389,893 $ (9,657) $10,444 $390,680 ========= ======== ======== ======== F-37 KASH N' KARRY FOOD STORES, INC. UNAUDITED PRO FORMA BALANCE SHEET As of July 31, 1994 (Continued) (In Thousands) LIABILITIES & STOCKHOLDERS' EQUITY Pro Forma Adjustments --------------------- July 31, Discharge Fresh Pro Forma 1994 and Exchange Start Reorganized --------- -------------- ------ ----------- Current liabilities: Current portion of long-term debt $ 42,740 $ (940)(d)$ $ 13,596 (28,204)(h) Accounts payable 34,908 34,908 Accrued expenses 38,934 (7,350)(i) 5,838(g) 31,831 (5,591)(j) --------- ---------- -------- -------- Total current liabilities 116,582 (42,085) 5,838 80,335 Long-term debt, less current portion 317,381 (105,000)(i) 242,676 28,204 (h) 5,591 (j) (3,500)(d) Other long-term liabilities 12,334 8,840(g) 21,174 Series B preferred stock 3,875 (3,875)(k) -- Series C preferred stock 775 (775)(k) -- Stockholders' equity (deficit): Common stock, pre-restructuring 28 (28)(k) -- Common stock, post-restructuring -- 26 (i) 31 5 (b) Capital in excess of par value 77,695 (77,695)(k) 46,464 112,324 (i) 9,995 (b) (4,500)(c) (71,355)(g) Accumulated deficit (138,740) 71,619 (l) -- 67,121 (g) Less cost of treasury stock (37) 37 (k) -- --------- --------- -------- -------- Total stockholders' equity (deficit) (61,054) 111,783 4,606 46,495 --------- --------- -------- -------- Total liabilities and stockholders' equity (deficit) $ 389,893 $ (9,657) $ 10,444 $390,680 ========= ========= ======== ======== F-38 KASH N' KARRY FOOD STORES, INC. NOTES TO UNAUDITED PRO FORMA BALANCE SHEET (Dollar Amounts in Thousands, Except per Share Amounts) The following notes set forth an explanation of the assumptions used in preparing the unaudited pro forma Balance Sheet. The pro forma adjustments are based on management's best estimates using information currently available. The pro forma Balance Sheet has been prepared based on the post-restructuring capital structure of the Company, which was 3,100,000 shares of $.01 common stock with an approximate market value of $15 per share. Market value is based on a multiple of projected operating cash flow (which is the methodology most often used to value grocery businesses) less the long-term debt of the Company, and was the approximate trading value of the shares when they began trading publicly subsequent to December 29, 1994. (a) To reflect estimated transaction costs associated with the Company's New Bank Credit Agreement. (b) To reflect the purchase of 15.0% of the New Common Stock by GEI in exchange for $10,000 in cash. (c) To reflect estimated transaction costs associated with the Restructuring. (d) To repay certain notes on the Effective Date. (e) To reflect the elimination of net capitalized transaction costs associated with the $105,000 Old Subordinated Debentures, Old Credit Agreement, and the Old Senior Floating Rate Notes and Old Senior Fixed Rate Notes. (f) To reflect the elimination of pre-existing goodwill. (g) To record "fresh-start" accounting adjustments. (h) To reflect principal amortization adjustments between the New Bank Credit Agreement and the Old Credit Agreement. Adjustment reflects current portions of the Old Credit Agreement of $35,204 and current portions of the New Bank Credit Agreement of $7,000. (i) To reflect the conversion of $105,000 Old Subordinated Debentures, plus accrued interest totaling approximately $7,350 for 85.0% of the New Common Stock. (j) To reflect the conversion of Old Senior Floating Rate Notes totaling $85,000 and Old Senior Fixed Rate Notes totaling $50,000, along with accrued interest thereon totaling approximately $5,591, into New Senior Fixed Rate Notes. (k) To reflect the elimination of Old Equity Interests. (l) To reflect the net operating impact of discharge and exchange adjustments. F-39 KASH N' KARRY FOOD STORES, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS Fifty-Two Weeks Ended July 31, 1994 (In Thousands, Except Share and Per Share Amounts) July 31, Pro Forma Pro Forma 1994 Adjustments Reorganized ---------- ----------- ----------- Sales $1,065,165 $ $1,065,165 Cost of sales 845,597 845,597 ---------- --------- ---------- Gross profit 219,568 219,568 Selling, general and administrative expenses 176,945 176,945 Depreciation and amortization 24,112 (2,832)(a) 26,406 5,126 (b) Store closing and other costs 11,016 11,016 ---------- --------- ---------- Operating income 7,495 5,201 Interest expense, net 45,390 (14,700)(c) 34,386 (11,289)(d) 16,000 (e) (2,423)(f) 1,408 (g) ---------- --------- ---------- Loss before income taxes (37,895) (29,185) Income taxes -- -- ---------- --------- ---------- Net loss (37,895) (29,185) Undeclared dividends on preferred stock (464) 464 (h) -- ---------- ---------- Net loss attributable to common stock $ (38,359) $ (29,185) ========== ========== Pro forma loss per common share $ (9.41) ========== Weighted average common shares outstanding 3,100,000 ========== F-40 KASH N' KARRY FOOD STORES, INC. NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (Dollar Amounts In Thousands) The following notes set forth an explanation of the assumptions used in preparing the unaudited pro forma Statement of Operations. The pro forma adjustments are based on management's best estimates using information currently available. The pro forma Statement of Operations has been prepared based on the post-restructuring capital structure of the Company, which was 3,100,000 shares of $.01 common stock with an approximate market value of $15 per share. Market value is based on a multiple of projected operating cash flow (which is the methodology most often used to value grocery businesses) less the long-term debt of the Company, and was the approximate trading value of the shares when they began trading publicly subsequent to December 29, 1994. (a) To reflect the elimination of amortization on previously capitalized excess of cost over fair value of net assets acquired. (b) To reflect the amortization of reorganizational value in excess of amounts allocated to net assets totaling $102,521 over 20 years. (c) To reflect the elimination of interest expense occurred at 14% on the $105,000 Old Subordinated Debentures. (d) To reflect the elimination of interest expense on the Old Senior Fixed Rate Notes and Old Senior Floating Rate Notes. (e) To reflect interest expense on New Senior Fixed Rate Notes of $121,162 at 11.5% and on New Senior Floating Rate Notes of $22,953 at 9.0%. (f) To reflect the elimination of amortization on deferred transaction costs related to the Old Credit Agreement and the $105,000 Old Subordinated Debentures and the Old Senior Floating Rate Notes and Old Senior Fixed Rate Notes. (g) To reflect the amortization of transaction costs related to the New Bank Credit Agreement. (h) To reflect the elimination of undeclared dividends on Old Equity Interests. F-41 20/WL/LWH/KNK.SEC/S1.95/FS.1 No dealer, salesperson or any other person has been authorized to give any information or to make any representations in connection with this offering other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been so [Logo] authorized. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy by anyone in any jurisdiction in which such offer or solicitation KASH N' KARRY is not authorized or in which such FOOD STORES, INC. person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. Common Stock TABLE OF CONTENTS Page Available Information. . . . 2 Prospectus Summary . . . . . 3 Investment Considerations. . 10 The Company. . . . . . . . . 14 The Restructuring. . . . . . 15 Market Price and Dividend Policy 16 Capitalization . . . . . . . 17 Selected Financial Information 18 Management's Discussion and Analysis PROSPECTUS of Financial Condition and Results of Operations 22 Business . . . . . . . . . . 30 Management . . . . . . . . . 36 Certain Relationships and Related Transactions . . . 47 Principal Stockholders . . . 48 Description of Capital Stock 49 Selling Stockholders . . . . 57 Plan of Distribution . . . . 60 Legal Matters. . . . . . . . 61 Experts. . . . . . . . . . . 61 Index to Financial Statements F-1 ________________, 1995 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the fees and expenses payable in connection with the sale of the Common Stock being registered. The Company will pay all such fees and expenses. All amounts are estimates except for the registration fee. SEC Registration Fee . . . . . . . . $20,577.59 Blue Sky fees and expenses . . . . . * Accounting fees and expenses . . . . * Legal fees and expenses . . . . . . * Transfer agent fees and expenses . . * Printing and engraving fees and expenses * Miscellaneous fees and expenses . . * Total . . . . . . . . . . . * * To be completed by amendment. Item 14. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law ("DGCL") permits a Delaware corporation to indemnify any person who is or was a director, officer, employee and agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against actual and reasonable expenses (including attorneys' fees) incurred by such person in connection with any action, suit or proceeding if (i) he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and (ii) in the case of a criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. Except as ordered by a court, no indemnification shall be made in connection with any proceeding brought by or in the right of the Company where the person involved is adjudged to be liable to the Company. Article XV of the Bylaws of the Company provides for indemnification of the officers and directors of the Company to the full extent permitted by law, as now in effect or later amended. II-1 The Company has entered into indemnity agreements with each of its directors and executive officers. The indemnity agreements generally indemnify such persons against liabilities arising out of their service in their capacities as directors, officers, employees or agents of the Company. The Company may from time to time enter into indemnity agreements with additional individuals who become officers and/or directors of the Company. Section 145 of the DGCL further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145. The Company maintains policies insuring the Company's directors and executive officers against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act. Article Seventh of the Company's Restated Certificate of Incorporation limits under certain circumstances the liability of the Company's directors for a breach of their fiduciary duty as directors. These provisions do not eliminate the liability of a director (i) for a breach of the director's duty of loyalty to the Company or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (relating to the declaration of dividends and purchase or redemption of shares in violation of the DGCL), or (iv) for any transaction from which the director derived an improper personal benefit. At present, there is no pending litigation or proceeding involving a director or officer of the Company as to which indemnification is being sought nor is the Company aware of any threatened litigation that may result in claims for indemnification by any officer, director or employee of the Company. Item 15. Recent Sales of Unregistered Securities On November 9, 1994, the Company filed with the United States Bankruptcy Court for the District of Delaware a "prepackaged" plan of reorganization (the "Prepackaged Plan") pursuant to Chapter 11 of the U.S. Bankruptcy Code. The Prepackaged Plan was confirmed by the Bankruptcy Court on December 12, 1994. Pursuant to the Prepackaged Plan, on December 29, 1994 the Company issued 2,635,000 shares of Common Stock to the holders of its $105.0 million 14% Subordinated Debentures due February 1, 2001 (the "Old Subordinated Debentures"), in exchange for the Old Subordinated Debentures, and issued 465,000 shares of its Common Stock to Green Equity Investors, L.P., its former majority shareholder, in consideration for the sum of $10.0 million. In addition, holders of the Company's $85.0 million Senior Floating Rate Notes due August 2, 1996 and its $50.0 million 12 3/8% Senior Fixed Rate Notes due February 1, 1999, exchanged such notes for $23.0 million aggregate principal amount of new Senior Floating Rate Notes due February 1, 2003 and $121.1 million aggregate principal amount of new 11.5% Senior Fixed Rate Notes due February 1, 2003 (collectively, the "New Senior Notes"). II-2 The Common Stock and New Senior Notes issued pursuant to the Prepackaged Plan were issued in reliance upon Section 1145(a) of the U.S. Bankruptcy Code under an order confirming the Company's Prepackaged Plan. This section provides an independent exemption from the registration requirement for the offer and sale of securities of a debtor issued under a plan of reorganization. The requirements for relying upon the exemption under Section 1145(a) of the Bankruptcy Code -- i.e., (i) issuance of securities under a plan of reorganization; (ii) issuance of securities by the debtor; and (iii) issuance of securities in exchange or principally in exchange for claims or interests -- have been satisfied and the Prepackaged Plan was confirmed by the Bankruptcy Court. Item 16. Exhibits and Financial Statement Schedules (a) The following exhibits are filed as part of this Registration Statement: Exhibit No. Description 2 First Amended Plan of Reorganization filed by the Company with the United States Bankruptcy Court of the District of Delaware on November 9, 1994, as amended by notices of technical modifications thereto filed on November 9, 1994, and December 12, 1994 (previously filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the period ended October 30, 1994, which exhibit is hereby incorporated by reference). 3(i)(a) Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 29, 1994 (previously filed as Exhibit 3(i) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(i)(b) Certificate of Designations of Series A Junior Participating Preferred Stock filed with the Secretary of State of the State of Delaware on April 26, 1995 (filed herewith). 3(ii)(a) Bylaws adopted October 12, 1988 (previously filed as Exhibit 3(ii)(a) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(ii)(b) First Amendment to Bylaws adopted July 30, 1991 (previously filed as Exhibit 3(ii)(b) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(ii)(c) Second Amendment to Bylaws adopted December 29, 1994 (previously filed as Exhibit 3(ii)(c) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). II-3 4.1 Indenture dated as of December 29, 1994, between the Company and Shawmut Bank Connecticut, N.A., as Trustee, relating to 11.5% Senior Fixed Rate Notes due 2003 (previously filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 4.2 Indenture dated as of December 29, 1994, between the Company and IBJ Schroder Bank & Trust Company, as Trustee, relating to Senior Floating Notes due 2003 (previously filed as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 4.3 Rights Agreement dated as of April 13, 1995 between the Company and Shawmut Bank Connecticut, N.A., as Rights Agent (previously filed as Exhibit 1 to the Company's Current Report on Form 8-K dated April 13, 1995, which exhibit is hereby incorporated by reference). 4.4 Specimen form of Common Stock certificate (filed herewith). 5 Opinion of Milbank, Tweed, Hadley & McCloy re: legality (to be filed by amendment). 10.1 Credit Agreement dated as of December 29, 1994, among the Company, certain lenders, The CIT Group/Business Credit, Inc., as administrative agent, and Bank of America National Trust and Savings Association, as co-agent (previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 10.2 Mortgage, Fixture Filing, Security Agreement and Assignment of Rents between the Company, as mortgagor, and Sun Life Insurance Co. of America, as mortgagee, dated as of September 7, 1989 (previously filed as Exhibit 28.1(a) to the Company's Quarterly Report on Form 10-Q for the period ended October 29, 1989, which exhibit is hereby incorporated by reference). 10.3 Mortgage between the Company, as mortgagor, and Ausa Life Insurance Company, as mortgagee, dated as of November 21, 1989 (previously filed as Exhibit 28.2(a) to the Company's Quarterly Report on Form 10-Q for the period ended October 29, 1989, which exhibit is hereby incorporated by reference). 10.4 Trademark License Agreement dated as of October 12, 1988 between the Company and Lucky Stores, Inc. (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1, Registration No. 33-25621, which exhibit is hereby incorporated by reference). 10.5(a) Services Agreement dated as of March 1, 1995 between the Company and GSI Outsourcing Corporation (filed herewith). II-4 10.5(b) First Amendment to Services Agreement between the Company and GSI Outsourcing Corporation (filed herewith). 10.6 Form of Indemnity Agreement between the Company and its directors and certain of its officers (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1, Registration No. 33-25621, which exhibit is hereby incorporated by reference). 10.7(a) 1995 Non-Employee Director Stock Option Plan adopted on March 9, 1995 (filed herewith). 10.7(b) Form of Non-Qualified Stock Option Agreement entered into between the Company and certain directors, as optionees, pursuant to the 1995 Non-Employee Director Stock Option Plan (filed herewith). 10.8 Non-Qualified Stock Option Agreement dated as of January 17, 1995, between the Company and Green Equity Investors, L.P. (filed herewith). 10.9 Management Services Agreement dated as of December 29, 1994, by and between the Company and Leonard Green & Partners (previously filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 10.10 Employment Agreement dated as of January 24, 1995, between the Company and Ronald Johnson (filed herewith). 10.11 Employment Agreement dated as of March 6, 1995, between the Company and Gary M. Shell (filed herewith). 10.12 Employment Agreement dated as of March 16, 1995, between the Company and Cliff Smith (filed herewith). 10.13 Incentive Compensation Plan adopted on October 26, 1994 (filed herewith). 10.14 Amended and Restated Kash n' Karry Retirement Estates and Trust (401(k) Plan) dated October 14, 1993, effective as of January 1, 1992 (previously filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the period ended August 1, 1993, which exhibit is hereby incorporated by reference). 10.15(a) Form of Deferred Compensation Agreement dated as of December 21, 1989 between the Company and key employees and a select group of management (KESP) (previously filed as Exhibit 28.3(a) to the Company's Quarterly Report on Form 10-Q for the period ended January 28, 1990, which exhibit is hereby incorporated by reference). II-5 10.15(b) Master First Amendment to Deferred Compensation Agreements, dated as of November 11, 1991 between the Company and the key employees party thereto (previously filed as Exhibit 28.3 to the Company's Quarterly Report on Form 10-Q for the period ended November 3, 1991, which exhibit is hereby incorporated by reference). 10.15(c) Master Second Amendment to Deferred Compensation Agreements, dated as of December 30, 1993 between the Company and the key employees party thereto (previously filed as Exhibit 10.13(d) to the Company's Quarterly Report on Form 10-Q for the period ended January 30, 1994, which exhibit is hereby incorporated by reference). 10.15(d) Master Third Amendment to Deferred Compensation Agreements, dated as of September 2, 1994, between the Company and the key employees party thereto (previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 10.16(a) 1995 Key Employee Stock Option Plan (filed herewith). 10.16(b) Non-Qualified Stock Option Agreement dated March 9, 1995 between the Company and Ronald E. Johnson (filed herewith). 10.16(c) Form of Non-Qualified Stock Option Agreement entered into between the Company and certain key employees, as optionees, pursuant to the 1995 Key Employee Stock Option Plan (filed herewith). 16 Letter re change in certifying accountant (previously filed as Exhibit 16 to the Company's Current Report on Form 8-K dated February 17, 1995). 23.1 Consent of Milbank, Tweed, Hadley & McCloy (to be included in Exhibit 5). 23.2 Consent of KPMG Peat Marwick, L.L.P. (filed herewith). 24 Power of Attorney (included in signature page). 27 Financial Data Schedule (filed herewith). II-6 Item 17. Undertakings 1. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to its Certificate of Incorporation, Bylaws or otherwise, the registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 2. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, State of Florida, on April 30, 1995. KASH N' KARRY FOOD STORES, INC. /s/ Ronald E. Johnson By: Ronald E. Johnson Chairman of the Board, President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald E. Johnson and Raymond P. Springer, and each or either of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments and post-effective amendments to this Registration Statement, and to file the same with all exhibits thereto, unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them or their substitutes, may lawfully do or cause to be done by virtue thereof. 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 Capacity Date /s/ Ronald E. Johnson Ronald E. Johnson Chairman of the Board, April 30, 1995 President and Chief Executive Officer (principal executive officer) /s/ Raymond P. Springer Raymond P. Springer Senior Vice President, April 28, 1995 Chief Financial Officer (principal financial officer) /s/ Richard D. Coleman Richard D. Coleman Vice President, Controller April 30, 1995 (principal accounting officer) /s/ Everett L. Buckardt Everett L. Buckardt Director April 30, 1995 /s/ John J. Delucca John J. Delucca Director April 30, 1995 Jennifer Holden Dunbar Director April ___, 1995 Ben Evans Director April ___, 1995 /s/ Thomas W. Harberts Thomas W. Harberts Director April 28, 1995 /s/ Robert Spiegel Robert Spiegel Director April 28, 1995 Christopher V. Walker Director April ___, 1995 /s/ Peter Zurkow Peter Zurkow Director April 28, 1995 20/LWH/KNK.SEC/S1.95/K10008s1.4 EXHIBIT INDEX Sequentially Exhibit Numbered No. Description of Exhibit Page 2 First Amended Plan of Reorganization filed by the Company with the United States Bankruptcy Court of the District of Delaware on November 9, 1994, as amended by notices of technical modifications thereto filed on November 9, 1994, and December 12, 1994 (previously filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the period ended October 30, 1994, which exhibit is hereby incorporated by reference). 3(i)(a) Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 29, 1994 (previously filed as Exhibit 3(i) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(i)(b) Certificate of Designations of Series 122 A Junior Participating Preferred Stock filed with the Secretary of State of the State of Delaware on April 26, 1995. 3(ii)(a) Bylaws adopted October 12, 1988 (previously filed as Exhibit 3(ii)(a) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(ii)(b) First Amendment to Bylaws adopted July 30, 1991 (previously filed as Exhibit 3(ii)(b) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(ii)(c) Second Amendment to Bylaws adopted December 29, 1994 (previously filed as Exhibit 3(ii)(c) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 4.1 Indenture dated as of December 29, 1994, between the Company and Shawmut Bank Connecticut, N.A., as Trustee, relating to 11.5% Senior Fixed Rate Notes due 2003 (previously filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 4.2 Indenture dated as of December 29, 1994, between the Company and IBJ Schroder Bank & Trust Company, as Trustee, relating to Senior Floating Rate Notes due 2003 (previously filed as Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 4.3 Rights Agreement dated as of April 13, 1995 between the Company and Shawmut Bank Connecticut, N.A., as Rights Agent (previously filed as Exhibit 1 to the Company's Current Report on Form 8-K dated April 13, 1995, which exhibit is hereby incorporated by reference). 4.4 Specimen form of Common Stock certificate. 129 5 Opinion of Milbank, Tweed, Hadley & McCloy re: legality (to be filed by amendment). 10.1 Credit Agreement dated as of December 29, 1994, among the Company, certain lenders, The CIT Group/Business Credit, Inc., as administrative agent, and Bank of America National Trust and Savings Association, as co-agent (previously filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 10.2 Mortgage, Fixture Filing, Security Agreement and Assignment of Rents between the Company, as mortgagor, and Sun Life Insurance Co. of America, as mortgagee, dated as of September 7, 1989 (previously filed as Exhibit 28.1(a) to the Company's Quarterly Report on Form 10-Q for the period ended October 29, 1989, which exhibit is hereby incorporated by reference). 10.3 Mortgage between the Company, as mortgagor, and Ausa LifeInsurance Company, as mortgagee, dated as of November 21, 1989 (previously filed as Exhibit 28.2(a) to the Company's Quarterly Report on Form 10-Q for the period ended October 29, 1989, which exhibit is hereby incorporated by reference). 10.4 Trademark License Agreement dated as of October 12, 1988 between the Company and Lucky Stores, Inc. (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1, Registration No. 33-25621, which exhibit is hereby incorporated by reference). 10.5(a) Services Agreement dated as of March 1, 1995 132 between the Company and GSI Outsourcing Corporation. 10.5(b) First Amendment to Services Agreement between 241 the Company and GSI Outsourcing Corporation. 10.6 Form of Indemnity Agreement between the Company and its directors and certain of its officers (previously filed as Exhibit 10.3 to the Company's Registration Statement on Form S-1, Registration No. 33-25621, which exhibit is hereby incorporated by reference). 10.7(a) 1995 Non-Employee Director Stock Option Plan 247 adopted on March 9, 1995. 10.7(b) Form of Non-Qualified Stock Option Agreement 261 entered into between the Company and certain directors, as optionees, pursuant to the 1995 Non-Employee Director Stock Option Plan. 10.8 Non-Qualified Stock Option Agreement dated 266 as of January 17, 1995, between the Company and Green Equity Investors, L.P. 10.9 Management Services Agreement dated as of December 29, 1994, by and between the Company and Leonard Green & Partners (previously filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 10.10 Employment Agreement dated as of 272 January 24, 1995, between the Company and Ronald Johnson. 10.11 Employment Agreement dated as of 295 March 6, 1995, between the Company and Gary M. Shell. 10.12 Employment Agreement dated as of 322 March 16, 1995, between the Company and Cliff Smith. 10.13 Incentive Compensation Plan adopted 349 on October 26, 1994. 10.14 Amended and Restated Kash n' Karry Retirement Estates and Trust (401(k) Plan) dated October 14, 1993, effective as of January 1, 1992 (previously filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the period ended August 1, 1993, which exhibit is hereby incorporated by reference). 10.15(a) Form of Deferred Compensation Agreement dated as of December 21, 1989 between the Company and key employees and a select group of management (KESP) (previously filed as Exhibit 28.3(a) to the Company's Quarterly Report on Form 10-Q for the period ended January 28, 1990, which exhibit is hereby incorporated by reference). 10.15(b) Master First Amendment to Deferred Compensation Agreements, dated as of November 11, 1991 between the Company and the key employees party thereto (previously filed as Exhibit 28.3 to the Company's Quarterly Report on Form 10-Q for the period ended November 3, 1991, which exhibit is hereby incorporated by reference). 10.15(c) Master Second Amendment to Deferred Compensation Agreements, dated as of December 30, 1993 between the Company and the key employees party thereto (previously filed as Exhibit 10.13(d) to the Company's Quarterly Report on Form 10-Q for the period ended January 30, 1994, which exhibit is hereby incorporated by reference). 10.15(d) Master Third Amendment to Deferred Compensation Agreements, dated as of September 2, 1994, between the Company and the key employees party thereto (previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 10.16(a) 1995 Key Employee Stock Option Plan. 355 10.16(b) Non-Qualified Stock Option Agreement 373 dated March 9, 1995 between the Company and Ronald E. Johnson. 10.16(c) Form of Non-Qualified Stock Option 378 Agreement entered into between the Company and certain key employees, as optionees, pursuant to the 1995 Key Employee Stock Option Plan. 16 Letter re change in certifying accountant (previously filed as Exhibit 16 to the Company's Current Report on Form 8-K dated February 17, 1995). 23.1 Consent of Milbank, Tweed, Hadley & McCloy (to be included in Exhibit 5). 23.2 Consent of KPMG Peat Marwick, L.L.P. 383 24 Power of Attorney (included in signature page) 27 Financial Data Schedule 384 EX-3 2 EXHIBIT 3(I)(B) FOR S-1 FILING, 5/1/95 State of Delaware Secretary of State Division of Corporations Filed 09:00 AM 4/26/1995 9500991755 - 2159029 CERTIFICATE OF DESIGNATIONS of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of KASH N' KARRY FOOD STORES, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) ____________________________________ Kash N' Karry Food Stores, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on April 13, 1995: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Amended and Restated Certificate of Incorporation of the Corporation, the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: Series A Junior Participating Preferred Stock: Section 1. Designation and Amount. The shares of this series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be Thirty-Five Thousand (35,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any other stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $.01 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been -2- declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumula- tive on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. -3- (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, in the Amended and Restated Certificate of Incorporation of the Corporation or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dis- solution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or -4- (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in ac- cordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Amended and Restated Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in propor- tion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of - 5- the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of Preferred Stock. Section 10. Amendment. The Amended and Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. -6- IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its Chairman of the Board, Chief Executive Officer and President this 25th day of April, 1995. KASH N' KARRY FOOD STORES, INC. /s/ Ronald E. Johnson Title: Chairman of the Board, Chief Executive Officer and President -7- 20/WL/LWH/KNK.SEC/S1.95/EX-3IB.ASC EX-4 3 EXHIBIT 4.4 FOR S-1 FILING 5/1/95 Number Shares (LOGO CONSISTING OF THREE TRIANGLES FORMING THE LETTER K) ____________ ____________ KASH N' KARRY FOOD STORES, INC. COMMON STOCK CUSIP 48577P 10 6 PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS INCORPORATION UNDER THE LAWS OF THE STATE OF DELAWARE THIS CERTIFICATE IS TRANSFERABLE IN HARTFORD, CONNECTICUT AND NEW YORK, NEW YORK THIS CERTIFIES that_______________________________________________ is the owner of___________________________________________________ FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, Of KASH N' KARRY FOOD STORES, INC., transferable on the books of the Corporation only by the registered holder hereof, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to the provisions of the Corporation's Restated Certificate of Incorporation, as amended. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. WITNESS the seal of the Corporation and the signatures of its duly authorized officers. Dated: Countersigned and Registered: Attest:/s/ Richard D. Coleman SHAWMUT BANK CONNECTICUT, N.A. Secretary Transfer Agent By:/s/R. P. Springer and Registrar Executive Vice President By:___________________________ Authorized Signature Kash n' Karry Food Stores, Inc. CORPORATE SEAL 1988 DELAWARE (reverse side of certificate) KASH N' KARRY FOOD STORES, INC. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE CORPORATION OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. COPIES OF SUCH STATEMENT ARE ALSO ON FILE WITH THE TRANSFER AGENT AND ARE AVAILABLE TO ANY STOCKHOLDER WITHOUT CHARGE UPON APPLICATION TO THE TRANSFER AGENT. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -as tenants in common UNIF GIFT MIN ACT -__ Custodian __ (Cust) (minor) TEN ENT -as tenants Under Uniform Gifts to Minors Act by the entireties JT TEN -as joint tenants with with right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ___________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _________________________________________________________________ _________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE) _________________________________________________________________ _________________________________________________________________ _____________________________________________ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocable constitute ____________________________________________ _________________________________________________________________ Attorney to transfer the said stock on the books of the within- named Corporation with full power of substitution in the premises. Dated:______________________ (continuation of reverse side) _____________________________ _____________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration or enlargement, or any change whatever. SIGNATURE GUARANTEE: _____________________________ Your signature must be guaranteed by an eligible guarantor institution which is a member of the Securities Transfer Agents Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange Medallion Signature Program. 20/lwh/knk.sec/s1.95/Ex-4-4.ASC EX-10 4 EXHIBIT 10.5(A) FOR S-1 FILING 5/1/95 [Execution copy] [CONFORMED COPY] SERVICES AGREEMENT DATED AS OF MARCH 1, 1995 BY AND BETWEEN KASH N' KARRY FOOD STORES, INC. AND GSI OUTSOURCING CORPORATION [Execution copy] TABLE OF CONTENTS ARTICLE 1: BACKGROUND AND OBJECTIVES. . . . . . . . . . . . . 1 ARTICLE 2: DEFINITIONS, DOCUMENTS AND TERM. . . . . . . . . . 1 2.1 General Definitions. . . . . . . . . . . . . . . . . 1 2.2 Other Definitions. . . . . . . . . . . . . . . . . . 8 2.3 Associated Contract Documents. . . . . . . . . . . . 8 2.4 Supporting Data. . . . . . . . . . . . . . . . . . . 8 2.5 Term.. . . . . . . . . . . . . . . . . . . . . . . . 8 2.6 Renewal and Expiration.. . . . . . . . . . . . . . . 8 ARTICLE 3: TRANSITION . . . . . . . . . . . . . . . . . . . . 9 3.1 Overview.. . . . . . . . . . . . . . . . . . . . . . 9 3.2 Staff. . . . . . . . . . . . . . . . . . . . . . . . 10 3.3 Transfer of Assets and Contracts.. . . . . . . . . . 11 3.4 Required Consents and Retained Contracts.. . . . . . 13 3.5 Agency and Disbursements.. . . . . . . . . . . . . . 14 3.6 Joint Verification.. . . . . . . . . . . . . . . . . 14 3.7 Other Obligations. . . . . . . . . . . . . . . . . . 14 3.8 Documentation. . . . . . . . . . . . . . . . . . . . 15 3.9 Service Charges During Transition Period.. . . . . . 15 3.10 Closing of Transition Period.. . . . . . . . . . . . 15 ARTICLE 4: GSI RESPONSIBILITIES . . . . . . . . . . . . . . . 16 4.1 GSI Personnel. . . . . . . . . . . . . . . . . . . . 16 4.2 Standards. . . . . . . . . . . . . . . . . . . . . . 18 4.3 Efficient Use of Resources.. . . . . . . . . . . . . 18 4.4 Technological Advancements.. . . . . . . . . . . . . 18 4.5 Management and Control.. . . . . . . . . . . . . . . 19 4.6 PC Machines. . . . . . . . . . . . . . . . . . . . . 23 4.7 Data Transmission (Lines/Circuits).. . . . . . . . . 23 4.8 Software.. . . . . . . . . . . . . . . . . . . . . . 23 4.9 Operations, Support and Maintenance. . . . . . . . . 24 4.10 Consolidation and Relocation Services. . . . . . . . 25 4.11 Systems Management.. . . . . . . . . . . . . . . . . 25 4.12 Disaster Recovery. . . . . . . . . . . . . . . . . . 26 4.13 Production Services. . . . . . . . . . . . . . . . . 26 4.14 Help Desk. . . . . . . . . . . . . . . . . . . . . . 26 4.15 Audits/Compliance with Law.. . . . . . . . . . . . . 27 4.16 Other Responsibilities.. . . . . . . . . . . . . . . 28 4.17 Corporate Organization.. . . . . . . . . . . . . . . 28 ARTICLE 5: KASH N' KARRY RESPONSIBILITIES . . . . . . . . . . 29 5.1 MIS Coordinator. . . . . . . . . . . . . . . . . . . 29 5.2 Applications Software. . . . . . . . . . . . . . . . 29 5.3 Facilities and Support Services. . . . . . . . . . . 29 5.4 Other Responsibilities.. . . . . . . . . . . . . . . 29 ARTICLE 6: CHARGES AND EXPENSES . . . . . . . . . . . . . . . 30 i [Execution copy] 6.1 Annual Services Charge.. . . . . . . . . . . . . . . 30 6.2 New Entities.. . . . . . . . . . . . . . . . . . . . 31 6.3 New Services and Extension of Current Parameter. . . 31 6.4 Substantial Reduction of Resources.. . . . . . . . . 32 6.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 33 6.6 Other Expenses and Charges.. . . . . . . . . . . . . 34 ARTICLE 7: INVOICING AND PAYMENT. . . . . . . . . . . . . . . 34 7.1 Annual Services Charge Invoices. . . . . . . . . . . 34 7.2 Other Charges. . . . . . . . . . . . . . . . . . . . 35 7.3 Late Charges.. . . . . . . . . . . . . . . . . . . . 35 7.4 Proration. . . . . . . . . . . . . . . . . . . . . . 35 7.5 Refundable Items.. . . . . . . . . . . . . . . . . . 35 7.6 Credits. . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 8: REVERSION. . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 9: INTELLECTUAL PROPERTY RIGHTS . . . . . . . . . . . 36 9.1 Materials. . . . . . . . . . . . . . . . . . . . . . 36 9.2 New GSI Software.. . . . . . . . . . . . . . . . . . 40 ARTICLE 10: CONFIDENTIALITY/DATA SECURITY . . . . . . . . . . 40 10.1 Confidential Information.. . . . . . . . . . . . . . 40 10.2 Obligations. . . . . . . . . . . . . . . . . . . . . 41 10.3 Exclusions.. . . . . . . . . . . . . . . . . . . . . 42 10.4 Protection of Kash n' Karry Information. . . . . . . 42 10.5 Loss of Confidential Information.. . . . . . . . . . 42 10.6 Limitation.. . . . . . . . . . . . . . . . . . . . . 42 10.7 Survival.. . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE 11: EVENTS OF DEFAULT; REMEDIES; TERMINATION. . . . . 43 11.1 Events of Default. . . . . . . . . . . . . . . . . . 43 11.2 Remedies.. . . . . . . . . . . . . . . . . . . . . . 44 11.3 Termination for Cause. . . . . . . . . . . . . . . . 44 11.4 Kash n' Karry Termination without Cause. . . . . . . 45 11.5 Extension of Termination Effective Date. . . . . . . 45 11.6 Termination Assistance.. . . . . . . . . . . . . . . 45 11.7 Other Rights Upon Termination. . . . . . . . . . . . 48 11.8 Burden of Proof. . . . . . . . . . . . . . . . . . . 49 ARTICLE 12: LIABILITY . . . . . . . . . . . . . . . . . . . . 49 12.1 General Intent.. . . . . . . . . . . . . . . . . . . 49 12.2 Limitations on Losses. . . . . . . . . . . . . . . . 50 ARTICLE 13: WARRANTY. . . . . . . . . . . . . . . . . . . . . 51 13.1 Work Standards.. . . . . . . . . . . . . . . . . . . 51 13.2 Maintenance. . . . . . . . . . . . . . . . . . . . . 51 13.3 Claims.. . . . . . . . . . . . . . . . . . . . . . . 51 13.4 Ownership of Kash n' Karry Machines. . . . . . . . . 51 13.5 Noninfringement. . . . . . . . . . . . . . . . . . . 51 ii [Execution copy] 13.6 Compliance with Obligations. . . . . . . . . . . . . 51 13.7 Warranties and Disclaimer. . . . . . . . . . . . . . 52 13.8 Authorization and Enforceability.. . . . . . . . . . 52 13.9 Regulatory and Corporate Proceedings.. . . . . . . . 53 ARTICLE 14: INDEMNITIES . . . . . . . . . . . . . . . . . . . 53 14.1 Indemnity by GSI.. . . . . . . . . . . . . . . . . . 53 14.2 Indemnity by Kash n' Karry.. . . . . . . . . . . . . 54 14.3 Subrogation. . . . . . . . . . . . . . . . . . . . . 55 14.4 Indemnification Procedures.. . . . . . . . . . . . . 55 ARTICLE 15: INSURANCE AND RISK OF LOSS. . . . . . . . . . . . 56 15.1 Insurance. . . . . . . . . . . . . . . . . . . . . . 56 15.2 Risk of Loss.. . . . . . . . . . . . . . . . . . . . 56 ARTICLE 16: PUBLICITY . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 17: REVIEW COMMITTEE AND DISPUTE RESOLUTION . . . . . 57 17.1 Joint Advisory Committee.. . . . . . . . . . . . . . 57 17.2 Dispute Resolution.. . . . . . . . . . . . . . . . . 57 17.3 Continued Performance. . . . . . . . . . . . . . . . 59 ARTICLE 18: GENERAL . . . . . . . . . . . . . . . . . . . . . 60 18.1 Control of Services. . . . . . . . . . . . . . . . . 60 18.2 Right to Perform Services for Others.. . . . . . . . 60 18.3 Scope of Services. . . . . . . . . . . . . . . . . . 60 18.4 Amendments.. . . . . . . . . . . . . . . . . . . . . 60 18.5 Force Majeure. . . . . . . . . . . . . . . . . . . . 61 18.6 Nonperformance.. . . . . . . . . . . . . . . . . . . 62 18.7 Remarketing. . . . . . . . . . . . . . . . . . . . . 62 18.8 Waiver.. . . . . . . . . . . . . . . . . . . . . . . 63 18.9 Severability.. . . . . . . . . . . . . . . . . . . . 63 18.10 Counterparts.. . . . . . . . . . . . . . . . . . . 63 18.11 Governing Law. . . . . . . . . . . . . . . . . . . 63 18.12 Nondisturbance and Attornment. . . . . . . . . . . 64 18.13 Binding Nature and Assignment. . . . . . . . . . . 64 18.14 Notices. . . . . . . . . . . . . . . . . . . . . . 65 18.15 No Third Party Beneficiaries.. . . . . . . . . . . 67 18.16 Other Documents. . . . . . . . . . . . . . . . . . 67 18.17 Limitation Period Upon Termination.. . . . . . . . 68 18.18 Headings.. . . . . . . . . . . . . . . . . . . . . 68 18.19 Noncompetition Agreement.. . . . . . . . . . . . . 68 18.20 Severability of Contracts.. . . . . . . . . . . 68 ARTICLE 19: BANKRUPTCY CONCERNS . . . . . . . . . . . . . . . 69 19.1 Personal Services Contract.. . . . . . . . . . . . . 69 19.2 Default in the Event of Bankruptcy and Post-Filing Bankruptcy Remedies for Non-Performance. . . . . . . 69 19.3 Waiver of Automatic Stay . . . . . . . . . . . . . . 70 iii [Execution copy] ARTICLE 20: NEW CLIENT INCENTIVES . . . . . . . . . . . . . . 71 TABLE OF SCHEDULES SECTION IN SCHEDULE WHICH DEFINED A - Annual Services Charge 2.1(b) B - Current Parameter 2.1(k) C - Data Network Schematic (List of Kash n' Karry Locations) 2.1(m) D - Leased Machines 2.1(w) E - Licenses 2.1(y) F - Machine Leases 2.1(aa) G - Maintenance Contracts 2.1(ac) H - MIS Budget 2.1(ad) I - Owned Machines 2.1(ah) J - Point of Sale Machines 2.1(ak) K - Projects 2.1(al) K-1 - Point of Sale Project K-2 - Polling Solution Project K-3 - Procurement and Billing System Project K-4 - Accounts Payable Project K-5 - Labor Tracking and Scheduling Project L - Retained Contracts 2.1(an) M - Supporting Data 2.4 N - Transition Plan 3.1 O - Affected Employees 3.2(a) P - Disaster Recovery Plan 4.12 Q - Help Desk 4.14 R - GSI Corporate Structure 4.17 S - GSI Wire Transfer Instructions 7.1 T - Confidential Information Obligations 10.2; 10.4 U - Termination Charges 11.3; 11.4 V - Maintenance 13.2 W - Claims 13.3 iv [Execution copy] DEFINED TERMS SECTION IN TERMS WHICH DEFINED Actual Losses 12.2(b) Affected Employees 3.2(a) Affiliate 2.1(a) Agreement Introduction Annual Services Charge 2.1(b) Applications Software 2.1(c) Assets 2.1(d) Assignment Instruments 3.3(a) Bankruptcy Event 19.2 Building 2.1(e) Building Lease 2.1(f) Change Control Procedures 4.5(b) Claim 14.4(a) Closing Date 2.1(g) Code 9.1 Commencement Date 2.1(h) Committed Costs 2.1(i) Confidential Information 10.1 Consequential Losses 12.2(a) Contracts 2.1(j) Control 2.1(a) Current Parameter 2.1(k) Data Center 2.1(l) Data Center Bonus Article 20 Data Network 2.1(m) Derivative Work 9.1(e)(8) Develop 9.1 Distribution Center 2.1(n) Effective Date 2.1(o) End Users 2.1(p) End User Locations 2.1(q) Events of Default 11.1 Force Majeure Event 18.5(a) GSI Introduction GSI End User Machines 2.1(r) GSI Machines 2.1(s) GSI Materials 9.1(e)(1) Indemnified Party 14.4(a) Indemnifying Party 14.4(a) Introduction Bonus Article 20 Kash n' Karry Introduction Kash n' Karry End User Machines 2.1(t) Kash n' Karry Machines 2.1(u) Kash n' Karry Materials 9.1(e)(2) v [Execution copy] Kash n' Karry Offices 2.1(v) Leased Machines 2.1(w) Leases 2.1(x) Licenses 2.1(y) Lines 4.7 Losses 2.1(z) Machine Leases 2.1(aa) Machines 2.1(ab) Maintenance Contracts 2.1(ac) MIS Budget 2.1(ad) MIS Department 2.1(ae) Modifications 18.20 Monetary Event of Default 11.1(a) Moves, Adds and Changes or MAC 2.1(af) New GSI Software 2.1(ag) Owned Machines 2.1(ah) Payment Terms 2.1(ai) Platform 2.1(aj) Point of Sale Machines 2.1(ak) Procedures Manual 4.5(a) Projects 2.1(al) Required Consents 2.1(am) Retained Contracts 2.1(an) Schedules 2.3 Services 2.1(ao) Store 12.1(b) Subcontractor 2.1(ap) Supplies 2.1(aq) Supporting Data 2.4 Systems Software 2.1(ar) Term 2.5 Termination Assistance 11.6(a) Transferred Employees 3.2(b) Transition Plan 3.1 Transition 2.1(as) Transition Period 2.1(at) Type I Materials 9.1(a) Type II Materials 9.1(b) Type III Materials 9.1(c) Type IV Materials 9.1(d) Type V Materials 9.1(e) vi [Execution copy] KASH N' KARRY FOOD STORES, INC./GSI OUTSOURCING CORPORATION SERVICES AGREEMENT This Services Agreement (the "Agreement"), dated as of March 1, 1995, is by and between Kash n' Karry Food Stores, Inc., a Delaware corporation having its principal place of business at 6422 Harney Road, Tampa, Florida 33610 ("Kash n' Karry"), and GSI Outsourcing Corporation, a Delaware corporation and a subsidiary of GSI - U.S.A. Incorporated, a Delaware corporation, having its principal place of business at 6401 Harney Road, Tampa, Florida 33610 ("GSI"). ARTICLE 1: BACKGROUND AND OBJECTIVES Kash n' Karry desires that all of the information systems operations and related services and functions currently performed by or for Kash n' Karry by its MIS Department be performed and managed by GSI, and that GSI complete certain Projects relating to those services. After careful evaluation of GSI's proposals, Kash n' Karry has agreed to engage GSI to render Services and to complete certain Projects during the Term. After careful evaluation of Kash n' Karry's industry, business operations and needs, and GSI's ability to satisfy such needs, GSI has agreed to perform the Services and to complete the Projects. This Agreement documents the terms and conditions of such arrangement. The parties agree that this is a personal services agreement and that their respective rights and obligations herein are inextricably intertwined. ARTICLE 2: DEFINITIONS, DOCUMENTS AND TERM 2.1 General Definitions. As used in this Agreement and unless the context otherwise plainly requires, the terms defined in this Agreement shall have the meanings ascribed to them in this Section 2.1, and shall include the plural as well as the singular number: (a) "Affiliate" means, with respect to a person, any person controlling, controlled by or under common control with, such person. The term "control," when used with respect to a person, shall mean the legal, beneficial or equitable ownership, directly or indirectly, of more than 50% of the aggregate of all voting equity interests in such person. (b) "Annual Services Charge" shall mean the total fee charged by GSI to Kash n' Karry in consideration for providing the 1 [Execution copy] Services for any 12 month period during the Term hereof in the amount set forth on Schedule A hereto, as the same may be amended from time to time pursuant to this Agreement. (c) "Applications Software" means those programs and programming, including all supporting documentation and media, that perform specific user-related data processing and telecommunication tasks used in providing Services. (d) "Assets" means all of Kash n' Karry's right, title and interest in the Building and the Leased Machines under the Leases, and in the Applications Software and Systems Software under the Licenses, all of its assignable rights and privileges under the Contracts, and all of its right, title and interest in the Owned Machines, the GSI End User Machines and in any other properties that are owned or leased by Kash n' Karry and used by the MIS Department as of the Effective Date to provide services that will be performed by GSI during the Term, but excluding the Lines and the Kash n' Karry Machines. (e) "Building" means the leasehold premises occupied by Kash n' Karry for use as its Data Center at 6401 Harney Road, Tampa, Florida 33610 pursuant to the Building Lease. (f) "Building Lease" means that certain Lease Agreement dated December 7, 1992, between Kash n' Karry and Ferris-Funk Associates, as modified from time to time, pursuant to which Kash n' Karry occupies the Building as of the Effective Date. (g) "Closing Date" means the latest of March 1, 1995, such later date on which the parties agree in writing to complete the Transition hereunder, or 30 days after the Effective Date. (h) "Commencement Date" means January 2, 1995. (i) "Committed Costs" means all reasonable and necessary costs and expenses of whatever nature of GSI relating to GSI's investment in the Assets, the GSI Machines, the GSI End User Machines, the Projects, and any property acquired or used by GSI in rendering the Services to Kash n' Karry, and, in the event this Agreement is terminated, also includes the following: (1) All fees, penalties or other charges incurred by GSI by reason of the termination of any unexpired hardware leases, software licenses and contracts for services used in providing the Services to Kash n' Karry; 2 [Execution copy] (2) Net book value of GSI-owned hardware or software used in providing the Services to Kash n' Karry, including the GSI Machines and GSI End User Machines; (3) Removal of assets (e.g., shipping, storage expense, reconfiguration of Machines) used in providing the Services to Kash n' Karry; (4) Expenses incurred by GSI in maintaining or repairing the assets used in providing the Services to Kash n' Karry (excluding such expenses associated with normal wear and tear); (5) Severance pay and placement assistance expenses, if any, paid by GSI in accordance with its standard severance policy to such of its employees who were, as of the termination date, engaged in the provision of Services hereunder; (6) All costs relating to the Building arising on or after the termination date; (7) Any adverse impact on any other client account held by GSI in which GSI found synergies based upon this Agreement; provided, however, that Kash n' Karry will pay a proportionate part corresponding to the relative Services provided by GSI to Kash n' Karry and GSI's other customers; and (8) The direct costs incurred by GSI in performing Services for Kash n' Karry in connection with the divestment by GSI in any property acquired or used by GSI in rendering the Services, including, without limitation, installation, security and surveillance, and consulting fees, to the extent such direct costs were not previously invoiced to and paid by Kash n' Karry. (j) "Contracts" means the Leases, the Licenses and the Maintenance Contracts, but excluding the Retained Contracts. (k) "Current Parameter" means the current computing capacity and standard MIS functions of the MIS Department reflected in the MIS Budget, and all services currently performed by the MIS Department, as of the Commencement Date, as described more specifically in Schedule B. (l) "Data Center" means the Machines and the Applications Software and Systems Software located or used at the Building, or any other location from which GSI may provide Services. 3 [Execution copy] (m) "Data Network" means all Machines, Point of Sale Machines, local area networks, associated attachments, features and accessories, Applications Software, Systems Software and cabling (excluding, however, public telephone lines) used to connect and transmit data between the Data Center and Kash n' Karry locations listed in Schedule C, including, but not limited to, communication controllers, multiplexors, modems/DSUs, up to and including the terminal control units, but does not include Kash n' Karry End User Machines or GSI End User Machines. The Data Network does not include any public switched or dial-up network, which are not under the control of GSI. (n) "Distribution Center" means the central warehouse and distribution facility operated by Kash n' Karry at 6422 Harney Road, Tampa, Florida, and the returns processing center operated by Kash n' Karry at 1432 Tampa East Boulevard, Tampa, Florida. (o) "Effective Date" means the date on which the parties execute and deliver this Agreement. (p) "End Users" means employees or Subcontractors of Kash n' Karry who access the Applications Software. (q) "End User Locations" means those locations in which Kash n' Karry End User Machines or GSI End User Machines, equipment and associated software are located, which locations are facilities or floors in facilities outside the Data Center. (r) "GSI End User Machines" means all Point of Sale Machines and all existing (as of the Effective Date) host-attached terminals located at the Kash n' Karry Offices, Kash n' Karry's stores and the Distribution Center. (s) "GSI Machines" means machines within the Data Center and Data Network which are provided by GSI on or after the Commencement Date in order to meet its obligations under this Agreement, including, without limitation, Owned Machines, Leased Machines and GSI End User Machines to be acquired from Kash n' Karry on the Closing Date. (t) "Kash n' Karry End User Machines" means all stand alone terminals, work stations, local area network servers and associated peripheral equipment title to which is retained by Kash n' Karry on the Closing Date or is acquired by Kash n' Karry from time to time during the Term, such as, by way of example, PC machines used by Kash n' Karry in its pharmacy and video departments and its administrative offices, but excluding any such items included within the Data Network or 4 [Execution copy] the Data Center, and excluding GSI End User Machines located at End User Locations. (u) "Kash n' Karry Machines" means all machines that are part of the Current Parameter within the Data Center and Data Network, title to which is retained by Kash n' Karry on the Closing Date, and all such machines that are acquired by Kash n' Karry from time to time during the Term, including, without limitation, the Kash n' Karry End User Machines, but excluding the Owned Machines and the Leased Machines. (v) "Kash n' Karry Offices" means the offices occupied by the senior management of Kash n' Karry from time to time during the Term hereof, which were located at 6422 Harney Road, Tampa, Florida, as of the Commencement Date. (w) "Leased Machines" means those machines and Applications Software and Systems Software leased by Kash n' Karry as of the Commencement Date pursuant to the Leases. Leased Machines are specified in Schedule D. (x) "Leases" means the Building Lease and the Machine Leases. (y) "Licenses" means those written contractual arrangements under which Kash n' Karry received the right to use the Applications Software, Systems Software, hardware and other products for which GSI has undertaken or will undertake financial and administrative responsibility as of the Closing Date. Licenses are listed in Schedule E. (z) "Losses" means all losses, liabilities, damages and claims (including taxes), and all related costs and expenses (including any and all reasonable attorneys' fees and reasonable costs of investigation, litigation, settlement, judgment, interest, penalties and all other out-of-pocket expenses, but does not include staff time or items of general overhead). (aa) "Machine Leases" means those leases identified on Schedule F to which Kash n' Karry was a party as of the Effective Date, and pursuant to which Kash n' Karry used and possessed the Leased Machines as of the Effective Date. (ab) "Machines" means either or both of Kash n' Karry Machines and GSI Machines, as applicable. (ac) "Maintenance Contracts" means those written contractual arrangements listed on Schedule G under which Kash n' Karry has arranged for maintenance or other service with respect to 5 [Execution copy] Applications Software, Systems Software, Owned Machines, Leased Machines, Kash n' Karry Machines, and the Lines. (ad) "MIS Budget" means the combined annual operating budget of $8.079 million for the MIS Department and the Point of Sale Machines and related functions included in the Current Parameter based on Kash n' Karry's fiscal year ended July 31, 1994, according to the handwritten annotations to that certain report run date of August 20, 1994, a copy of which is attached hereto as Schedule H. (ae) "MIS Department" means the group of employees and subcontractors of Kash n' Karry who, as of the Commencement Date, provided to Kash n' Karry the information services operations and related services and functions to be performed and managed by GSI pursuant to this Agreement. (af) "Moves, Adds and Changes" or "MAC" means the relocation, replacement, or removal of Point of Sale Machines or Kash n' Karry End User Machines. Unless otherwise specifically provided in this Agreement, MAC refers only to the removal or replacement service (manpower) (and insuring that, once installed, such machines are functioning) and does not include the costs related to the Point of Sale Machines, other devices or functions required for the move or change, or the cabling for a physical modification to the locations necessary to effectuate a MAC with respect to Point of Sale Machines. (ag) "New GSI Software" means Applications Software and Systems Software acquired or developed by GSI from time to time during the Term, by license or otherwise, for use in connection with the performance of Services. (ah) "Owned Machines" means machines owned by Kash n' Karry as of the Commencement Date that are part of the Current Parameter within the Data Center and Data Network. Owned Machines are specified on Schedule I. (ai) "Payment Terms" means the method by which Kash n' Karry and GSI shall make payments to each other as set forth in Article 7. (aj) "Platform" means, with respect to a given item of computer equipment, the type of computer and the type of operating system on which such item operates, such as, by way of example, "mainframe/MVS," "Sun/Unix," and "IBM/4690." (ak) "Point of Sale Machines" means the equipment and existing in-store processors currently installed in Kash n' Karry's 99 retail locations and in the training center, and the equipment 6 [Execution copy] and in-store processors which shall be added or which shall replace such items, as described in Schedule J. Point of Sale Machines do not include hand-held scanners currently being utilized in the Kash n' Karry retail locations. (al) "Projects" means the Services outside of the Current Parameter as identified in Schedules K-1 through K-5 attached to this Agreement. (am) "Required Consents" means any consents or approvals required to be obtained by either party for the licensing or transfer to the other party of the right to use applicable facilities, space, equipment, software or third party services. (an) "Retained Contracts" means the agreements between Kash n' Karry and certain lessors or vendors relating to contracts used in connection with the rendering of the services with respect to the Current Parameter which are not assigned by Kash n' Karry to GSI on the Closing Date, including, without limitation, those described in Schedule L. (ao) "Services" means those services and functions which GSI agrees to provide to Kash n' Karry pursuant to this Agreement, including those described on the attached Schedules. (ap) "Subcontractor" means any person engaged on a subcontract basis by GSI or Kash n' Karry in accordance with the terms and conditions hereof to perform all or any part of the Services or GSI's or Kash n' Karry's obligations hereunder. (aq) "Supplies" means microfiche, paper, ink, ribbons, floppies, printing heads, tapes (cartridges), toner and other similar items. (ar) "Systems Software" means those programs and programming, including all supporting documentation and media, that perform tasks basic to the functioning of the data processing and telecommunication equipment and which are required to operate the Applications Software or otherwise support the provision of Services by GSI or provide the Services themselves. (as) "Transition" means the process by which all of the Assets and Transferred Employees will be transferred to GSI on or before the Closing Date. (at) "Transition Period" means the period of time beginning on the Commencement Date and ending on the earlier of (i) the Closing Date, or (ii) in the event of a termination of this Agreement pursuant to Section 3.10, the expiration of GSI's obligations to manage the MIS Department pursuant to Section 3.10(c). 7 [Execution copy] 2.2 Other Definitions. Certain other terms are defined in this Agreement and are used with the meanings so ascribed to them. References to the definitions of such terms are set forth on pages (iv) through (vi) of this Agreement. 2.3 Associated Contract Documents. This Agreement also includes the various "Schedules" attached hereto, which may be updated in writing and on a mutually-agreed basis by the parties as necessary or appropriate during the Term; provided, however, in the event of any conflict between the terms and conditions of the Schedules on the one hand and this Agreement on the other, the terms and conditions of the Schedules shall control and shall govern. In connection therewith, the parties agree that in the event of any apparent conflicts or inconsistencies between this Agreement or any Schedules, to the extent possible such provisions shall be construed and interpreted so as to make them consistent. 2.4 Supporting Data. All proposals, documents and information relied upon by the parties will be identified or attached as Schedule M, which will evidence the parties' intentions and objectives in entering into the Agreement. To the extent the Agreement is unclear or ambiguous, the Agreement will be interpreted and construed with reference to Schedule M, which will be hereafter collectively referred to as the "Supporting Data." 2.5 Term. The term of this Agreement (the "Term") will begin as of 12:01 a.m. EST on the Commencement Date and will end as of 12:00 midnight EST on December 31, 2004, unless earlier terminated or extended in accordance with this Agreement. 2.6 Renewal and Expiration. GSI agrees to notify Kash n' Karry in writing, on or before January 1, 2004, whether it desires to renew this Agreement and of GSI's proposed prices and terms to govern such renewal. If GSI notifies Kash n' Karry that it desires to renew this Agreement, Kash n' Karry agrees to inform GSI in writing, on or before June 30, 2004, whether it desires to renew this Agreement. If Kash n' Karry and GSI both desire to renew the Agreement as described in such notices, the parties agree to negotiate in good faith regarding the prices, terms and conditions of such renewal, 8 [Execution copy] but if the parties are unable to agree upon renewal prices, terms and conditions on or before January 1, 2005, this Agreement may, at Kash n' Karry's option, be extended for up to one year at the then current GSI market prices, terms and conditions, not to exceed the prices in effect under this Agreement during the tenth year of the Agreement. If the parties are unable to reach agreement on renewal during the Term or such extension period, if applicable, this Agreement will expire at the end of the Term or such extension period, if applicable. ARTICLE 3: TRANSITION 3.1 Overview. There will be a Transition Period which may not be extended by the parties. During the Transition Period, GSI will, with the assistance of Kash n' Karry, be responsible for managing the MIS Department and effecting the Transition; provided, however, that Kash n' Karry will make available to GSI all resources and personnel necessary to perform such services, including, without limitation, the Applications Software and Systems Software; and provided, further, that if a disaster occurs during the Transition Period and if GSI is not at fault, then GSI will be responsible only for putting into effect Kash n' Karry's existing disaster recovery plan to the best of GSI's ability. During the Transition Period, the parties will commence and complete a phased Transition of the necessary staff and resources from Kash n' Karry to GSI as described in (i) this Article 3 and (ii) in a written transition plan to be mutually agreed upon by the parties and attached hereto as Schedule N (the "Transition Plan"), so that, at the end of the Transition Period all such resources and personnel necessary to enable GSI to adequately perform the Services, except for Retained Contracts, if any, shall be transferred to GSI on or before the Closing Date. Kash n' Karry will cooperate with GSI in accomplishing all aspects of the Transition, including the commission of the resources necessary to complete the Transition during the Transition Period. GSI hereby agrees to use all reasonable efforts during the Transition Period to cause the phased Transition of the necessary staff and resources from Kash n' Karry to GSI as described in this Article 3 and in the Transition Plan to occur with as little disruption to the business operations of Kash n' Karry as is possible under the circumstances. Kash n' Karry agrees to cooperate and assist GSI in completing the Transition described in this Article 3 and the Transition Plan by devoting appropriate resources to such Transition. 9 [Execution copy] 3.2 Staff. (a) Kash n' Karry will use reasonable efforts to maintain staffing of the Data Network and Data Center during the Transition Period; provided, however, that: (1) GSI acknowledges that Kash n' Karry may lose staff during the Transition Period, and (2) Kash n' Karry acknowledges that a loss of staff generally or loss of certain critical employees may affect completion of the Transition within 30 days after the Effective Date. Within 10 days after the Effective Date, GSI or its Subcontractors will offer, or cause to be offered, employment to those Kash n' Karry employees listed on Schedule O (the "Affected Employees"). Subject to the provisions of Section 3.2(b), such employment will become effective on the Closing Date. All such employment will be at will, and nothing in this Agreement shall be construed as an obligation on either Kash n' Karry or GSI to employ the Affected Employees for a definite term. (b) GSI or its Subcontractors will hire those Affected Employees receiving offers who: (1) are employed by Kash n' Karry as of the date the offer is made, (2) meet GSI's or its Subcontractors' customary pre- employment screening procedures for health and drug testing and accuracy of background information, and (3) accept the offer of employment from GSI or its Subcontractors within ten days from the date the offer is made. Affected Employees meeting each of the above conditions and hired by GSI or its Subcontractors shall be known as the "Transferred Employees." On or before the Closing Date, Kash n' Karry will pay to such Transferred Employees all monies owed to them by reason of their employment with Kash n' Karry, on a prorata basis as of the Closing Date. GSI shall indemnify and hold Kash n' Karry harmless from any Losses incurred by Kash n' Karry with respect to the Transferred Employees caused by or arising directly or indirectly from actions or omissions of GSI on or after the Closing Date. Kash n' Karry shall indemnify and hold GSI harmless from any Losses incurred by GSI with respect to the Transferred 10 [Execution copy] Employees caused by or arising directly or indirectly from actions or omissions of Kash n' Karry before the Closing Date. (c) During the Transition Period, all Affected Employees remaining on Kash n' Karry's payroll shall perform their duties under the direction and control of Kash n' Karry, and will be treated as Kash n' Karry employees for all purposes; provided, however, that nothing herein shall be interpreted so as to relieve GSI of its obligations to provide the Services as of the Commencement Date in accordance with this Agreement. (d) Replacements for the Affected Employees who choose to leave Kash n' Karry's employ during the Transition Period shall be selected by GSI as it deems necessary, at GSI's expense and as GSI's employees, and GSI shall pay (at its expense) all salary and benefits for such replacements. (e) Each offer of employment to an Affected Employee shall include an initial base salary at least equal to the base salary each such Affected Employee currently receives from Kash n' Karry, and a benefits package which is substantially similar to that currently received by such employees while employed by Kash n' Karry; provided, however, that titles of Affected Employees may, in GSI's sole judgment, vary. (f) During the Transition Period: (1) Denise Matthys will act as MIS Coordinator and report to Tony Petrillo or Kash n' Karry's successor CEO, (2) John Patrick will work for Kash n' Karry in the spirit of joining GSI on the Closing Date, and will be the GSI Account Executive, and (3) GSI will report directly to Tony Petrillo, or Kash n' Karry's successor CEO. (g) Kash n' Karry will appoint "champions" (department heads, director level or above), who will interact as focal point with GSI for any information services business domain, e.g., for business functions, business specifications writing, and department organizational issues. 3.3 Transfer of Assets and Contracts. (a) On the Closing Date, Kash n' Karry shall transfer to GSI all of the Assets, and GSI shall assume the obligations of Kash n' Karry under the Contracts. Without limitation of the foregoing, on the Closing Date, Kash n' Karry shall execute and deliver to GSI a general bill of sale and such other 11 [Execution copy] instruments of conveyance as may be appropriate to convey to GSI all of the right, title and interest of Kash n' Karry in the Assets, and an instrument of assignment and assumption with respect to each of the Contracts (the "Assignment Instruments"), and GSI shall execute and deliver to Kash n' Karry the Assignment Instruments. Kash n' Karry shall retain, and shall not transfer to GSI, the Kash n' Karry Machines, the Lines, and any and all proprietary information and data generated by Kash n' Karry in the operation of its business. (b) As of the Closing Date, GSI will be responsible for managing and performing all of Kash n' Karry's obligations under the Contracts arising on or after the Closing Date, to the extent that such obligations: (1) are performable by GSI (as opposed to Kash n' Karry); provided, however, that GSI agrees to similarly perform any obligations contained in any Contract that are obligations of Kash n' Karry. For example, and not by way of limitation, if Kash n' Karry has agreed in a Contract that Kash n' Karry will keep certain information regarding such Contract confidential, Kash n' Karry shall not be relieved of such obligation by this Agreement but GSI shall also perform such obligation in accordance with its terms; and (2) were disclosed to GSI on or before the Closing Date; provided, however, that nothing contained in this Section shall constitute or be deemed to constitute an assignment or assumption of the Contracts prior to the Closing Date; provided, further, however, that GSI will not be responsible for any illegal or pirated Applications Software or Systems Software, or balloon payments accruing prior to the Closing Date. (c) Kash n' Karry warrants that all obligations with respect to the Contracts accruing prior to the Closing Date will be satisfied. Kash n' Karry shall, upon the written request of GSI from time to time during the Term, terminate any Contracts and GSI shall reimburse Kash n' Karry for any termination charges or penalties; provided, however, that Kash n' Karry will make its best reasonable efforts to maintain such charges or penalties as low as possible. GSI shall indemnify and hold Kash n' Karry harmless from any and all Losses caused by or arising out of any such requested termination and shall further indemnify and hold Kash n' Karry harmless from any failure of GSI to perform any or all of GSI's obligations under the Contracts in the manner described in this Section 3.3 from and after the Closing Date. Kash n' Karry shall 12 [Execution copy] indemnify and hold harmless GSI from any and all Losses caused by or arising out of any failure of Kash n' Karry to perform any or all of Kash n' Karry's obligations under the Contracts prior to the Closing Date. (d) In its sole discretion GSI may, at its expense, obtain from sources satisfactory to GSI products or services to replace those covered by any Contract which either expires by its terms during the Term of this Agreement or is terminated by GSI in accordance with the requirements of Section 3.3(c). In either such event, GSI shall comply fully with any obligations of Kash n' Karry regarding such termination or expiration as described in this Article 3. Any such replacement and/or termination shall not relieve GSI from its obligations to perform the Services. 3.4 Required Consents and Retained Contracts. (a) Kash n' Karry shall use its reasonable best efforts to obtain all Required Consents to the assignment to, and assumption by, GSI of the Assets, or to otherwise enable GSI to use the Applications Software, the Systems Software, the Building, the Leased Assets, and services provided under the Contracts. Kash n' Karry shall bear the costs, if any, of obtaining all such Required Consents; provided, however, that if Kash n' Karry reasonably determines that the cost of obtaining any particular Required Consent is prohibitive, then Kash n' Karry may elect to designate such contract as a Retained Contract. In the event that any Required Consent is not obtained with respect to any given Contract, then, unless and until such Required Consent is obtained, the parties shall cooperate with each other in achieving a reasonable alternative arrangement for Kash n' Karry to continue to process its work with minimum interference to its business operations. (b) If Kash n' Karry and GSI agree prior to the Closing Date that Kash n' Karry will not assign certain Contracts, e.g., due to costs associated with assigning the Contract, then the parties will amend Schedule L to include such Contracts as Retained Contracts. During the Term, and to the extent permitted by law and the vendor, GSI, acting as Kash n' Karry's agent, will manage, administer and maintain the Retained Contracts and will have full use of the equipment and Applications Software covered thereby, including for other clients' use. With Kash n' Karry's consent, GSI may modify, renew or terminate the Retained Contracts, and Kash n' Karry will pay any related fees or charges, except to the extent the fees or charges are caused by GSI's negligence or willful acts in managing the Retained Contract. Upon receipt of Requisite Consent to the assignment of a Retained Contract, or otherwise with the 13 [Execution copy] approval of Kash n' Karry, GSI may request Kash n' Karry to assign such Retained Contract to GSI. (c) GSI will promptly notify Kash n' Karry in writing of any breach, fraud or misuse involving a Retained Contract. 3.5 Agency and Disbursements. Beginning on the Closing Date and for so long as no Monetary Event of Default by Kash n' Karry shall have occurred and be continuing, GSI will pay, fully and on time, the lessors, vendors and suppliers identified in all of the Contracts. Subject to its obligation to pay applicable termination charges and its obligations to indemnify Kash n' Karry in accordance under Section 3.3, GSI may cancel, substitute, or change such lessors, vendors or suppliers as it chooses so long as GSI continues to perform the Services in the manner required by this Agreement. 3.6 Joint Verification. During the Transition Period, GSI and Kash n' Karry reserve the right to inventory, validate and update the Supporting Data and any other material information that is reflected in or omitted from the attached Schedules, and more particularly, the MIS Budget, which was used by GSI as a basis for its offer to Kash n' Karry. Any changes shall be mutually agreed to by the parties in writing. If material discrepancies are detected during the Transition Period, there shall be a fair adjustment made, which will be confirmed in writing by the parties. Prior to the Closing Date, the parties agree to negotiate in good faith any adjustments to the Annual Services Charge attributable to any Retained Contracts, costs related to assigning the Assets, commitments, postponed or retroactive payments, material costs and liabilities not disclosed in the Supporting Data, costs reallocated between the parties pursuant to negotiations, etc. 3.7 Other Obligations. Beginning on the earlier of the Effective Date or the Closing Date, and except in the case of emergency, Kash n' Karry will not enter into any new or amend any existing agreements or arrangements, written or oral, affecting or impacting upon Affected Employees (provided, however, that GSI acknowledges that Affected Employees may leave Kash n' Karry's employ) or the Assets without the prior written consent of GSI, which consent shall not be unreasonably withheld or delayed. Kash n' Karry acknowledges and agrees that, notwithstanding any consent granted or refused by GSI as described above, any new or amended agreements or arrangements may impact GSI's cost in providing the Services and therefore may require an adjustment to the Annual Services Charge. Any such adjustment shall be mutually agreed upon by the parties in writing. 14 [Execution copy] 3.8 Documentation. Prior to the Closing Date, Kash n' Karry will provide GSI with all documentation in its possession relating to the Assets and any other resource to be used by GSI in rendering the Services. Where no such documentation exists, Kash n' Karry will provide GSI with all information reasonably available to Kash n' Karry. After the Closing Date, this documentation shall still be considered by Kash n' Karry as reasonable, and GSI will have no specific obligation to improve it. 3.9 Service Charges During Transition Period. During the Transition Period, Kash n' Karry will pay GSI its monthly compensation, based on the monthly prorated Annual Services Charge, in arrears, after deducting all costs and expenses associated with the Agreement paid or incurred by Kash n' Karry during the Transition Period. Prior to the Closing Date, the parties agree to negotiate in good faith any adjustments to the Annual Services Charge attributable to any Retained Contracts, costs relating to assigning the Assets, material costs and liabilities not disclosed in the MIS Budget, and any costs reallocated between the parties pursuant to negotiations during the Transition Period. On or before the Closing Date, a reconciliation and substantiation of all costs and expenses paid by Kash n' Karry during the Transition Period will be made. 3.10 Closing of Transition Period. (a) Kash n' Karry may terminate this Agreement, in its sole discretion, at any time prior to the Closing Date by delivering written notice to GSI executed by the Chief Executive Officer of Kash n' Karry, subject to the approval of Kash n' Karry's Board of Directors, which approval will not be unreasonably withheld. If Kash n' Karry terminates this Agreement pursuant to this Section 3.10, it will promptly reimburse GSI its reasonable costs and expenses paid during the Transition Period in performing its obligations under this Agreement, including any costs relating to any Machines, End Users Machines, Applications Software and Systems Software purchased by GSI for the Services and the Projects; provided, further, that GSI will transfer to Kash n' Karry all of GSI's rights, title and interest in property or rights to use property associated with costs paid by Kash n' Karry. (b) GSI may terminate this Agreement at any time prior to the Closing Date by delivering written notice to Kash n' Karry executed by Philippe Guionnet, if but only if: (1) there is a 15 [Execution copy] newly-discovered specific liability or cost that was not disclosed in the MIS Budget and its associated Supporting Data, and (2) Kash n' Karry elects not to pay the newly- discovered liability or cost, and (3) Kash n' Karry and GSI cannot arrange to pay, indemnify against, work out or otherwise avoid the cost or liability. (c) If either party elects to terminate this Agreement prior to the Closing Date, pursuant to this Section 3.10, then, until the earlier of the engagement by Kash n' Karry of a successor vendor to perform the Services, or the expiration of four months from the delivery by the terminating party of the written notice of termination: (1) GSI will continue to manage the MIS Department within the Current Parameter, and on the other terms and conditions of this Article 3, (2) John Patrick will remain employed at Kash n' Karry at GSI's cost, and (3) the parties agree not to take legal action against each other or their employees based on the decision to terminate this Agreement. ARTICLE 4: GSI RESPONSIBILITIES 4.1 GSI Personnel. (a) GSI will designate, prior to the Closing Date, a Project Executive to whom all of Kash n' Karry's communications may be addressed and who has the authority to act for and bind GSI and its Subcontractors in connection with all aspects of this Agreement. (b) Before assigning an individual to the position of Project Executive, whether the individual is initially assigned or is subsequently assigned, GSI shall: (1) notify Kash n' Karry in writing, at least 30 days in advance of the proposed assignment, (2) introduce the individual to appropriate Kash n' Karry representatives, and (3) consistent with GSI's personnel practices, provide Kash n' Karry with any other information about the individual reasonably requested by Kash n' Karry. GSI agrees to discuss with Kash n' Karry any objections Kash n' Karry may have to such assignment, and attempt to resolve such concerns on a mutually agreeable basis. GSI agrees that if Kash n' Karry shall have reasonable and good faith objections to any proposed Project Executive which cannot be 16 [Execution copy] resolved by the parties, GSI shall propose a different individual to serve as Project Executive, and shall go through the process and provide the information set forth above regarding such individual. (c) In the event of a change in a Project Executive, GSI is permitted to hire an interim Project Executive pending completion of the procedure set forth in this Section 4.1(a) with respect to the selection of a Project Executive. (d) GSI reserves the right to employ Subcontractors to perform part (but not all) of its obligations hereunder; provided, that the majority of employees performing the Services will be employees of GSI. GSI agrees that all Subcontractors employed by GSI shall: (1) work under GSI's guidelines, and as to each such Subcontractor, be bound by all of GSI's obligations contained herein regarding confidentiality; and (2) follow the reasonable workplace rules of conduct of Kash n' Karry. (e) In the event that Kash n' Karry reasonably and in good faith determines that it is not in the best interests of Kash n' Karry for any GSI employee or Subcontractor to continue to perform any of the Services, then Kash n' Karry shall give GSI written notice, specifying the reasons for its position, and requesting that the employee or Subcontractor be replaced. Promptly after its receipt of such notice, GSI shall investigate the matters stated in the notice and conclude such investigation within 30 days following GSI's receipt of Kash n' Karry's notice. If it determines that Kash n' Karry's concerns are reasonable, GSI shall ensure that such employee or Subcontractor no longer performs any of the Services for Kash n' Karry. (f) GSI agrees that Kash n' Karry shall have no obligation of any kind or character to any such Subcontractor, and GSI hereby agrees to indemnify and hold Kash n' Karry harmless from any and all Losses caused by or arising from the claims of any Subcontractor against Kash n' Karry or the claims of any person asserting a claim against Kash n' Karry by or through the Subcontractor. GSI further agrees that the use of any Subcontractor shall not in any way relieve GSI of all or any part of its obligations hereunder. 17 [Execution copy] 4.2 Standards. (a) For so long as no Event of Default by Kash n' Karry has occurred and is continuing, GSI agrees to provide the Services in accordance with this Agreement. The parties agree that nothing contained in this Section 4.2(a) is intended to waive, limit or release the provisions of Sections 11.3, 11.4 or 17.3 hereof. (b) GSI agrees that its performance of the Services will meet or exceed each of its obligations under this Agreement, including, but not limited to, meeting or exceeding the services and functions established in the Current Parameter; provided, however, so long as GSI fulfills such obligations, GSI has no obligation to: (1) retain certain employees, (2) employ a minimum number of employees, (3) retain the Unix excess capacity or functions, or (4) maintain each and every component of the computing capacity reflected in the Current Parameter. (c) If GSI stops providing Services that are critical to Kash n' Karry's core operations, Kash n' Karry is entitled to do whatever is necessary to maintain the Current Parameter and the Projects, and GSI will pay or reimburse Kash n' Karry for any additional reasonable and substantiated costs paid or incurred by Kash n' Karry in covering the default provided Kash n' Karry has exhausted the dispute resolution procedures set forth in this Agreement. 4.3 Efficient Use of Resources. GSI shall take all commercially reasonable actions to efficiently use resources that will become chargeable to Kash n' Karry under this Agreement, including, but not limited to: (a) making schedule adjustments (consistent with Kash n' Karry's priorities and schedules for the Services and GSI's obligation to meet the Current Parameter); (b) delaying the performance of noncritical functions within established limits; and (c) minimizing the use of Supplies. 4.4 Technological Advancements. (a) GSI promises that it will, without additional charge to Kash n' Karry, maintain the Applications Software (excluding specifically the Wingz Product), and pass on to Kash n' Karry any "evolutive" and corrective enhancements made by software 18 [Execution copy] vendors pursuant to their maintenance agreements with GSI. Any additional costs relating to enhancements of Applications Software will, to the extent not already included within the contract price paid to the software vendor or provided pursuant to Section 4.8(a) hereof, be paid by Kash n' Karry. GSI agrees to maintain all Systems Software so that there will be no obsolete Systems Software. (b) In the event that during the Term Kash n' Karry becomes aware of any commercially available, significant, technological advancement in Kash n' Karry's industry or in the information systems industry that, if implemented by GSI with Kash n' Karry's investment, would materially reduce GSI's overall Kash n' Karry-related investment and/or the net cost of providing the Services to Kash n' Karry (excluding Committed Costs), Kash n' Karry may notify GSI of any such advancement. GSI and Kash n' Karry agree to then negotiate promptly and in good faith with reasonable diligence to determine (i) if there is mutually beneficial advantage in implementing such technology; and (ii) the reduction of the charges payable by Kash n' Karry under this Agreement that would result from the implementation of such technology; provided, however, GSI shall not be required to negotiate a reduction of its fees under this Section 4.4(b) more frequently than once per calendar year. 4.5 Management and Control. (a) Within 90 days after the Closing Date, GSI shall provide to Kash n' Karry a written procedures manual describing the business processes and procedures relating to the Services (the "Procedures Manual"). At a minimum, the Procedures Manual will reasonably describe the Platforms and Applications Software being used, and include the documentation (i.e., training guides, action plans, implementation plans/goals, communication plans for issue management, business plans, etc.) for such Platforms and Applications Software. The Procedures Manual shall be written in nontechnical language that can be understood by the Kash n' Karry employees working with GSI in connection with this Agreement. (1) The Procedures Manual shall be provided to Kash n' Karry for review and comment and any reasonable comments or suggestions of Kash n' Karry will be incorporated therein, and prior to being considered final by the parties, shall be subject to the written approval of Kash n' Karry, which approval shall not be unreasonably withheld or delayed. (2) Thereafter, within 90 days after the completion of any new projects or modifications to the Platforms, 19 [Execution copy] Applications Software or Services described in the Procedures Manual, GSI shall update the Procedures Manual to reflect any changes in the operations or procedures described therein; provided, however, that any changes thereto which will affect End Users shall first be communicated to Kash n' Karry in writing and shall be subject to the prior written approval of Kash n' Karry, which shall not be unreasonably withheld or delayed. (3) GSI shall perform all Services in accordance with the terms and conditions of this Agreement and the Procedures Manual. (b) Within 90 days after the Closing Date, GSI shall prepare and provide to Kash n' Karry written procedures describing the processes by which changes will be made to Applications Software affecting End Users (the "Change Control Procedures"). The Change Control Procedures shall provide, at a minimum, as follows: (1) GSI will make no change, including modifications to any Schedules, which may adversely affect Kash n' Karry's overall operating costs, the business operations of Kash n' Karry or the amounts payable by Kash n' Karry to GSI hereunder, without first obtaining the prior written approval of Kash n' Karry, which may be reasonably withheld by Kash n' Karry. (2) From and after the first anniversary of the Effective Date, GSI agrees to maintain, as part of a standard maintenance contract, reasonable currency for releases and versions of Applications Software used to service the Current Parameter and the Projects. For purposes of this Article, reasonable currency shall mean (A) as to Applications Software, that the new release or version is installed not later than 12 months after the date the licensor makes such release or version commercially available, except that a new version or release may be installed later than 12 months after commercial release if mutually agreed by the parties, and (B) as to Systems Software, that the existing Systems Software is not obsolete. Kash n' Karry may contact software vendors directly for the purpose of obtaining information about new releases and versions of Applications Software, but GSI will not be obligated to inform Kash n' Karry of the new releases and versions. (3) GSI agrees that Kash n' Karry may, upon written notice to GSI, delay or prohibit implementation of a new version or release of Applications Software. Kash n' Karry 20 [Execution copy] acknowledges that Kash n' Karry's decision to prohibit or delay such implementation may impact GSI's ability to meet its obligations under this Agreement with respect to such Applications Software, including the Current Parameter. GSI agrees that, in the event such a delay or prohibition is requested by Kash n' Karry, GSI will provide written notice to Kash n' Karry if, in the reasonable judgment of GSI, as a result of such a decision (A) maintenance and support will be lost for any back level version or release of Applications Software because of a discontinuation thereof by the software vendor or (B) GSI's ability to provide the Services will be affected in a materially adverse manner. In the event GSI shall deliver such notice, the parties agree to negotiate in good faith regarding GSI's concerns. (4) GSI will assure that all programs are moved from the application development and test environments to the production environment in a controlled and documented manner. Kash n' Karry shall have the right to reasonably audit, control and approve all new Applications Software in the spirit that they are in conformity with Kash n' Karry's written requirements given to GSI prior to their promotion into production. (5) GSI will schedule all Data Center and Data Network projects affecting Applications Software so as not to unreasonably interrupt Kash n' Karry's business operations. GSI will consult with Kash n' Karry prior to initiating such projects. (6) GSI will prepare monthly, in writing, a rolling quarterly "look ahead" schedule for ongoing and planned Data Center and Data Network changes affecting Applications Software. The status of such changes will be monitored and tracked against the applicable schedule. (7) Subject to Section 4.5(b)(1) and 4.5(b)(5), at least 24 hours before making any change to the Data Center, the Data Network or the Applications Software that would affect End Users, GSI shall notify Kash n' Karry in writing of such change. Any such notice shall describe in reasonable detail the reasons for such change and the effects on End Users as a result thereof. Except in the case of emergency, no change to Applications Software shall be made which shall constitute a breach of or default under the License governing such Applications Software. GSI shall indemnify and hold Kash n' Karry harmless from and against any and all Losses that may be caused by or arise as a result of any such emergency 21 [Execution copy] change, unless such emergency change is requested by Kash n' Karry. If a change to Applications Software is requested by Kash n' Karry, then GSI is required give only oral notice prior to effecting the change. The Change Control Procedures shall be provided to Kash n' Karry for review and comment and any reasonable comments or suggestions of Kash n' Karry will be incorporated therein, and prior to being considered final by the parties, all portions thereof shall be subject to the written approval of Kash n' Karry, which approval shall not be unreasonably withheld or delayed. (c) Within 90 days after the Closing Date, the parties will mutually determine an appropriate set of periodic reports regarding GSI's performance of the Services to be issued by GSI to Kash n' Karry. At a minimum, these reports will include the following: (1) a monthly performance report, in a form and with content mutually established by the parties, documenting GSI's performance with respect to this Agreement and the Current Parameter. In addition, GSI will provide Kash n' Karry with such documentation and other information as may be reasonably requested by Kash n' Karry from time to time in order to verify that GSI's performance of the Services is in compliance with this Agreement and the Current Parameter; (2) a monthly project schedule report containing the information described in Section 4.5(b)(6); and (3) a monthly change report setting forth a record of all changes to the Data Center and Data Network affecting Applications Software performed during the previous month. (d) Within 60 days after the Closing Date, the parties will mutually determine an appropriate set of periodic meetings to be held between representatives of Kash n' Karry and GSI. At a minimum, these meetings will include the following: (1) a weekly meeting among operational personnel to discuss ongoing issues relating generally to daily performance and planned or anticipated activities and changes; (2) a monthly management meeting to review the performance report, the project schedule report, the changes report, and such other matters as appropriate; and 22 [Execution copy] (3) a quarterly senior management meeting to review relevant contract and performance issues. All meetings will have a published agenda issued by GSI sufficiently in advance of the meeting to allow meeting participants a reasonable opportunity to prepare for the meeting. Upon request by Kash n' Karry for review of a given issue at a given meeting, GSI will incorporate Kash n' Karry's request into the published agenda. 4.6 PC Machines. GSI will administer the hardware maintenance for Kash n' Karry End User Machines consisting of PC machines in accordance with the hardware maintenance standards set forth in the existing Maintenance Contracts covering such PC machines. GSI will bill Kash n' Karry for this maintenance (excluding the maintenance costs included in the MIS Budget) in an amount not greater than the fee payable by Kash n' Karry under such Maintenance Contracts. GSI will not be liable for any license usage and/or have an obligation for software support with respect to the PC machines. 4.7 Data Transmission (Lines/Circuits). GSI will undertake complete management and administrative responsibility for the existing leased data transmission lines and circuits (the "Lines") between and among the Data Center, the Kash n' Karry Offices, the Distribution Center (including Returns Processing Center) and Kash n' Karry's stores. As between Kash n' Karry and GSI, Kash n' Karry will retain title to, and contract and financial responsibility for, the Lines. Kash n' Karry will cooperate with GSI in the event that there is an issue with the vendor. Additions, replacements and upgrades to Lines, if requested by Kash n' Karry, together with any other changes to the Data Network requested by Kash n' Karry, will be chargeable as New Services in accordance with Section 6.3. 4.8 Software. GSI will: (a) be solely responsible for operating, maintaining and enhancing all Applications Software and Systems Software in the Data Center and Data Network so that it performs, at all times during the Term hereof, in accordance with this Agreement and the Current Parameter. GSI will install new versions and releases, upgrades, replacements or additional Applications Software and Systems Software as GSI deems necessary in order to perform the Services in accordance with this Agreement, 23 [Execution copy] including but not limited to, the Current Parameter, at no additional cost to Kash n' Karry; (b) apply preventive maintenance and program temporary fixes to correct defects in the Applications Software and Systems Software so as to keep it running in accordance with this Agreement, including, without limitation, the Current Parameter; (c) install new versions and releases of Applications Software in accordance with this Agreement and the Change Control Procedures (as described in Section 4.5); (d) provide all additions and replacements to the Applications Software, which will be considered New Services as described in Section 6.3; provided, however that new releases and versions of the Applications Software provided as part of a standard maintenance contract shall not be considered as additions and replacements and therefore shall not be considered New Services. 4.9 Operations, Support and Maintenance. During the Term hereof, GSI will perform the following operational, support and maintenance services as part of the Services rendered to Kash n' Karry hereunder: (a) operate the Data Center using the Machines and Applications Software and Systems Software; (b) operate the Data Network using the Machines and Applications Software and Systems Software; (c) provide maintenance services for Machines in the Data Center and Data Network; (d) support the Data Network and the End Users by operating a help desk in accordance with Section 4.14, which will provide first level trouble analysis, problem recording, place service calls to vendors to perform corrective maintenance, and manage problems to resolution; (e) provide printed output to the local Kash n' Karry distribution system located in the Kash n' Karry Offices or transmit print files to remote sites for local printing; (f) provide maintenance services for laser printers and replacements located at the Kash n' Karry Offices; 24 [Execution copy] (g) store, maintain and provide security for storage media (tapes, disk packs, etc.) provided to GSI using library and retention procedures in accordance with the Procedures Manual; (h) assume responsibility for microfiche operations (i.e., creation of tape); (i) complete the Projects according to their terms as stated in the Schedules attached to this Agreement; and (j) otherwise fully perform all of its obligations under this Agreement. 4.10 Consolidation and Relocation Services. During the Term hereof, GSI will provide the following consolidation and relocation services as part of the Services rendered to Kash n' Karry hereunder: (a) install, rearrange and relocate equipment in the Data Center and Data Network as GSI deems necessary in order to perform in accordance with this Agreement, including, without limitation, the Current Parameter, and in such a manner so as to minimize, as much as reasonably possible, service level impact to End Users; and (b) provide MAC support (manpower only) for GSI End User Machines and as reasonably requested by Kash n' Karry from time to time; provided, however, GSI may charge Kash n' Karry for such support in an amount not to exceed $100 per GSI End User Machine for each GSI End User Machine in excess of ten per calendar year that is moved, changed or added at Kash n' Karry's request. 4.11 Systems Management. During the Term hereof, GSI will provide the following systems management services as part of the Services rendered to Kash n' Karry hereunder: (a) perform capacity planning, performance analysis and tuning for the Machines and Systems Software in the Data Center and the Data Network; (b) create and maintain an inventory and configuration diagram of the Data Network; (c) develop and implement controls to effectively manage the Data Center and Data Network environments, including change and problem management systems; 25 [Execution copy] (d) provide backup and restore capability for all data and programs maintained in the Data Center; (e) invoke the disaster recovery plan when appropriate; and (f) provide for systems access security through the use of appropriate security products. 4.12 Disaster Recovery. GSI will provide, with the assistance of Kash n' Karry, disaster recovery services at a level comparable to that in effect under the existing Contract for the provision of disaster recovery services described on Schedule P. GSI will provide planning and backup, including a "hot" site, and Kash n' Karry will pay for actual use of the "hot" site, including time and materials for a reasonable period of time, depending on the nature of the disaster. If, at any time after the 90th day following the Closing Date, (a) GSI is unable to restore certain critical functions within 20 days, or (b) GSI provides the Services from a "hot" site for longer than 20 days, then Kash n' Karry may terminate the Agreement by delivering written notice to GSI. In such event, Kash n' Karry's obligations to GSI hereunder in respect of such termination shall be as set forth in Section 11.3(b). 4.13 Production Services. During the Term hereof, GSI will provide the following production services as part of the Services rendered to Kash n' Karry hereunder: (a) schedule, control and monitor the running of production jobs in the Data Center using scheduling and quality control procedures; and (b) follow procedures for scheduling and directing output of all production work (including workload and performance balancing). 4.14 Help Desk. GSI will maintain a help desk for Kash n' Karry and thereby provide initial, single point-of-contact support to trained End Users to assist them with Services-related problem determination, how-to questions relating to product support, systems status, problem recording and reporting, general Services support and changes which may affect them, in accordance with Schedule Q. The Services to be rendered by GSI at the help desk specifically exclude any kind of development or control by GSI of data content. 26 [Execution copy] 4.15 Audits/Compliance with Law. GSI will assist Kash n' Karry in meeting its audit (including technical contract audit) and regulatory requirements, including, but not limited to, providing access to the Data Center and all Kash n' Karry data maintained or contained therein to enable Kash n' Karry, its employees, agents, auditors, Subcontractors and examiners (excluding direct competitors of GSI, e.g., Arthur Anderson) to conduct reasonably appropriate audits and examinations of Kash n' Karry's operations and the operations of GSI relating to the performance of the Services to verify: (a) that GSI is exercising reasonable procedures to control the resources utilized by GSI in providing Services to Kash n' Karry; (b) that Services are being provided in accordance with this Agreement, including but not limited to, the Current Parameter; and (c) that GSI is exercising reasonable policies and procedures to protect and provide for the integrity of information so that Kash n' Karry's auditors can successfully opine on the accuracy of the information used to compile Kash n' Karry's books and records. Such access will require 48 hour notice to GSI and will be provided at reasonable hours, provided that any audit does not interfere with GSI's ability to perform the Services in accordance with this Agreement, including but not limited to, the Current Parameter. GSI will provide access only to information reasonably necessary to perform the audit. GSI shall not allow Kash n' Karry, its employees, agents, Subcontractors, examiners or auditors access to other GSI customers' or GSI's proprietary data. GSI will also assist Kash n' Karry's employees, agents, Subcontractors, examiners or auditors as may be reasonably required in testing Kash n' Karry's data files and programs, including, without limitation, installing and running audit software. If requested by Kash n' Karry's external auditors or required by law (e.g., for SEC or other governmental agency reporting purposes), GSI will assist Kash n' Karry in responding to those requests and requirements, including copying. All costs and expenses related to such audits will be fully borne by Kash n' Karry. During the Term, GSI shall comply (and shall cause its Subcontractors to comply) with all applicable laws or regulations in the providing of the Services and in performing its obligations under this Agreement, including (subject to Section 6.3) making any changes and taking other actions which are necessary in order to maintain compliance with applicable laws or regulations. Kash n' 27 [Execution copy] Karry may submit additional findings or recommendations to GSI for its consideration, and GSI shall consider such findings, and advise Kash n' Karry in writing and in reasonable detail whether or not such findings and recommendations have been accepted. In each such case, Kash n' Karry will pay or reimburse GSI, upon demand, for all reasonable and necessary costs and expenses incurred by GSI in complying with any applicable laws or regulations that are related to Kash n' Karry's business. 4.16 Other Responsibilities. During the Term hereof, GSI will provide the following other services as part of the Services rendered to Kash n' Karry hereunder: (a) provide, maintain and support Kash n' Karry End User Machines which are included or equivalent to the ones in the Current Parameter; (b) be responsible for all MACs with respect to Kash n' Karry End User Machines; provided, however, GSI may charge Kash n' Karry for such support in an amount not to exceed $100 per Kash n' Karry End User Machine for each Kash n' Karry End User Machine in excess of ten per calendar year that is moved, changed or added at Kash n' Karry's request; (c) provide support to End Users for questions and problems related to Applications Software, developments and training at the help desk described in Section 4.14; (d) provide maintenance support for and pay all Leases on printers (excluding usage costs) existing as of the Closing Date, in accordance with the Current Parameter; (e) be responsible for training the Kash n' Karry training personnel (trainers); (f) be responsible for the creation and administration of user access and password management and security programs; and (g) be responsible for the costs of all Supplies used or consumed at the Data Center. 4.17 Corporate Organization. GSI represents and warrants to Kash n' Karry that it is a subsidiary of GSI - U.S.A. Incorporated, that its relationship to such entity is as set forth on Schedule R attached hereto, and that, on or before the Closing Date, it shall have received an initial and permanent capital investment in an amount 28 [Execution copy] not less than Two Million U.S. Dollars ($2,000,000). During the Term, Kash n' Karry shall have the right to appoint an individual (selected by Kash n' Karry from among its executive officers, subject to the approval of GSI, which approval shall not be unreasonably withheld) to serve on the Board of Directors of GSI. ARTICLE 5: KASH N' KARRY RESPONSIBILITIES 5.1 MIS Coordinator. Kash n' Karry agrees to designate, at all times during the Term, a person reasonably acceptable to GSI to act as Kash n' Karry's MIS Coordinator, and the person to whom all GSI communications may be addressed. 5.2 Applications Software. During the Term, Kash n' Karry will be responsible for selecting, or defining requirements for, all Applications Software, including all Applications Software which executes on GSI End User Machines or Kash n' Karry End User Machines. GSI agrees that Kash n' Karry may, during the Term, require replacement or substitution of Applications Software, provided that GSI shall bill Kash n' Karry for all corresponding costs of whatever nature. 5.3 Facilities and Support Services. During the Term hereof, and to enable GSI to provide Services, Kash n' Karry agrees to perform the following facilities and support services: (a) perform its responsibilities in accordance with the Procedures Manual, Change Control Procedures, Current Parameter and Projects, and until such time as documents relating to those matters are completed, in whole or in part, in accordance with Kash n' Karry's practices and policies as of the Commencement Date; and (b) provide, for the Data Network facilities located at premises under Kash n' Karry's management and control during the Term (excluding the Building), all heat, light, power, air conditioning, and such other similar utilities as may reasonably be necessary for GSI to perform the Services as described in this Agreement. 5.4 Other Responsibilities. During the Term hereof, Kash n' Karry also agrees to provide the following other services: 29 [Execution copy] (a) operate the Xerox printers and pay the paper supply costs for those printers including usage costs; (b) provide to GSI data, data entry, and administration, and coordinate such activities with GSI's systems design and production functions; (c) designate and document information requirements, including report design and content, frequency of reports, and accessibility to information with all costs to be paid by Kash n' Karry; (d) provide all paper forms and Supplies purchased by Kash n' Karry for use or consumption by End Users; (e) be responsible for creation, storage and retrieval of any and all microfilm/microfiche output; (f) be responsible for voice network, telephones, all common carrier charges for local, long distance, and WATS (in and out) telecommunications services for voice network, and provide GSI with telephones and with access to Kash n' Karry's PBX system at communication cost; provided however that Kash n' Karry may charge GSI for GSI's communication costs; (g) provide written authorization to GSI for user access and/or password management; (h) be responsible for all of Kash n' Karry's mail, messenger, postage, courier and print distribution services; (i) be responsible for such other Kash n' Karry activities and functions as are described in this Agreement; (j) assist GSI in the performance of its mission in good faith; (k) be responsible for training the End Users and providing "champions" (department heads/director level and above); and (l) collaborate with GSI in particular by indicating significant changes of business and/or environment affecting GSI's information services environment. ARTICLE 6: CHARGES AND EXPENSES 6.1 Annual Services Charge. For so long as no Event of Default by GSI shall have occurred and be continuing hereunder, Kash n' Karry agrees to pay the Annual 30 [Execution copy] Services Charge specified in Schedule A for each year of the Term, together with the other amounts as described in this Article 6. 6.2 New Entities. If Kash n' Karry acquires any additional Affiliate (or significant new assets) during the Term, and Kash n' Karry desires that GSI provide Services for such Affiliate or new assets, subject to additional charges if acceptance of such responsibilities would require New Services as described in Section 6.3, then, upon written request from Kash n' Karry, GSI will provide such Services in accordance with this Agreement. Prior to the provision of such New Services, GSI will notify Kash n' Karry in writing of the amount of additional charges for such New Services and GSI agrees that Kash n' Karry may withdraw its request for such New Services if such withdrawal is delivered in writing not later than ten days after receipt of GSI's notification as to additional charges. GSI reserves the right to decline to provide New Services pursuant to this Section 6.2 if Kash n' Karry's new business differs from its business as of the Effective Date. 6.3 New Services and Extension of Current Parameter. (a) If Kash n' Karry's demand for Services would exceed the Current Parameter and the Projects ("New Services"), GSI or Kash n' Karry will promptly inform each other, and GSI will bill Kash n' Karry fair and justified amounts corresponding to such excess variation. (b) GSI will offer New Services to Kash n' Karry at prices not exceeding the lowest prices then being made available by GSI to its other customers engaged in retail food store sales in the United States for similar services, but Kash n' Karry will be under no obligation to purchase at those prices. GSI will have the first right to bid on New Services, and if GSI's bid is competitive and properly reflects the synergy existing between Kash n' Karry and GSI, then Kash n' Karry will engage GSI to perform the New Services. (c) If Kash n' Karry requests that GSI cooperate with other vendors whose products or services are purchased by Kash n' Karry and which interface with the Current Parameter and Projects, GSI shall so cooperate, subject to security and confidentiality requirements; provided, however, GSI may charge Kash n' Karry a fair and justified amount for such services. GSI, however, will bear no responsibility for Losses resulting directly or indirectly from the interference of any software and/or hardware and/or service of whatever nature ordered by Kash n' Karry from a third party vendor and which would in any manner adversely impact upon the Services. 31 [Execution copy] (d) GSI's books and records will be made available to Kash n' Karry's independent auditors in order for the auditors to confirm whether the prices offered pursuant to this Article are in fact not in excess of the lowest prices then made available by GSI to its other customers engaged in retail food store sales in the United States for similar services; provided, however, that Kash n' Karry's auditors shall not disclose to Kash n' Karry the specific, actual prices disclosed in GSI's books and records. 6.4 Substantial Reduction of Resources. (a) If, during the Term, Kash n' Karry experiences significant changes in the scope, nature or volume of its business, or if Kash n' Karry elects to change the manner or method by which Kash n' Karry does business (including, but not limited to, an election by Kash n' Karry to effect a sale or other disposition of material assets, subject to the requirements of Section 18.13), which have or may have the effect of causing a decrease in the quantity or quality of the Services that will be needed by Kash n' Karry, then Kash n' Karry may request GSI to reduce the level of Services (or to reduce any of the standards set forth in the Current Parameter) and the Annual Service Charges to Kash n' Karry under this Agreement as set forth below; provided, however, that Kash n' Karry agrees that: (i) in no event shall the Annual Services Charge be reduced to a level less than the Committed Costs; and (ii) any such reduction must not adversely impact upon GSI's ability to reasonably perform its obligations under the Agreement. (b) In such event, GSI shall estimate, in writing and in good faith, the aggregate decreased charges to Kash n' Karry from GSI's ceasing to perform such Services and shall provide such written estimate to Kash n' Karry (together with notice of any consequential change to the Current Parameter), no later than 30 days from GSI's receipt of Kash n' Karry's notice. Kash n' Karry, upon receipt of such estimate, may then elect by written notice given to GSI within 15 days following receipt of GSI's written estimate to: (i) withdraw its request for a cessation of part of the Services; (ii) implement such partial cessation of Services based upon the estimate of GSI; or (iii) request that GSI negotiate with Kash n' Karry regarding the aggregate reduction in the Annual Service Charges due to GSI from Kash n' Karry hereunder as a result of the partial cessation of Services. If Kash n' Karry shall elect to request GSI to negotiate, the parties shall promptly negotiate in good faith regarding the amount of such reduction. 32 [Execution copy] 6.5 Taxes. (a) The Annual Services Charge payable by Kash n' Karry is inclusive of any applicable sales, use, personal property or other taxes based upon or measured by GSI's cost in acquiring or providing equipment, materials, supplies or services furnished or used by GSI in performing or furnishing the Services, and Kash n' Karry shall not be required to pay the taxes described in this Section 6.5(a), which are the sole expense of GSI, it being understood that GSI is the ultimate user of all Assets, including, but not limited to, its purchased and leased tangible personal property and real property used to provide the Services. It is the parties' specific intent that: (1) the Services consist solely of professional and personal service information transactions, (2) all written reports or data issued or made available by GSI to Kash n' Karry are of an individual and unique nature, are produced and provided to Kash n' Karry, and shall not be used in any written reports or data issued by GSI to third parties, (3) Kash n' Karry shall have no right to access GSI's computers, compile programs, perform computations, enter data, or control any aspect of the processing of data, and all functions to provide the Current Parameter and other Services hereunder shall be performed and controlled by GSI. (b) In the event that a sales, use, excise or services tax is assessed on the provision of the Services (or any New Services), or any portion thereof, by GSI to Kash n' Karry or on any of GSI's charges to Kash n' Karry under this Agreement, however levied or assessed, by any federal, state or local governmental entity in any jurisdiction in which Kash n' Karry has a facility which is receiving Services from GSI (Kash n' Karry facilities "receiving services from GSI" shall not include the Data Center or any non-Kash n' Karry owned or leased location from which GSI elects to provide the Services), Kash n' Karry will be responsible for and pay the amount of any such tax. Kash n' Karry will also be responsible for paying all personal property or use taxes due on or with respect to Kash n' Karry Machines. Upon the request of Kash n' Karry, GSI shall separately invoice all charges that are determined to be taxable and shall separately state the tax thereon. GSI shall not be required to pay the taxes described in this Section 6.5(b), which are the sole expense of Kash n' Karry. (c) Each party shall bear sole responsibility for all taxes, assessments and other real property-related levies on its owned or leased real property. 33 [Execution copy] (d) Subject to the provisions of Sections 6.5(a) and (b), the parties agree to perform all acts reasonably requested by the other party to minimize such party's tax liability to the extent legally permissible. (e) Each party shall provide and make available to the other any resale certificates, information regarding out-of-state sales or use of equipment, materials or services, and other exemption certificates or information reasonably requested by either party. (f) Neither party shall have any obligation of any kind or character to pay any income, franchise or similar taxes relating to the other party's income or receipts from its business operations. (g) Upon the request of a party, the other party to this Agreement shall explain any taxes paid or payable by such party and shall provide sufficient documentation supporting the amount of and the payment of all such taxes. 6.6 Other Expenses and Charges. Kash n' Karry will be financially responsible for all costs and expenses associated with its responsibilities specified in Article 5. Such costs and expenses are not included within the Annual Services Charge or any other charges payable by Kash n' Karry under this Agreement. GSI shall be financially responsible for all costs and expenses incurred in providing the Services or otherwise associated with its responsibilities specified in this Agreement, unless otherwise expressly set forth in this Agreement. ARTICLE 7: INVOICING AND PAYMENT 7.1 Annual Services Charge Invoices. GSI will bill Kash n' Karry annually for the Annual Services Charge allocable to such calendar year. The total amount stated on such annual invoice will be payable in 12 equal monthly installments, which will be due and payable by Kash n' Karry on the first day of each month. Provided, however, the first installment of the Annual Services Charge for 1995 will be payable on the Closing Date, prorated on a per diem basis for the period from and including the Closing Date to the last day of such month, and Kash n' Karry shall receive a credit against the total Annual Services Charge for 1995 in an amount equal to the sums paid to GSI under Section 3.9 for services rendered during the Transition Period. Unless otherwise authorized by GSI, payments made by Kash n' Karry to GSI hereunder shall be made by bank wire transfer to the account 34 [Execution copy] of GSI identified on Schedule S hereto. Each invoice issued to Kash n' Karry will state separately applicable taxes owed by Kash n' Karry, if any, itemized by tax jurisdiction in accordance with Section 6.5(b). In the event of an interim adjustment to the Annual Services Charge for a given year pursuant to this Agreement, unless the parties otherwise agree at the time of the adjustment, any charge in addition to the amount stated on the annual invoice, shall be payable by Kash n' Karry within 30 days of the date of the interim invoice and any reduction in the amount stated on the annual invoice shall be credited by GSI against future monthly installments in the order of their maturity. 7.2 Other Charges. Any amount due under this Agreement for which a time for payment is not otherwise specified will be due and payable within ten days after the date of the invoice. 7.3 Late Charges. If any payment due by either Kash n' Karry or GSI is not received within five days following the due date thereof, the delinquent party shall pay to the other party a late fee equal to one and a half percent (1.5%) of the amount of such payment per month until paid. 7.4 Proration. All periodic charges under this Agreement are to be computed on a calendar month basis, and will be prorated for any partial month, unless specifically stated otherwise in this Agreement. 7.5 Refundable Items. (a) Where Kash n' Karry has paid or prepaid rent, maintenance fees, or other ongoing charges under any Contract (as opposed to any non-periodic payment such as license fees), GSI will refund to Kash n' Karry, promptly upon demand by Kash n' Karry, that portion of such prepaid expense which is attributable to periods on and after the Closing Date. (b) If GSI should receive during the Term any refund, credit or other rebate in respect of any Contract, which is attributable to a period prior to the Closing Date (including, but not limited to, deposits under Leases), GSI will promptly notify Kash n' Karry of such refund, credit or rebate and will promptly pay to Kash n' Karry the full amount of such refund, credit or rebate. 35 [Execution copy] (c) If Kash n' Karry should receive during the Term any refund, credit or other rebate in respect of any Contract, which is attributable to periods on and after the Closing Date, Kash n' Karry will promptly notify GSI of such refund, credit or rebate and will promptly pay to GSI the full amount of such refund, credit or rebate. 7.6 Credits. Except as otherwise set forth in this Agreement, with respect to any amount to be paid or reimbursed to Kash n' Karry by GSI pursuant to this Agreement, Kash n' Karry may, at its option, obtain payment of such amount from GSI by offsetting any such amount against the charges otherwise payable to GSI hereunder at the time any such amount is due and payable to Kash n' Karry. Kash n' Karry shall provide evidence in reasonable detail of the basis for any such offsets, prior to effecting the offset. In the event that the parties shall determine that any such offset by Kash n' Karry was improper, Kash n' Karry shall promptly deliver the amount thereof to GSI, together with a late fee equal to one percent of the amount of such improper offset per month. ARTICLE 8: REVERSION [INTENTIONALLY OMITTED] ARTICLE 9: INTELLECTUAL PROPERTY RIGHTS 9.1 Materials. Pursuant to this Agreement, GSI and its Subcontractors and Kash n' Karry and its Subcontractors may develop, create, modify or personalize (collectively, "Develop") certain computer programming code, including source and object code ("Code"), and documentation to perform the Services. Ownership of such Code and documentation shall be treated as follows: With respect to (a) Code Developed under this Agreement which constitutes Derivative Works (as defined below) of software for which the copyright is owned by Kash n' Karry ("Type I Materials"), whether Developed solely by GSI or its Subcontractors or solely by Kash n' Karry and its Subcontractors, or jointly by GSI and/or its Subcontractors and Kash n' Karry and/or its Subcontractors; (b) Code Developed under this Agreement which does not constitute Derivative Works of any software owned by Kash n' Karry, GSI or its Affiliates or any third party ("Type II Materials"), 36 [Execution copy] whether Developed solely by GSI or its Subcontractors or solely by Kash n' Karry and its Subcontractors, or jointly by Kash n' Karry and/or its Subcontractors and GSI and/or its Subcontractors; (c) Code Developed under this Agreement which constitutes Derivative Works of software for which the copyright is owned by GSI, its Affiliates or Subcontractors ("Type III Materials"), whether Developed solely by GSI or its Subcontractors or solely by Kash n' Karry and its Subcontractors, or jointly by Kash n' Karry and/or its Subcontractors and GSI and/or its Subcontractors; (d) Literary works of authorship Developed under this Agreement, which are specific to the financial and business operations of Kash n' Karry or which are specific to the providing of Services to Kash n' Karry, as opposed to the general providing of Services by GSI to its other customers, such as user manuals, charts, graphs and other written documentation and machine-readable text and files, but excluding Code ("Type IV Materials"), which have been Developed solely by Kash n' Karry and its Subcontractors or solely by GSI or its Subcontractors, or jointly by Kash n' Karry and/or its Subcontractors and GSI and/or its Subcontractors; and (e) Literary works of authorship Developed under this Agreement which are not specific to the financial and business operations of Kash n' Karry or which are used generally in the providing of services such as the Services by GSI to its customers, such as user manuals, charts, graphs and other written documentation and machine-readable text and files, but excluding Code ("Type V Materials"), which have been Developed solely by Kash n' Karry and its Subcontractors or solely by GSI or its Subcontractors, or jointly by Kash n' Karry and/or its Subcontractors and GSI and/or its Subcontractors, (1) All such Type II, Type III and Type V Materials shall be owned by GSI (collectively, the "GSI Materials"), and Kash n' Karry shall have the following license rights: (A) an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform and distribute such GSI Materials internally for the sole benefit of and exclusive use by Kash n' Karry during the Term; and (B) the right to sublicense third parties to do any of the foregoing. 37 [Execution copy] (2) With respect to Type I Materials and Type IV Materials, Kash n' Karry shall own such Materials (the "Kash n' Karry Materials"), and GSI shall have the following license rights: (A) an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform and distribute such Kash n' Karry Materials internally for the sole benefit of and exclusive use by GSI during the Term; and (B) the right to sublicense third parties to do any of the foregoing. (3) At the expiration or earlier termination of this Agreement, so long as Kash n' Karry has fully complied with all of its obligations, and is not in default under this Agreement, GSI will grant to Kash n' Karry the following license rights in the GSI Materials: (A) an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform and distribute the GSI Materials internally for the sole benefit of and exclusive use by Kash n' Karry; and (B) the right to sublicense third parties to do any of the foregoing. (4) At the expiration or earlier termination of this Agreement, so long as GSI has fully complied with all of its obligations, and is not in default under this Agreement, Kash n' Karry will grant to GSI the following license rights in the Kash n' Karry Materials: (A) an irrevocable, nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform and distribute the Kash n' Karry Materials internally for the sole benefit of and exclusive use by GSI; and (B) the right to sublicense third parties to do any of the foregoing. (5) Any ownership or license rights herein granted to either party are limited by and subject to any patents and copyrights held by, and terms and conditions of any license agreements with, applicable third party software providers and subject in all respects to the parties' obligations regarding Confidential Information, as set 38 [Execution copy] forth in Article 10 of this Agreement, it being agreed by the parties that nothing in this Article 9 shall give either party the right or obligation, under any circumstances, to disclose to any person any Confidential Information of the other party or to allow the other party to disclose any Confidential Information. (6) To the extent any of the Type I, Type II, Type III, Type IV and Type V Materials may not, by operation of law, be owned by the party to which ownership has been granted (as described in this Article 9), each party agrees to assign and hereby assigns, without further consideration, the ownership of all right, title and interest in all U.S. and foreign copyrights, and mask work rights (if any) included in such Materials to the other party, and such assignee party shall have the right to obtain and hold in its own name copyrights, registrations, renewals and all other rights relating or pertinent thereto. (7) The parties agree to reproduce copyright legends which appear on any portion of the Type I, Type II, Type III, Type IV and Type V Materials which may be owned by third parties. (8) For purposes of this Section 9, a "Derivative Work" shall mean a work based on one or more preexisting works, including, without limitation, a condensation, transformation, expansion or adaptation, which, if prepared without authorization of the owner of the copyright of such preexisting work, would constitute a copyright infringement. (9) This Agreement shall not preclude GSI or Kash n' Karry from Developing materials or providing services which are competitive to the Type I, Type II, Type III, Type IV and Type V Materials irrespective of their similarity to computer programming code, documentation or other materials or services which might be delivered pursuant to this Agreement, except to the extent any of same may infringe any of the other party's patent rights or copyrights. (10) Nothing contained in this Agreement shall restrict either party from the use of any ideas, concepts, know-how, or techniques relating to data processing or network management which either party, individually or jointly, develops or discloses under this Agreement, except to the extent such use infringes any of either party's patent rights or copyrights. However, except for the licenses expressly granted under this Article 9, neither this 39 [Execution copy] Agreement nor any disclosure made hereunder grants any license to either party under any patents or copyrights of the other party. (11) Upon the expiration of this Agreement in accordance with its terms, or, if any, the earlier termination of this Agreement, the parties agree to negotiate in good faith as to whether any of the materials addressed in this Article 9 are Type I, Type II, Type III, Type IV and Type V Materials and as to the rights of each party in such Materials. 9.2 New GSI Software. GSI will give Kash n' Karry a non-exclusive right to use the New GSI Software during the Term solely in connection with the Services. From time to time during the Term, Kash n' Karry may require GSI to deposit in escrow the New GSI Software (excluding New GSI Software acquired by GSI from third parties) (and source code). Upon termination of the Agreement, GSI will give Kash n' Karry (and its third party service providers) a non-exclusive license to use any New GSI Software that is proprietary to GSI at no cost to Kash n' Karry, and will, at Kash n' Karry's request, assign, transfer or sublicense to Kash n' Karry any New GSI Software owned by any third party, in which event Kash n' Karry will pay any ongoing maintenance or licensing costs and GSI will pay any transfer or one-time charges. ARTICLE 10: CONFIDENTIALITY/DATA SECURITY 10.1 Confidential Information. Except as otherwise specifically provided by the parties, "Confidential Information" shall mean: (a) all information marked confidential, restricted, or proprietary by either party; (b) Kash n' Karry's customer lists, customer information, account information, and information regarding business planning and operations of Kash n' Karry and Kash n' Karry's administrative, financial or marketing activities; (c) GSI's customer lists, customer information, account information, and information regarding business planning and operations of GSI and GSI's administrative, financial or marketing activities; 40 [Execution copy] (d) information that has been created, discovered, developed by or provided to GSI or Kash n' Karry by third parties and in which property rights have been licensed, assigned or otherwise conveyed to GSI or Kash n' Karry, which information has commercial value in GSI's or Kash n' Karry's business and is not subject to one or more of the exclusions set forth in Section 10.3; and (e) all other information which relates to either party's business operations or activities which is not in the public domain. 10.2 Obligations. (a) Except as otherwise specified in Schedule T, Kash n' Karry and GSI will each use the same care to prevent disclosing to third parties the Confidential Information of the other as it employs to avoid disclosure, publication or dissemination of its own information of a similar nature. Notwithstanding the foregoing, the parties may disclose such information to Subcontractors involved in providing Services under this Agreement where (1) such disclosure is necessary to permit the Subcontractor to perform its duties hereunder, and (2) the disclosing party assumes full responsibility for the acts or omissions of its Subcontractor, no less than if the acts or omissions were those of the disclosing party. (b) Except to the extent required by law or permitted by Article 16, neither party will publicly disclose the terms of this Agreement, without the prior written consent of the other. Furthermore, neither GSI nor Kash n' Karry will (1) make any use of the Confidential Information of the other except as contemplated by this Agreement; (2) acquire any right in or assert any lien against the Confidential Information of the other; or (3) refuse to promptly return, provide a copy of, or destroy such Confidential Information upon the request of the other party; provided, however, that neither party will be restricted in using any data processing or network management ideas, concepts, know-how and techniques, including, without limitation, in the development, manufacturing and marketing of data processing or network management products and services 41 [Execution copy] unless the use thereof would result in the disclosure of Confidential Information. 10.3 Exclusions. Notwithstanding the foregoing, Confidential Information shall not include information which GSI or Kash n' Karry can demonstrate was: (a) at the time of disclosure to it, in the public domain; (b) after disclosure to it, published or otherwise becomes part of the public domain through no act or omission of the receiving party; (c) independently developed by the receiving party without reference to or use of Confidential Information of the furnishing party; or (d) received after disclosure to it from a third party: (i) who had a lawful right to disclose such information and (ii) who had no further obligations of confidentiality regarding such information to the party granting the right to disclose. It is understood that the receipt of Confidential Information under this Agreement will not limit or restrict assignment or reassignment of employees of GSI and Kash n' Karry within or between the respective parties and their Affiliates; provided, however, that the parties agree that no such assignment or reassignment shall allow either party or their employees to disclose Confidential Information in violation of this Agreement. 10.4 Protection of Kash n' Karry Information. Any additional responsibilities of GSI and Kash n' Karry with respect to protection of Confidential Information are set forth in Schedule T. 10.5 Loss of Confidential Information. In the event of any disclosure or loss of Confidential Information by a receiving party, the receiving party will notify the furnishing party immediately. 10.6 Limitation. GSI will not be responsible for loss or disclosure of any of the following Confidential Information of Kash n' Karry, except to the extent such loss or disclosure is due to the negligence or willful misconduct of GSI: (1) data content, (2) corruption, loss 42 [Execution copy] or mistransmission of data during transmission via public telecommunications facilities or (3) loss of the security of data during transmission via public telecommunications facilities. 10.7 Survival. The obligations of the parties contained in this Article 10 shall survive the expiration or termination of this Agreement for a period of three years, even if such termination is as a result of the occurrence of an Event of Default by either of the parties. ARTICLE 11: EVENTS OF DEFAULT; REMEDIES; TERMINATION 11.1 Events of Default. If any one or more of the following events ("Events of Default") shall occur and be continuing, then the nondefaulting party shall have the rights set forth in Section 11.2 hereof: (a) Kash n' Karry shall fail to pay any sums required to be paid to GSI hereunder, as and when the same become due, and such default shall continue unremedied for five or more days (a "Monetary Event of Default"); provided, however, that if a dispute exists with respect to the amount of any sum due hereunder, the disputed amount shall not be deemed to be due for purposes of this Section 11.1(a) unless and until the dispute resolution procedure set forth in Article 17 hereof shall have been exhausted with respect to any such dispute; (b) Either party shall default in the performance of any of its material obligations hereunder (excluding Kash n' Karry's obligations to pay money, the default of which is governed by Section 11.1(a)(1) hereof), and such default shall continue unremedied for a period of 30 days after written notice of such default shall have been given to the defaulting party by the non-defaulting party; provided, however, that no such notice of default shall be effective with respect to any such obligations as to which there is a dispute unless and until the dispute resolution procedure set forth in Article 17 shall have been exhausted with respect to any such obligation; (c) Either party shall default in the performance of its obligations under Section 17.3, and such default shall continue unremedied for a period of five days; and :\E A Bankruptcy Event shall have occurred with respect to a party and thereafter a Monetary Event of Default shall occur with respect to such party or such party shall default in the performance of any of its other obligations hereunder. 43 [Execution copy] 11.2 Remedies. When any Event of Default shall have occurred and be continuing, the nondefaulting party may take one or any combination of the following steps: (a) Terminate this Agreement in accordance with Section 11.3; (b) Declare any sums due to the nondefaulting party to be immediately due and payable, including, without limitation, any liquidated damages under this Agreement; (c) Have reasonable access to and inspect, examine and make copies of, during regular business hours, the books and records of the defaulting party and any and all accounts, data and other information related to the Services and the Projects to be performed under this Agreement; (d) Take whatever action at law or in equity may appear necessary or desirable to collect any amounts then due and thereafter to become due under the Agreement, or to enforce performance and observance of any obligation, agreement or covenant of the defaulting party under the Agreement; and (e) Exercise any and all rights and remedies generally afforded by law or equity and as otherwise afforded herein. 11.3 Termination for Cause. (a) Upon the occurrence of an Event of Default by either party, the other party may terminate this Agreement by delivering written notice to the other party, at no cost or expense to the terminating party except as set forth in this Section 11.3. (b) If Kash n' Karry shall terminate this Agreement pursuant to this Section 11.3 upon the occurrence of an Event of Default by GSI, (1) Kash n' Karry shall pay to GSI that portion of the Committed Costs set forth in Section 2.1(i)(1), (2), (6) and (7) and no more; (2) no Termination Charges shall be payable by Kash n' Karry; (3) Kash n' Karry will offer employment to those GSI employees who provide Services and who are working on the Projects; and (4) all other payment obligations of Kash n' Karry hereunder shall expire. (c) If GSI shall terminate this Agreement pursuant to this Section 11.3 upon the occurrence of an Event of Default by Kash n' Karry, (1) Kash n' Karry shall pay to GSI the Committed Costs and the Annual Services Charge for such year, prorated to the effective date of termination; (2) Kash n' Karry shall pay 44 [Execution copy] Termination Charges as specified on Schedule U attached hereto, which shall not exceed Two Million U.S. Dollars ($2,000,000); and (3) all obligations of GSI to provide Services hereunder shall expire. 11.4 Kash n' Karry Termination without Cause. (a) Subject to the other provisions of this Agreement, Kash n' Karry may terminate this Agreement on an "AT WILL" basis in Kash n' Karry's sole judgment upon at least 180 days prior written notice to GSI in accordance with Section 11.4(b) hereof. If Kash n' Karry terminates this Agreement prior to the expiration of the Term, other than pursuant to Section 11.3, Kash n' Karry agrees to pay GSI on the effective date of the termination, (1) the Termination Charges as specified in Schedule U, and (2) the Committed Costs. (b) The parties agree that the amounts determined in accordance with Sections 11.4(a)(1) and (2) constitute Kash n' Karry's sole and exclusive liability for such termination. In connection with any such termination, the parties agree that: (i) Kash n' Karry shall provide written notice of Kash n' Karry's desire to consider the effecting of such a termination, which shall request that GSI shall provide to Kash n' Karry a calculation of the Termination Charges and an estimate of the Committed Costs; (ii) GSI shall, within 30 days of GSI's receipt of Kash n' Karry's notice, prepare in good faith a written estimate of the Committed Costs and a calculation of the Termination Charges; and (iii) within 30 days after Kash n' Karry's receipt of such estimate, Kash n' Karry may elect to terminate this Agreement by delivering written notice to GSI, which notice shall state a date of termination that is at least 180 days, but no more than 240 days, from the date of such notice. 11.5 Extension of Termination Effective Date. In the event of a termination of this Agreement by GSI pursuant to Section 11.3, Kash n' Karry may extend the effective date of termination for a single period of not more than 180 days by delivering written notice of such extension to GSI not less than 60 days prior to the then scheduled termination date. 11.6 Termination Assistance. (a) Upon the expiration or termination of this Agreement, GSI shall cooperate with Kash n' Karry and shall assist with the 45 [Execution copy] orderly transfer of the services, functions and operations provided by GSI hereunder to another services provider or Kash n' Karry itself. Prior to termination or expiration of the Agreement, Kash n' Karry may request GSI in writing to perform, and in such event GSI shall perform (except in the event of a termination by GSI pursuant to Section 11.3), services in connection with migrating the work of Kash n' Karry to another services provider or Kash n' Karry itself ("Termination Assistance"). GSI shall provide Termination Assistance for so long as may be requested by Kash n' Karry to complete the transition, but in no event for more than four months after the effective date of termination or expiration of this Agreement. (b) Termination Assistance shall include, in addition to the performance of the Services in the manner set forth herein prior to termination or expiration of the Agreement, providing Kash n' Karry and its Affiliates and their agents, contractors and consultants as necessary with the following: (1) Pre-migration Services, consisting of the following: (A) freezing all noncritical Applications Software and Systems Software changes, (B) notifying all outside vendors of procedures to be followed during the turnover phase, (C) reviewing all Applications Software and Systems Software libraries (tests and production) with the new service provider and/or Kash n' Karry, (D) assisting in establishing naming conventions for the new production site, (E) analyzing space required for the databases and Applications Software and Systems Software libraries, (F) generating a tape and computer listing of the source code of any Applications Software or Systems Software owned by Kash n' Karry in a form reasonably requested by Kash n' Karry, and (G) promptly delivering the Procedures Manual and other documentation necessary to the performance of the Services. 46 [Execution copy] (2) Migration Services, consisting of the following, provided that in providing such migration services, GSI does not infringe any third party's rights: (A) unloading the production databases and any other proprietary data of Kash n' Karry, (B) delivering tapes of production databases (with content listings) to new operations staff, (C) assisting with the loading of the databases, (D) assisting with the telecommunications turnover, and (E) assisting in the execution of a parallel operation, until the effective date of expiration or termination of this Agreement. (3) Post-Migration Services, consisting of the following: (A) answering questions regarding the Services on an "as needed" basis, and (B) turnover of any remaining Kash n' Karry-owned reports, proprietary data and documentation still in GSI's possession. (c) In addition to the specific items listed in Section 11.6(b), GSI agrees to take other commercially reasonable actions requested by Kash n' Karry within 30 days after the expiration or termination of this Agreement to assist Kash n' Karry with the orderly transfer of the services, functions and operations provided by GSI hereunder to another service provider or Kash n' Karry itself; provided, however, that Kash n' Karry acknowledges and agrees that GSI is only providing transition assistance and is not ultimately responsible or liable for the completion of such transfer or its success. (d) Upon Kash n' Karry's written request, GSI shall provide Kash n' Karry with additional termination-related services after the expiration or termination of this Agreement, which services shall be chargeable to Kash n' Karry at GSI's then current commercially available rates for such services. (e) If any Termination Assistance provided by GSI requires the utilization of additional resources above the then current baseline, which GSI would not otherwise have utilized in the performance of Services immediately prior to the termination or expiration date, Kash n' Karry will pay GSI for such usage 47 [Execution copy] at GSI's then current commercially available costs for such services. 11.7 Other Rights Upon Termination. (a) In the event of a termination of this Agreement, and providing that Kash n' Karry pays Committed Costs, or, in the case of a termination by Kash n' Karry pursuant to Section 11.3 hereof, the portion of the Committed Costs specified therein, GSI shall sell, license, transfer and assign to Kash n' Karry all of its right, title and interest in the Assets acquired from Kash n' Karry and the hardware and software acquired by GSI during the Term and used in providing the Services to Kash n' Karry, and all rights and privileges of GSI under any unexpired hardware leases, software licenses and third party service contracts, to the extent necessary to allow Kash n' Karry to provide or procure an alternate supply source for the provision of the Services. Notwithstanding the foregoing, if any of the leased equipment, software or third party service contracts is not used by GSI exclusively for providing Services to Kash n' Karry, then GSI shall not be required to transfer title thereto to Kash n' Karry, but shall obtain such accommodations, sublicenses, or other authorizations from the applicable contract vendors as may be necessary to allow Kash n' Karry full use thereof in connection with the provision of the Services. GSI shall obtain, at its sole expense, all Required Consents to such assignments, accommodations, sublicenses or other authorizations; provided, however, that, prior to the Closing Date, Kash n' Karry shall obtain from each Contract vendor a firm quote for the cost to be charged by such vendor in connection with the reversion or other assignment to Kash n' Karry of such Contracts upon termination of this Agreement; and provided, further, that GSI shall not be required to transfer or assign any Asset to Kash n' Karry unless Kash n' Karry shall have obtained all Required Consents thereto, at GSI's expense. (b) For Applications Software and Systems Software proprietary to GSI and not otherwise owned by or licensed to Kash n' Karry in accordance with Article 9 and not generally commercially available, GSI will provide a license to Kash n' Karry for its internal use only upon terms and prices to be mutually agreed upon by the parties or, at Kash n' Karry's option, GSI will recommend a mutually agreeable and commercially available substitute to perform the same function. With respect to generally commercially available Applications Software, or with respect to generally commercially available Systems Software installed at Kash n' Karry's written request, if GSI has licensed or purchased and is using any such Applications Software or Systems Software in providing the Services to Kash 48 [Execution copy] n' Karry at the date of expiration or termination, GSI will assign all of GSI's right, title and interest in such Applications Software and Systems Software to Kash n' Karry, limited to the Services and the Projects subject to the terms of the applicable license, and Kash n' Karry will reimburse GSI for initial license or purchase charges for such Applications Software and Systems Software in an amount equal to the remaining unamortized cost of such Applications Software or Systems Software, if any, depreciated over a five year life, and pay any transfer fee or charge imposed by any applicable vendor. 11.8 Burden of Proof. For purposes of this Article 11, Section 3.10, and this Agreement, the burden of proving and substantiating the costs and expenses relating to the termination of this Agreement that qualify as Committed Costs, or for which GSI is otherwise entitled to be paid by Kash n' Karry, shall be on GSI. ARTICLE 12: LIABILITY 12.1 General Intent. (a) Except as and to the extent set forth in Section 12.2 below, upon the occurrence of an Event of Default by either party hereunder, the defaulting party will be fully and unconditionally liable to the nondefaulting party for any Losses incurred by the nondefaulting party as a result of the defaulting party's failure to perform its covenants and agreements in the manner required by this Agreement or as a result of the breach of any representation or warranty made by the defaulting party contained herein. (b) Without limitation of the foregoing, in the event of a breach by GSI of any representations or warranties contained herein and/or a failure by GSI to perform any of its covenants or agreements set forth in this Agreement which shall cause (y) a substantial impairment of Kash n' Karry's business operations at a Kash n' Karry retail grocery store or stores (individually, a "Store" and collectively the "Stores") for a period of 48 hours or more and (z) a substantial impact on Kash n' Karry's revenues at such Store or Stores, measured on a historical basis, then GSI agrees to pay to Kash n' Karry all Actual Losses (as defined in Section 12.2(b)) of every kind and character (for example, such as, but not limited to, Actual Losses arising from spoiled products, incorrect pricing, or increased employee expense) incurred by Kash n' Karry caused by or arising as a result of such breach or 49 [Execution copy] failure, subject to the FRF40,000,000/$7,300,000 limitation set forth in Section 12.2(b) hereof. 12.2 Limitations on Losses. (a) In no event shall either party have any liability, whether based on contract, tort (including, without limitation, negligence), warranty or any other legal or equitable grounds, for any consequential, indirect, incidental, special, punitive or exemplary damages (such consequential, indirect, incidental, special, punitive or exemplary damages shall be defined collectively herein as the "Consequential Losses") suffered by the other party, arising from or related to this Agreement, even if such party has been advised of the possibility of such losses or damages. (b) In no event shall GSI have any liability in excess of the sum of Forty Million French Francs (FRF40,000,000), nor shall Kash n' Karry have any liability in excess of the sum of Seven Million Three Hundred Thousand U.S. Dollars ($7,300,000), in each case calculated on a per event or per occurrence basis, whether based on contract, tort (including, without limitation, negligence), warranty or any other legal or equitable grounds, for actual or direct Losses (such actual or direct Losses shall be defined herein as the "Actual Losses"); provided, however, that the parties agree that the FRF40,000,000/$7,300,000 limitation set forth above in this Section 12.2(b) shall not apply to: (1) Any failure by Kash n' Karry or GSI to pay any amounts due and owing to the other pursuant to the terms of this Agreement; (2) Losses by either party for bodily injury or damage to real property or tangible personal property; (3) Claims for indemnification pursuant to Sections 14.1(a) or (d) or 14.2(a) or (d); or (4) Losses by either party due to the inaccuracy or untruthfulness of the representations and warranties by the other party in this Agreement, or the failure of the other party to perform the covenants and agreements set forth therein. (c) In no event will GSI or its Subcontractors be liable for any damages to Kash n' Karry if and to the extent caused by Kash n' Karry's failure to perform any of its agreements or covenants set forth in this Agreement, nor shall Kash n' Karry or its Subcontractors be liable to GSI for any damages if and 50 [Execution copy] to the extent caused by any failure to perform any or all of its agreements or covenants set forth in this Agreement by GSI or its Subcontractors. ARTICLE 13: WARRANTY 13.1 Work Standards. GSI represents and warrants that all Services performed by GSI for Kash n' Karry will be performed in a good and workmanlike manner in accordance with this Agreement, including, but not limited to, the Current Parameter. 13.2 Maintenance. GSI represents and warrants that it will maintain the Machines in accordance with the terms and conditions set forth in Schedule V or, if applicable, the Leases governing such Machines. 13.3 Claims. Kash n' Karry warrants that it has no actual knowledge or written notice of any actual or threatened claim or action by, on behalf of, or related to, any of the Affected Employees, including, but not limited to, claims arising under the Occupational Safety and Health Administration, Equal Employment Opportunity Commission, National Labor Relations Board or Fair Labor Standards Act, or other applicable federal, state or local laws or regulations, except as such claims or actions are identified in Schedule W. 13.4 Ownership of Kash n' Karry Machines. Kash n' Karry represents that Kash n' Karry is either the owner of each Kash n' Karry Machine or, subject to obtaining any Required Consent, is authorized by its owner to include it under this Agreement. 13.5 Noninfringement. The parties represent and warrant that they will perform their responsibilities under this Agreement in a manner that does not infringe, or constitute an infringement or misappropriation of, any patent, trade secret, copyright or other proprietary right of any third party. 13.6 Compliance with Obligations. Each party represents and warrants that its execution and delivery of, and performance of its obligations under, this 51 [Execution copy] Agreement does not violate or constitute a breach of any of its contractual obligations with third parties. 13.7 Warranties and Disclaimer. (a) GSI represents and warrants the following to Kash n' Karry: (1) GSI's dealings with Kash n' Karry under this Agreement will be fair and in good faith; (2) GSI, in its dealing with Kash n' Karry under this Agreement, will use honesty in fact and will observe reasonable commercial standards of fair dealing in GSI's trade; (3) As of the Closing Date, and thereafter during the Term, the equipment and goods selected by GSI (and not by Kash n' Karry) in providing the Services will be suitable and fit for the purposes of providing the Services under this Agreement. (b) GSI does not warrant the accuracy of any advice, report, data or other product delivered to Kash n' Karry which is produced with or from data and/or Applications Software provided or selected by Kash n' Karry. Such products are delivered AS IS, and GSI shall not be liable for any inaccuracy thereof; provided, however, that notwithstanding the foregoing, if such inaccuracy is due to the acts or omissions of GSI, GSI shall be fully liable to Kash n' Karry for all Losses caused thereby to Kash n' Karry in accordance with this Agreement. (c) EXCEPT AS PROVIDED IN THIS AGREEMENT, THERE ARE NO OTHER EXPRESS WARRANTIES AND THERE ARE NO IMPLIED WARRANTIES; provided, however, that nothing in this Section 13.7(c) is intended to disclaim the implied warranty of merchantability. 13.8 Authorization and Enforceability. Each party hereby represents that: (a) it has all requisite corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby; (b) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of each party; and 52 [Execution copy] (c) this Agreement has been duly executed and delivered by such party and (assuming the due authorization, execution and delivery hereof by the other party) is a valid and binding obligation of such party, enforceable against it in accordance with its terms, except as such enforceability is limited by principles of equity and by bankruptcy, insolvency end other laws affecting the rights of creditors generally. 13.9 Regulatory and Corporate Proceedings. Each party agrees to obtain all necessary regulatory approvals applicable to its business, obtain any necessary permits and Required Consents, and comply with any regulatory requirement or law applicable to the performance of the Services and their other respective obligations under this Agreement. ARTICLE 14: INDEMNITIES 14.1 Indemnity by GSI. Subject in all respects to the parties' agreements set forth in Section 12.2 hereof, GSI agrees to indemnify, defend and hold Kash n' Karry, its Affiliates and their respective officers, directors, employees, agents, successors and assigns harmless, in accordance with the procedures described in Section 14.4 from and against any and all Losses incurred by Kash n' Karry arising from or in connection with: (a) any claims of infringement made against Kash n' Karry of any United States or foreign letters patent, or any copyright, trademark, service mark, trade name or similar proprietary rights conferred by contract or by common law or by any law of the United States or any state, or any other country, alleged to have occurred because of equipment, systems, products or other resources or items provided to Kash n' Karry by GSI; provided, however, that GSI will have no obligation with respect to any Losses to the extent the same arise out of or in connection with Kash n' Karry's modification of a program or a machine or Kash n' Karry's combination, operation or use with devices, data or programs not furnished by GSI or its Subcontractors; (b) GSI's failure to perform any duties or obligations accruing on or after the Closing Date regarding the Contracts and/or agreements relating to lines and circuits in accordance with Section 3.3; (c) the inaccuracy or untruthfulness of any representation or warranty made by GSI under this Agreement; 53 [Execution copy] (d) any amounts, including but not limited to taxes, interest and penalties, assessed against Kash n' Karry which are obligations of GSI pursuant to Section 6.5; and (e) GSI's failure to perform any of its covenants, agreements, duties and obligations under this Agreement, including but not limited to the Schedules hereto. 14.2 Indemnity by Kash n' Karry. Subject in all respects to the parties' agreements set forth in Section 12.2 hereof, Kash n' Karry agrees to indemnify, defend and hold GSI, its Affiliates and their respective officers, directors, employees, agents, successors and assigns harmless, in accordance with the procedures described in Section 14.4, from and against any and all Losses, arising from or in connection with: (a) any claims of infringement made against GSI of any United States or foreign letters patent, or any copyright, trademark, service mark, trade name or similar proprietary rights conferred by contract or by common law or by any law of the United States or any state, or any other country, alleged to have occurred because of equipment, systems, products or other resources or items provided to GSI by Kash n' Karry hereunder; provided, however, that Kash n' Karry will have no obligation with respect to any Losses to the extent the same arise out of or in connection with GSI's modification of a program or a machine or GSI's combination, operation or use with devices, data or programs not furnished by Kash n' Karry or its Subcontractors; (b) Kash n' Karry's failure to perform any duties or obligations accruing prior to the Closing Date regarding the Contracts and/or agreements relating to lines and circuits in accordance with Section 3.3; (c) the inaccuracy or untruthfulness of any representation or warranty made by Kash n' Karry under this Agreement; (d) any amounts, including but not limited to taxes, interest and penalties, assessed against GSI which are obligations of Kash n' Karry pursuant to Section 6.5; and (e) Kash n' Karry's failure to perform any of its covenants, agreements, duties and obligations under this Agreement, including but not limited to the Schedules and the Schedules hereto. 54 [Execution copy] 14.3 Subrogation. In the event that an Indemnifying Party shall be obligated to indemnify an Indemnified Party pursuant to Sections 14.1 or 14.2, the Indemnifying Party shall, upon payment of such indemnity in full, be subrogated to all rights of the Indemnified Party with respect to the claims and defenses to which such indemnification relates. 14.4 Indemnification Procedures. (a) In the event a party shall consider itself to be entitled to indemnification from the other party in the absence of a Claim (as defined below), such party shall give written notice thereof to the party from whom indemnification is sought in accordance with the requirements of Section 14.1 and 14.2 hereof. If any Claim (as defined below) is threatened against a party or if any civil, criminal, administrative or investigative action or proceeding (any of the above being a "Claim") is commenced against any party entitled to indemnification hereunder (an "Indemnified Party"), written notice thereof shall be given to the party that is obligated to provide indemnification (the "Indemnifying Party") as promptly as practicable. After such notice, if the Indemnifying Party shall (i) acknowledge in writing to such Indemnified Party that this Agreement applies with respect to such Claim, and (ii) shall agree in writing to indemnify the Indemnified Party, the Indemnifying Party shall be entitled, if it so elects, in a written notice delivered to the Indemnified Party not fewer than ten days prior to the date on which a response to such Claim is due, to take control of the defense and investigation of such Claim and to employ and engage attorneys of its sole choice to handle and defend the same, at the Indemnifying Party's sole cost and expense. The Indemnified Party shall cooperate in all reasonable respects with the Indemnifying Party and its attorneys in the investigation, trial and defense of such Claim and any appeal arising therefrom; provided, however, that the Indemnified Party may, at its own cost and expense, participate, through its attorneys or otherwise, in such investigation, trial and defense of such Claim and any appeal arising therefrom. No settlement of a Claim (y) that involves a remedy other than the payment of money by the Indemnifying Party or (z) that shall result in other than a full, final and complete release (in form, scope and substance reasonably satisfactory to the Indemnified Party) of the Indemnified Party, shall be entered into without the consent of the Indemnified Party, which consent will not be unreasonably withheld or delayed. 55 [Execution copy] (b) After notice by the Indemnifying Party to the Indemnified Party of its election to assume full control of the defense of any such Claim and the execution of an agreement reasonably satisfactory to the Indemnified Party wherein the Indemnifying Party agrees to indemnify the Indemnified Party, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses (including disbursements) incurred thereafter by such Indemnified Party in connection with the defense of that Claim. If the Indemnifying Party does not assume full control over the defense of a Claim subject to such defense as provided in this Section 14.4, the Indemnifying Party may participate in such defense, at its sole cost and expense, and the Indemnified Party shall have the right to defend the Claim in such manner as it may deem appropriate, at the cost and expense of the Indemnifying Party. ARTICLE 15: INSURANCE AND RISK OF LOSS 15.1 Insurance. When this Agreement requires performance by GSI's or Kash n' Karry's employees, invitees or agents on the other party's premises, the performing party shall (i) carry and maintain workers compensation and employers' extended coverage liability insurance covering its employees, invitees or agents engaged in such performance in amounts no less than required by law in the applicable location; (ii) cause such employees, invitees or agents to abide by the workplace rules of the other party; and (iii) cause such employees, invitees or agents to comply with any and all applicable federal, state and local laws, rules and regulations. 15.2 Risk of Loss. Kash n' Karry is responsible for risk of loss of, or damage to, the Machines and the Point of Sale Machines located on its premises unless such damage is caused by the negligence or willful misconduct of GSI. GSI is responsible for risk of loss of, or damage to, the Machines located in the Building or on the premises of the Data Center unless such damage is caused by the negligence or willful misconduct of Kash n' Karry. ARTICLE 16: PUBLICITY Each party will submit to the other all advertising, written sales promotions, press releases and other publicity matters relating to this Agreement in which the other party's name or mark is mentioned or language from which the connection of said name or 56 [Execution copy] mark may be inferred or implied, and will not publish or use such advertising, sales promotions, press releases, or publicity matters without prior written approval of the other party. Provided it is done in good taste and not in violation of any SEC regulations, either party may include the other party's name and a mutually agreed upon factual description of this Agreement (but no financial information regarding the Agreement) on Employee Bulletin Boards, in its list of references and in the experience section of proposals to third parties, in internal business planning documents and in its Annual Report to Stockholders, and whenever required by reason of legal, accounting or regulatory requirements. ARTICLE 17: REVIEW COMMITTEE AND DISPUTE RESOLUTION 17.1 Joint Advisory Committee. GSI and Kash n' Karry agree to create a Joint Advisory Committee consisting of the National Director of GSI, the GSI Project Executive, the Chief Executive Officer of Kash n' Karry, and the Chief Financial Officer of Kash n' Karry. The Joint Advisory Committee will: (a) conduct quarterly reviews of the progress on Projects; (b) annually review the operating and strategic plans prepared by GSI's Project Executive; (c) review, on an annual basis, performance objectives and measurements; (d) provide advice and direction on technology changes; (e) attempt to resolve disputes between the parties; and (f) undertake such other actions and perform such other tasks as may be agreed upon by the parties in furtherance of this Agreement. Either party may bring other individuals to the meetings of the Joint Advisory Committee, such as consultants or employees, as may be mutually agreed upon by the parties. 17.2 Dispute Resolution. (a) Except as set forth in Section 17.2(d) and Section 17.2(e) below, any dispute between the parties either with respect to the interpretation of any provision of this Agreement or with 57 [Execution copy] respect to the performance by GSI or by Kash n' Karry hereunder shall be resolved as specified in this Section 17.2. (1) Upon the written notice of either party, the Joint Advisory Committee will meet within five days. (2) For a period of 30 days following such initial meeting, the designated representatives shall meet no less than bi-weekly (and such meetings may be by telephone) in order to gather and furnish to the other all information with respect to the matter at issue which the parties believe to be appropriate and germane in connection with its resolution. (3) Such representatives shall discuss the problem and negotiate in good faith during such 30 day period in an effort to resolve the dispute without the necessity of any formal proceeding relating thereto. (4) During the course of such negotiation, all reasonable requests made by one party to the other for non- privileged information reasonably related to this Agreement will be honored in order that each of the parties may be fully advised of the other's position. (5) The specific format for such discussions will be left to the discretion of the designated representatives but may include the preparation of agreed upon statements of fact or written statements of position furnished to the other party. (b) If the designated representatives cannot resolve the dispute on or before the expiration of such 30 day period, then the dispute shall be promptly escalated to the Chairman of the Board of Kash n' Karry and the President of Facility Management for GSI, for their review and resolution within ten days after the expiration of such 30 day period. If the dispute cannot be resolved by such officers within such ten day period, then the parties may initiate arbitration proceedings in accordance with Section 17.2(c) hereof. (c) Any dispute between the parties that is not resolved within the timeframe set forth in Sections 17.2(a) and (b) may be resolved by nonbinding arbitration in accordance with the provisions of the American Arbitration Association. Such arbitration may be held in any state in the continental United States, except for the State of Florida. Either party may initiate a proceeding in arbitration by giving notice to the other of its choice of a qualified arbitrator, together with a statement of the claim, the facts that support that claim 58 [Execution copy] and the relief requested. The responding party shall, within 15 days, state its defenses and/or counterclaims, together with a statement of the facts that support the defenses or counterclaims and, in the case of counterclaims, the relief requested. Additionally, the responding party shall state whether the proposed arbitrator is acceptable. In the event the proposed arbitrator is unacceptable, the parties shall make a good faith effort to agree on another qualified individual to serve as a single arbitrator. If the parties cannot agree on a single arbitrator within 15 days, each party shall designate an arbitrator and those two arbitrators shall select a qualified neutral third arbitrator to serve with them as an arbitration panel. (d) The parties agree that nothing in this Agreement and/or this Article 17 shall limit or prohibit in any way or shall be construed to limit or prohibit in any way any party from taking formal action (including, but not limited to, judicial action) to protect its interests: (1) if GSI shall have stopped providing Services that are critical to Kash n' Karry's core operations and such cessation shall have continued unremedied for 24 hours after Kash n' Karry shall have notified GSI in writing (in accordance with Section 18.14) that such cessation constitutes an emergency; or (2) in the event that GSI shall reasonably believe that GSI is in danger of suffering immediate Losses or immediate irreparable harm as a result of the actions or failure to act by Kash n' Karry, and such actions or failure to act shall continue unremedied for 24 hours after GSI shall have notified Kash n' Karry in writing (in accordance with Section 18.14) of such danger. (e) The parties further agree that nothing in this Agreement and/or this Article 17 shall limit or prohibit in any way or shall be construed to (i) limit or prohibit in any way any party from providing notice to the other of a breach of this Agreement, except as expressly provided in Section 11.1 hereof or (ii) limit the operation of Article 11 hereof. The parties agree that in the event of a conflict between the terms and conditions of Article 11 and this Article 17, the terms and conditions of Article 11 shall control and govern. 17.3 Continued Performance. Both parties agree to continue performing their respective obligations under this Agreement (including, without limitation, GSI's obligation to perform Services, and Kash n' Karry's 59 [Execution copy] obligation to make payments in accordance with Article 7) while the dispute is being resolved in accordance with this Article 17, unless and until such obligations are terminated after dispute resolution or expire in accordance with the provisions hereof. The parties agree that in the event of a conflict between this Section 17.3 and any other provision of this Agreement, the provision of this Section 17.3 shall control and govern. ARTICLE 18: GENERAL 18.1 Control of Services. This Agreement shall not be construed as constituting either party as partner of the other or to create any other form of legal association that would impose liability upon one party for the act or failure to act of the other or as providing either party with the right, power or authority (express or implied) to create any duty or obligation of the other party. Each party shall be responsible for the management, direction and control of its employees, and such employees shall not be employees of the other party. Except where this Agreement expressly provides that GSI will perform certain identified Services as agent for Kash n' Karry, the Services will be under the control, management and supervision of GSI. 18.2 Right to Perform Services for Others. Each party recognizes that GSI personnel providing Services to Kash n' Karry under this Agreement may perform similar services from time to time for others, and, subject to the provisions of Section 18.20, this Agreement shall not prevent GSI from using the personnel and equipment used to provide Services to Kash n' Karry under this Agreement for such purposes. Subject to the provisions of Section 4.1, GSI may perform its obligations by use of its Affiliates, or through the use of GSI-selected Subcontractors; provided, however, that GSI shall not be relieved of its obligations under this Agreement by use of such Affiliates or Subcontractors. 18.3 Scope of Services. The Services provided under this Agreement relate to Machines and facilities located within the United States. 18.4 Amendments. (a) Any changes or modifications to this Agreement may be made only by a written amendment signed by both parties, executed 60 [Execution copy] and delivered, as to Kash n' Karry, by either its Chief Executive Officer or its the Chief Financial Officer. (b) On each anniversary of the Commencement Date throughout the Term, the parties agree to bear their own expenses of reviewing this Agreement in view of the actual conduct of the parties over the preceding 12 months and of revising the terms of this Agreement so that the written terms of this Agreement conform to and reflect the parties' actual conduct. 18.5 Force Majeure. (a) Neither party shall be liable for any default or delay in the performance of its obligations hereunder if and to the extent such default or delay is caused, directly or indirectly, by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions or revolutions in the United States, or any other similar cause beyond the reasonable control of such party (individually, each being a "Force Majeure Event"). (b) In such event, the nonperforming party will be excused from any further performance or observance of the obligation(s) so affected for as long as such circumstances prevail and such party continues to use all commercially reasonable efforts to recommence performance or observance whenever and to whatever extent possible without delay. Any party so delayed in its performance will immediately notify the other by telephone (to be confirmed in writing within five days of the inception of such delay) and describe at a reasonable level of detail the circumstances causing such delay. (c) If any Force Majeure Event substantially prevents, hinders, or delays performance of the Services and GSI fails to provide disaster recovery services at its primary disaster recovery facility designated for Kash n' Karry in accordance with Section 4.12 and Schedule P (unless such failure to provide such disaster recovery services is as a direct result of the Force Majeure Event, which circumstance is governed by Section 18.5(d) hereof), Kash n' Karry may procure such disaster recovery services from an alternate source (and shall provide written notice thereof from Kash n' Karry to GSI) and GSI will pay or reimburse Kash n' Karry for all costs incurred by Kash n' Karry in procuring such disaster recovery services for up to 180 days. If the Services shall not have been restored by the end of this 180 day period, this Agreement shall automatically terminate unless extended by mutual written agreement of the parties. In such event, Kash n' Karry's obligations to GSI hereunder in respect of such termination shall be as set forth in Section 11.3(b). 61 [Execution copy] (d) If any Force Majeure Event affects both the Data Center and GSI's primary disaster recovery facility designated for Kash n' Karry (thereby preventing the delivery to Kash n' Karry of disaster recovery services in accordance with Section 4.12 and Schedule P), and substantially prevents, hinders or delays performance of the Services, then: (1) Kash n' Karry may procure such disaster recovery services from an alternate source (after written notice from Kash n' Karry to GSI) for 20 days, which shall be at Kash n' Karry's sole cost and expense; and (2) Beginning on the 21st day after failure by GSI to deliver disaster recovery services in accordance with Section 4.12 and Schedule P due to the occurrence of the Force Majeure Event, if Services or disaster recovery services have not been restored by GSI by such date, GSI will pay or reimburse Kash n' Karry for all costs incurred by Kash n' Karry in procuring such disaster recovery services for up to 180 days. If Services shall not have been restored by the end of this 180 day period, this Agreement shall automatically terminate unless extended by mutual written agreement of the parties. In such event, Kash n' Karry's obligations to GSI hereunder in respect of such termination shall be as set forth in Section 11.3(c). (e) This Section 18.5 does not limit or otherwise affect GSI's obligation to provide disaster recovery services in accordance with Section 4.12 and Schedule P. 18.6 Nonperformance. To the extent any nonperformance by either party of its obligations under this Agreement results from or is caused by the other party's failure to perform its obligations under this Agreement, such nonperformance shall be excused. 18.7 Remarketing. Kash n' Karry may not remarket all or any portion of the Services provided under this Agreement, or make all or any portion of the Services available to any party other than Kash n' Karry, without the prior written consent of GSI; provided, however, that nothing in this Agreement shall limit or prohibit or shall be construed to limit or prohibit: (a) Kash n' Karry's ability to enter into new areas or types of business not engaged in by Kash n' Karry on the Closing Date; 62 [Execution copy] (b) Kash n' Karry's ability to obtain data processing services or functions not covered by this Agreement from other providers of such services; (c) Kash n' Karry's ability to expand its business operations by the addition of additional retail grocery stores; (d) Kash n' Karry's ability to make acquisitions; or (e) subject to the provisions of Section 18.13, Kash n' Karry's ability to sell or otherwise divest itself of portions of its business operations. 18.8 Waiver. No action taken pursuant to this Agreement by either party shall be deemed to constitute a waiver by such party of compliance with any covenant or agreement contained herein unless the waiver is made expressly in writing signed by the waiving party, and such waiver of any breach of any provision of this Agreement shall not constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof. 18.9 Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and such provision shall be deemed to be restated to reflect the original intentions of the parties as nearly as possible in accordance with applicable law(s). 18.10 Counterparts. This Agreement shall be executed in duplicate counterparts. Each such counterpart shall be an original and both together shall constitute but one and the same document. 18.11 Governing Law. This Agreement shall be governed by the laws of the State of Florida as such laws are applied to contracts which are entered into and performed entirely within the State of Florida including the conflicts of law principles thereof. Except as provided in Section 17.2(c) with respect to venue for arbitration, the sole and exclusive venue for any litigation or informal dispute resolution shall be Hillsborough County, Florida. GSI, and any Affiliate of GSI rendering Services under this Agreement, agree to appoint CT Corporation or equivalent corporate service agent in Florida as its agent for purposes of service of process. 63 [Execution copy] 18.12 Nondisturbance and Attornment. (a) Without the prior written consent of Kash n' Karry, GSI shall not enter into any equipment lease in respect of, or grant a security interest in, any GSI End User Machines, unless the equipment lessor, secured party or other lender shall agree (1) to provide to Kash n' Karry written notice of, and an opportunity to cure, any default or event of default by GSI under such equipment lease, security agreement or obligation secured thereby, (2) not to disturb Kash n' Karry from the use and possession of such GSI End User Machines, so long as no event of default shall occur and continue following the expiration of Kash n' Karry's cure period, and (3) to consent to the assignment by GSI to Kash n' Karry, upon termination of this Agreement, of its rights and privileges under any such equipment lease and its right, title and interest in any such GSI End User Machines (subject to the interest of such equipment lessor or secured party). (b) GSI hereby acknowledges and consents to the lien upon the rights and privileges of Kash n' Karry under this Agreement to secure the obligations of Kash n' Karry to The CIT Group/Business Credit, Inc., as Administrative Agent, under that certain Credit Agreement dated as of December 29, 1994, and any obligations hereafter created by Kash n' Karry to refinance such obligations. Notwithstanding any contrary provision in Section 18.13, GSI consents to an assignment by Kash n' Karry of its rights and privileges hereunder to any such secured party following the occurrence of an event of default by Kash n' Karry under such secured obligations. 18.13 Binding Nature and Assignment. (a) This Agreement will be binding on the parties and their respective successors and permitted assigns. Neither party may, or will have the power to, assign its rights and obligations under this Agreement without the prior written consent of the other, which will not be unreasonably withheld. (b) Notwithstanding anything to the contrary contained in Sections 18.13(a) and 19.1, either party may assign its rights and obligations under this Agreement, without the approval of the other, to an Affiliate which expressly assumes, pursuant to a written agreement in form, scope and substance reasonably satisfactory to the other party, this Agreement and such party's obligations and responsibilities hereunder, provided that the assigning party remains jointly and severally liable for the performance of all obligations under this Agreement with the assignee and the assignor shall not be relieved from the full performance of all obligations under this Agreement. 64 [Execution copy] (c) Notwithstanding anything to the contrary contained in this Section 18.13, but subject to the provisions of Section 19.1, either party may assign this Agreement without the prior written consent of the other party to an entity which acquires all or substantially all of the assets of such party, so long as: (1) the assignee shall have a net worth, determined in accordance with generally accepted accounting principles, consistently applied, after giving effect to such assignment, equal to or greater than the assignor's net worth immediately prior to such assignment; and (2) the assignee shall expressly assume the assignor's obligations and responsibilities hereunder from and after the date of assignment. (d) Any attempted assignment that does not comply with the terms of this Article shall be null and void. Any party assigning its rights or obligations in accordance with Sections 18.13(b) or (c) shall, within three days of such assignment, provide written notice thereof to the other party together with a copy of the assignment instrument. 18.14 Notices. Under this Agreement, whenever one party is required or permitted to give notice to the other, such notice will be deemed given when delivered in hand, one day after being given to a national express courier with a reliable system for tracking delivery, or three days after the day of mailing, when mailed by United States mail, registered or certified mail, return receipt requested, postage prepaid (regardless of whether the return receipt is subsequently received), or when sent by facsimile and thereafter delivered by one of the foregoing methods of delivery. and addressed as follows: (a) For notices called for by Sections 4.1 (Personnel); 4.5(b) (Change Control); 5.4 (Kash n' Karry Responsibilities); 6.3 (New Services); 6.4 (Reduced Services); Article 10 (Confidentiality); Article 11 (Termination); Sections 14.4 (Indemnification); 17.2 (Dispute Resolution); 18.5 (Force Majeure) and 18.13 (Assignment), notify: In the case of GSI: GSI Project Executive 6401 Harney Road Tampa, FL 33610 Telephone: Facsimile: 65 [Execution copy] with a copy to: GSI General Counsel ___________________ ___________________ Facsimile: In the case of Kash n' Karry: Kash n' Karry Food Stores, Inc. P.O. Box 11675 Tampa, FL 33680 ATTN: Chief Executive Officer Telephone: Facsimile: with a copy to: _______________________ _______________________ _______________________ Telephone: Facsimile: (b) For all other notices: In the case of GSI: GSI Project Executive 6401 Harney Road Tampa, FL 33610 Telephone: Facsimile: In the case of Kash n' Karry: Kash n' Karry MIS Coordinator Kash n' Karry Food Stores, Inc. P.O. Box 11675 Tampa, FL 33680 Telephone: Facsimile: For notices described in (b) above, these may be delivered by computer transmission (e.g., electronic mail) in a format printable by the receiving party. If requested by the receiving party, the sending party will follow up any such computer transmission by 66 [Execution copy] delivering as soon as reasonably possible thereafter hard copy of such notice by United States mail to the recipient. These notices shall be deemed given on the date the computer transmission is made so long as hard copy is received by the sending party if requested. Either party hereto may from time to time change its address for notification purposes, or the person to whom such notice shall be given, by giving the other party prior written notice of the new address or addressee, and the date upon which such change will become effective. 18.15 No Third Party Beneficiaries. Except as specified in Article 12 with respect to either party's Subcontractors, the parties do not intend, nor will any clause be interpreted, to create in any third party, any obligations to, or benefit from, either GSI or Kash n' Karry. 18.16 Other Documents. (a) On or after the Effective Date and the date(s) of any amendments hereto and at the request of the other party, each party shall furnish to the other such certificate of its secretary or certified copy of resolutions of its Board of Directors as shall evidence that this Agreement or any amendment hereto has been duly executed and delivered on behalf of such party. (b) During the Term and at the reasonable request of the other party, each party shall furnish to the other a certificate stating that: (1) this Agreement is in full force and effect; and (2) that no Event of Default by either party shall have occurred and be continuing, or the respect in which any breach or default shall have occurred and be continuing. (c) The parties will execute and deliver or cause to be delivered such further documents, from time to time, as may reasonably be required for the purposes of assuring and confirming the rights hereby created, or for facilitating the performance of the terms of the Agreement; provided, however, that neither party shall be required to execute or deliver any document or agreement that will vary, waive, limit or release any of the terms hereof. (d) Subject to Kash n' Karry's obligations to its existing creditors, Kash n' Karry acknowledges and agrees that financing statements and related filings (including, without limitation, UCC-1 statements) may have to be executed and 67 [Execution copy] delivered by Kash n' Karry in connection with the provision by GSI of machines, equipment and software in performing the Services so as to evidence GSI's ownership of such items. GSI shall not be obligated to deliver any such machines, equipment and software to Kash n' Karry facilities unless and until such documents are executed and delivered by Kash n' Karry, and GSI shall not be responsible for any failure to provide the Services, including, without limitation, meeting of the Current Parameter, due to nondelivery of such items caused by Kash n' Karry's failure to execute and deliver such documents. GSI agrees that such documents shall be in form, scope and substance reasonably satisfactory to Kash n' Karry, and that no such documents shall vary, waive, limit or release any of the terms hereof, and agrees to provide any such documents for review and execution by Kash n' Karry a reasonable time prior to the time any material adverse impact upon the ability of GSI to provide the Services shall result from GSI's not receiving such documents from Kash n' Karry. 18.17 Limitation Period Upon Termination. Neither party may bring an action arising out of this Agreement more than three years after the expiration or earlier termination of this Agreement. 18.18 Headings. All headings herein, the table of contents and the index of defined terms are not to be considered in the construction or interpretation of any provision of this Agreement. This Agreement was drafted with the joint participation of both parties and shall be construed neither against nor in favor of either, but rather in accordance with the fair meaning thereof. 18.19 Noncompetition Agreement. Without Kash n' Karry's approval, GSI will not provide services similar to the Services described in this Agreement to any competing retail grocery chain within Kash n' Karry's market area as of the Commencement Date. 18.20 Severability of Contracts. It is the intent of the parties hereto that any and all of such changes, modifications, amendments, supplements, riders or restructuring or updating (collectively, the "Modifications") hereto shall constitute one and the same contract with this Agreement. The parties hereto agree that the Agreement, the Schedules and the Modifications shall constitute one single integrated contract and further agree that (i) the nature and 68 [Execution copy] purpose of the Agreement, the Schedules and the Modifications are the same, (ii) the consideration for the Agreement, the Schedules and the Modifications is not separate and distinct but is the same consideration, and (iii) the obligations of the parties hereto to the Agreement, the Schedules and the Modifications are interrelated. ARTICLE 19: BANKRUPTCY CONCERNS 19.1 Personal Services Contract. GSI acknowledges and agrees that Kash n' Karry is entering into the Agreement solely in reliance upon GSI's expertise in providing the Services. Accordingly, the parties agree that the Agreement constitutes a contract for the provision of personal services by GSI to Kash n' Karry and, in the event GSI is unable to or refuses to perform the Services or upon the occurrence of a Bankruptcy Event and if GSI does not perform the Services, Kash n' Karry shall not be required to accept performance of the Services by any party other than GSI. 19.2 Default in the Event of Bankruptcy and Post-Filing Bankruptcy Remedies for Non-Performance. If either GSI or Kash n' Karry (i) shall apply for, or consent in writing to, the appointment of a receiver, trustee or liquidator; or (ii) shall file a voluntary petition in bankruptcy or be unable, or admit in writing to the inability generally, to pay debts as they become due; or (iii) shall make a general assignment for the benefit of creditors; or (iv) shall file a petition or an answer seeking a reorganization or an arrangement or readjustment of debt with creditors, or take advantage of any insolvency, bankruptcy, liquidation or dissolution law of the United States or of any state or country; or (v) shall file an answer admitting the material allegations of a petition filed against it in any such bankruptcy, reorganization or insolvency proceedings (hereinafter, collectively, a "Bankruptcy Event"), then the following provisions shall take effect: (a) Upon the occurrence of a Bankruptcy Event as to GSI, then in order to protect the vital business interests of Kash n' Karry, GSI hereby consents in advance to the immediate entry of an order of the bankruptcy court having jurisdiction over its case, without the necessity of a hearing, which will provide for complete relief from the automatic stay in favor of Kash n' Karry. If the bankruptcy court declines to enter such an order without a hearing, GSI agrees that the circumstances warrant a hearing on an emergency basis and on short notice to GSI. For so long as no Event of Default by 69 [Execution copy] GSI shall have occurred and be continuing, then Kash n' Karry agrees not to proceed against the estate or assets of GSI in such bankruptcy case. If, however, GSI fails to perform all of its obligations under the Agreement following the occurrence of a Bankruptcy Event, then Kash n' Karry shall have all rights and remedies which are necessary to protect Kash n' Karry's business interests. (b) Upon the occurrence of a Bankruptcy Event as to Kash n' Karry, then in order to protect the vital business interests of GSI, Kash n' Karry hereby consents in advance to the immediate entry of an order of the bankruptcy court having jurisdiction over its case, without the necessity of a hearing, which will provide for complete relief from the automatic stay in favor of GSI. If the bankruptcy court declines to enter such an order without a hearing, Kash n' Karry agrees that the circumstances warrant a hearing on an emergency basis and on short notice to Kash n' Karry. For so long as no Monetary Event of Default by Kash n' Karry shall have occurred and be continuing, then GSI agrees not to proceed against the estate or assets of Kash n' Karry in such bankruptcy case. If, however, a Monetary Event of Default by Kash n' Karry shall have occurred and be continuing following the occurrence of a Bankruptcy Event, then GSI shall have all rights and remedies which are necessary to protect GSI's business interests. 19.3 Waiver of Automatic Stay In the event a bankruptcy case is commenced by or against either party hereto after the execution of this Agreement, then the automatic stay imposed by 11 U.S.C. 362 or any similar law,, and any rights to and injunction under 11 U.S.C. 105(a) or any similar law, shall be deemed automatically waived as to the other party with respect to the Agreement, the Schedule or any other documents executed in connection herewith. The Court with jurisdiction over any such bankruptcy case shall enter an order terminating the automatic stay without the necessity of a hearing, proof or evidence, upon motion made by the other party. Each of the parties hereto specifically agree and acknowledge that the lifting of the automatic stay hereunder by the appropriate bankruptcy court shall be deemed "for cause" pursuant to Section 362(d)(1) of the Bankruptcy Code. Each party also specifically agrees not to directly or indirectly oppose or otherwise defend against the other party's effort to gain relief from the automatic stay. This provision is not intended to preclude either party from filing for protection under any chapter of the Bankruptcy Code. The remedies prescribed in this paragraph are not exclusive and shall not limit a party's rights under the Agreement or under any law. All of the above terms and conditions have been freely bargained for and are all supported by reasonable and adequate consideration and the 70 [Execution copy] provisions herein are a material inducement for each party to enter into this Agreement. ARTICLE 20: NEW CLIENT INCENTIVES It is GSI's intention to provide services to new clients from the Data Center. With respect to any new clients introduced to the Data Center, then provided that Kash n' Karry participates in such introduction, such as by providing references for GSI, GSI will pay to Kash n' Karry a one-time bonus payment (the "Data Center Bonus") equal to 3/10 of one percent (0.3%) of GSI's first year annual services charges to such new clients. The bonus will be due and payable six months after commencement of GSI's services to such new clients. With respect to any new clients introduced to GSI by Kash n' Karry, regardless of whether such services will be provided from the Data Center or otherwise, GSI will pay to Kash n' Karry a bonus payment (the "Introduction Bonus") equal to one-half of one percent (0.5%) of the annual services charges payable by such new clients for the first two years of such service. Such bonus payments will be due and payable in two equal installments, the first of which will be due and payable six months after the commencement of services to such new client, and the second of which will be due and payable six months after the first year anniversary of such commencement If Kash n' Karry introduces a new client to GSI for which GSI provides services from the Data Center, GSI shall pay the Introduction Bonus to Kash n' Karry, and not the Data Center Bonus. THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. FURTHER, THE PARTIES AGREE THAT THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES RELATING TO THIS SUBJECT SHALL CONSIST OF 1) THIS AGREEMENT, AND 2) THE SCHEDULES, INCLUDING THOSE MADE EFFECTIVE BY THE PARTIES IN THE FUTURE. THIS STATEMENT OF THE AGREEMENT SUPERSEDES ALL PROPOSALS OR OTHER PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER DESCRIBED IN THIS AGREEMENT. Accepted by: Accepted by: GSI Outsourcing Corporation Kash n' Karry Food Stores, Inc. By: /s/ Jacques Szulevicz By: /s/ Ronald E. Johnson Authorized Signature Authorized Signature By: /s/ Philippe Guionnet By: /s/ R. P. Springer Authorized Signature Authorized Signature R. P. Springer Executive Vice President 20/WL/LWH/KNK.SEC/S1.95/EX-10-5A.ASC 71 SCHEDULE A Annual Services Charge See Annex "1" attached SCHEDULE A 1-Mar-95 DOLLARS ROUNDED OOO NOTES CY 1995 CY 1996 CY 1997 CY 1998 TOTAL BILL W/GSI 1 7,839 8,535 9,129 8,582 CY 1999 CY 2000 CY 2001 CY 2002 CY 2003 CY 2004 10 Years 8,284 7,577 7,380 7,182 6,985 6,590 78,083 NOTES 1.) CY 1996 - 150 OF THE 8,535 TO BE PAID WHEN A NEW PROCUREMENT & BILLING SYSTEM IS INSTALLED ON THE MAINFRAME, OR IF EARLIER BUT IN NO EVENT TO BE PAID PRIOR TO 08/15/1995 SCHEDULE B Current Parameter To be provided prior to Closing Date SCHEDULE C Data Network Schematic To be provided prior to Closing Date SCHEDULE D Leased Machines To be provided prior to Closing Date SCHEDULE E Licenses To be provided prior to Closing Date SCHEDULE F Machine Leases To be provided prior to Closing Date SCHEDULE G Maintenance Contracts To be provided prior to Closing Date SCHEDULE H MIS Budget To be provided prior to Closing Date SCHEDULE I Owned Machines To be provided prior to Closing Date SCHEDULE J Point of Sale Machines To be provided prior to Closing Date SCHEDULE K Projects - General Kash n' Karry has committed to support: . The effort of GSI to significantly off-load the processes which are on the SUN equipment as long as a "Network" and office support system remains in place. . A complete freeze on all systems except for maintenance to actual errors in the systems. . That all modifications and/or development of systems will be billed on a time and materials basis at a rate not to exceed the published price of ISSC (pricing list to be attached). . That Kash n' Karry will formulate emergency manual procedures for all systems. SCHEDULE K-1 Point of Sale Project GSI has committed to provide a Point of Sale System which: . Will be, at a minimum, new 4690 IBM configurations or equivalent in performance/functionality. . Will include, at a minimum, the IBM Supermarket Application (or its equivalent), the IBM EFT feature (or its equivalent) and current Check Authorization functionality used at Kash n' Karry. . Will require GSI to provide all construction and electrical requirements, per manufacturer specifications. Kash n' Karry will be responsible for providing all construction work, cabling, and electrical wiring in a timely manner, will pay for said work, and comply with GSI and manufacturer specifications. GSI will install new POS systems after Kash n' Karry has installed and modified each store to these specifications. . Will be delivered to 73 sites replacing current ICL systems, and 26 sites at which current IBM systems will be upgraded. . Will include, at a minimum, a polling solution which matches current functionality. . Will require GSI to provide training for the designated Kash n' Karry trainers, and the subsequent review of the training performed by the Kash n' Karry trainers. These Kash n' Karry trainers will be responsible for training results, with GSI assistance, such as trainee willingness to learn, training assimilation measures, and timing. . Will be implemented in at least 43 sites by 12/31/95, and will be completely implemented by 6/30/96. Failure by GSI to complete at least 43 installations by 12/31/95, for any reason other than the failure by Kash n' Karry to fulfill its obligations under the Agreement, shall constitute an Event of Default by GSI under the Agreement. . Will require Kash n' Karry to train and provide at least one "super user" of the new system in each store, available at all times, in particular during pre- installations, training, installations, system modifications, problem reporting, trouble-shooting, etc. . Will require GSI to provide maintenance support for all ICL sites starting no later than 4/1/95, and for all new system sites as implemented. . Will be installed with the collaboration and involvement of the Kash n' Karry "champions" as related to this project. . Will allow GSI and Kash n' Karry to mutually agree in order to change the installation schedule for any reason. . Planning assumptions - 1 pilot installation in May 1995 close to Harney Road, 2 store installations in June 1995, and 8 store installations per month in July, August, September, October, and November 1995. Operating assumptions - stores will be closed between the hours of 10 p.m. and 8 a.m., and installations may occur any day except Saturday. K-1 - Page 2 SCHEDULE K-2 Polling Solution Project See Schedule K-1. SCHEDULE K-3 Procurement and Billing System Project (Merchandise System) GSI has committed to provide a new Merchandise System which: . Will be acquired from WorldWide Chain Store Systems (WCSS) or an equivalent system from another provider. . Will be implemented by the end of the 4th calendar quarter of 1995. . Will include WCSS Purchasing Management System (or its equivalent), and WCSS Store Order Management System (or its equivalent). . Will be a "vanilla" installation of these products. "Vanilla" in this context means only standard parameters and that no program modifications will be made to the software that is acquired from the supplier of the software. . Will be a version of the software release provided by the supplier to the general marketplace, under VSAM, and includes a Kash n' Karry commitment to a complete "freeze" on all modifications to the existing Kash n' Karry Merchandising System during the implementation of the new systems except for those "fixes" that are required to continue normal computer operations. . Will be reviewed by GSI to make its best effort to establish an interface between it and any "existing functions" that the CEO of Kash n' Karry requests GSI to review from the current Merchandising System. . Will be installed with the collaboration and involvement of the Kash n' Karry "champions" as relates to this project. . Will require GSI to provide Training for the designated Kash n' Karry trainers and the subsequent review of the training results. These Kash n' Karry trainers will be responsible for training results, with GSI assistance, such as trainee willingness to learn, training assimilation measures, and timing. . Will be kept on a maintenance agreement between GSI and the provider of the software system, under its standard maintenance contract. SCHEDULE K-4 Merchandising Accounts Payable Project GSI has committed to provide a new Merchandise Accounts Payable System which: . Will be implemented by the end of calendar 1996. . Will be reasonably equivalent to the existing system. . Will require that there is a complete "freeze" on all modifications to the existing Kash n' Karry Merchandising Accounts Payable system during the implementation period, except for "fixes" which are required to continue normal computer operations. SCHEDULE K-5 Labor Tracking and Scheduling Project GSI has committed to provide a Store Level Labor Tracking and Scheduling System: . Labor Tracking will be implemented as part of the rollout of P.O.S. equipment. . Scheduling will be implemented by the end of the 1st calendar quarter of 1996 for those stores installed in 1995. . Scheduling for the remaining stores will be implemented by the 3rd calendar quarter of 1996. . That will be, at a minimum, equal to the current systems acquired by Kash n' Karry for their IBM 4680 installations. SCHEDULE L Retained Contracts To be provided prior to Closing Date SCHEDULE M Supporting Data To be provided prior to Closing Date SCHEDULE N Transition Plan To be provided prior to Closing Date SCHEDULE O Affected Employees To be provided prior to Closing Date SCHEDULE P Disaster Recovery Plan To be provided prior to Closing Date SCHEDULE Q Help Desk To be provided prior to Closing Date SCHEDULE R GSI Corporate Structure To be provided prior to Closing Date SCHEDULE S GSI Wire Transfer Instructions To be provided prior to Closing Date SCHEDULE T Confidential Information Obligations To be provided prior to Closing Date SCHEDULE U Termination Charges See Annex "1" attached hereto SCHEDULE U 28-Feb-95 DOLLARS ROUNDED OOO NOTES CY 1995 CY 1996 CY 1997 CY 1998 KNK TERMINATION CHARGES 2,700 2,600 2,500 1,900 CY 1999 CY 2000 CY 2001 CY 2002 CY 2003 CY 2004 1,300 900 500 200 0 0 SCHEDULE V Maintenance To be provided prior to Closing Date SCHEDULE W Claims To be provided prior to Closing Date EX-10 5 EXHIBIT 10.5(B) FOR S-1 FILING 5/1/95 [CONFORMED COPY] FIRST AMENDMENT TO SERVICES AGREEMENT This is the First Amendment to that certain Services Agreement dated as of March 1, 1995 (the "Services Agreement"), by and between Kash n' Karry Food Stores, Inc., a Delaware corporation ("Kash n' Karry"), and GSI Outsourcing Corporation, a Delaware corporation ("GSI"). TERMS In consideration of the mutual covenants and promises hereinafter set forth, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Staff. 1.1. Section 3.2(a) of the Services Agreement is hereby amended by deleting the second and third sentences and inserting the following in lieu thereof: Within 10 days prior to the Effective Employment Date (as hereinafter defined), GSI or its Subcontractors will offer, or cause to be offered, employment to those Kash n' Karry employees listed on Schedule O (the "Affected Employee"), as the same may be amended from time to time after the Closing Date to reflect changes in such personnel. Subject to the provisions of Section 3.2(b), such employment will become effective on the earlier of May 1, 1995, or the date that is 31 days after the Closing Date (the "Effective Employment Date"). 1.2. Section 3.2(b) of the Services Agreement is hereby amended by deleting the third sentence and inserting the following in lieu thereof: On or before the Effective Employment Date, Kash n' Karry will pay to such Transferred Employees all monies owed to them by reason of their employment with Kash n' Karry, on a prorata basis as of the Effective Employment Date. 1.3. GSI represents and warrants to Kash n' Karry that GSI is presently obtaining bids for workers compensation and employers' extended coverage liability insurance as required pursuant to Section 15.1 of the Agreement. GSI further covenants and agrees to obtain such coverage and to provide to Kash n' Karry a certificate of insurance on or before the Effective Employment Date (as defined in the Agreement). 2. Reconciliation of Service Charges During Transition Period. 2.1. Section 3.9 of the Services Agreement is hereby deleted in its entirety, and the following is hereby inserted in lieu thereof: (a) On the Closing Date, all payment obligations and liabilities under the Contracts and all other costs and expenses associated with the provision of Services shall be apportioned between the parties as of the opening of business on the Commencement Date, it being understood that Kash n' Karry shall be responsible for any such obligations, liabilities, costs and expenses for all periods prior to the Commencement Date, and that GSI shall be responsible for any such obligations, liabilities, costs and expenses for all periods commencing on and after the Commencement Date. To the extent that Kash n' Karry pays any costs and expenses associated with the provision of Services during the Transition Period, such amounts shall be credited against the portion of the Annual Service Charge for 1995 that is payable by Kash n' Karry on the Closing Date pursuant to Section 7.1 hereof. On or before the Closing Date, Kash n' Karry will submit to GSI an itemized list of all such costs and expenses paid by Kash n' Karry through the most recent practicable date prior to the Closing Date (the "Itemized Costs"). From time to time after the Closing Date, the parties agree to make such further adjustments between them as may be necessary to properly allocate the payment obligations and liabilities under the Contracts, and all other costs and expenses associated with the provision of Services hereunder, between the parties as of the Commencement Date. Without limitation of the foregoing, if, following the Closing Date, Kash n' Karry incurs additional costs and expenses in connection with the provision of Services on and after the Commencement Date (including, without limitation, the costs and expenses of employing the Affected Employees through the Effective Employment Date), GSI will reimburse Kash n' Karry for such costs and expenses promptly upon receipt from Kash n' Karry of an itemized statement thereof. During the three month period following the Closing Date, GSI shall have the right to review the books and records of Kash n' Karry, during normal business hours, for purposes of auditing the Itemized Costs and any additional reimbursable costs and expenses of Kash n' Karry. 2 (b) Prior to and from time to time after the Closing Date, the parties agree to negotiate in good faith any adjustments to the Annual Services Charge attributable to any Retained Contracts, costs relating to assigning the Assets, material costs and liabilities not disclosed in the MIS Budget, and any costs reallocated between the parties pursuant to negotiations during the Transition Period. 2.2. Section 7.1 of the Services Agreement is hereby amended by deleting the third sentence and inserting the following in lieu thereof: Provided, however, the Annual Services Charge for 1995 will be due and payable as follows: (a) an amount equal to the sum of the following will be payable by Kash n' Karry on the Closing Date: (i) the portion of the Annual Services Charge for 1995 allocable to the Transition Period, prorated on a per diem basis, minus (ii) the total amount of Itemized Costs paid by Kash n' Karry pursuant to Section 3.9(a) hereof; (b) an amount equal to 1/12th of the total Annual Services Charge for 1995, prorated on a per diem basis for the period from and including the Closing Date to the last day of such month, will be payable by Kash n' Karry on the Closing Date; and (c) the portion of the Annual Services Charge for 1995 allocable to the period commencing on the first day of the month next succeeding the Closing Date will be payable in equal installments prorated over the number of remaining months in 1995. For example, if (i) the Closing Date occurs on April 1, 1995, (ii) the total Annual Services Charge for 1995 is $7,839,000, and (iii) the Itemized Costs are $1,500,000, then: -- The sum of $459,750 would be payable by Kash n' Karry on April 1, 1995, pursuant to clause (a) above ($1,959,750 - $1,500,000 = $459,750); -- The sum of $653,250 would be payable by Kash n' Karry on April 1, 1995, pursuant to clause (b) above; and _________________ 1 ($7,839,000/12) X 3 = $1,959,750 3 -- The sum of $5,226,000 would be payable by Kash n' Karry in equal monthly installments of $653,250 each commencing on May 1, 1995, and on the first day of each month thereafter, through and including December 1, 1995. 3. Appointment of GSI as Paying Agent. 3.1. Section 3.4(a) is hereby amended by adding the following to the end thereof: For example, and without limitation of the foregoing, Kash n' Karry may appoint GSI as its paying agent with respect to any such given Contract, in which event GSI will have such rights and obligations with respect to such Contract and the equipment and Applications Software covered thereby as if it were a Retained Contract described in Section 3.4(b); provided, however, in such event, no adjustment would be made to the Annual Services Charge by reason of the appointment by GSI as paying agent, a subsequent assignment to GSI of all rights and privileges of Kash n' Karry thereunder, the termination by GSI of the Contract, or the achievement by GSI of cost-savings in managing any such Contracts in connection with the performance of Services hereunder.. 3.2. Section 3.4(b) is hereby amended by adding the following clause to the beginning of the first sentence thereof: Except as provided in Section 3.4(a) with respect to Contracts for which GSI is appointed as paying agent, 3.3. Kash n' Karry is a party to contracts with IBM Corporation governing certain Kash n' Karry Machines and certain Assets and, at the Closing, will appoint GSI as its paying agent with respect to the contracts governing the Assets identified on Annex I to Schedule D. Until such time as Kash n' Karry is able to obtain segregated invoices from IBM reflecting charges allocable only to the Kash n' Karry Machines, GSI also agrees to serve as paying agent with respect to the Kash n' Karry Machines as set forth on Exhibit 1 attached hereto and to submit monthly invoices to Kash n' Karry reflecting such charges, and Kash n' Karry agrees to reimburse GSI upon receipt of an invoice for such charges. 4. Hand Held Scanners. The parties acknowledge and agree that GSI is not required, as part of the Services rendered under the Agreement, to replace any obsolete MSI hand-held scanners currently being utilized in the Kash n' Karry retail locations, notwithstanding the assumption by GSI of Kash n' Karry's payment obligations under the maintenance contracts for such units. 4 5. Schedules. The parties acknowledge and agree that they are presently collaborating on the preparation of Schedule Q (Help Desk), and agree to finalize such schedule within three months after the Closing Date. 6. Incorporation. This First Amendment is hereby incorporated into and made a part of the Services Agreement as if fully set forth therein. Except as amended herein, the Services Agreement remains in full force and effect. In the event of any conflict between the provisions of the Services Agreement and the provisions of this First Amendment, the provisions of this First Amendment shall govern. IN WITNESS WHEREOF, the parties hereto have hereunto executed this First Amendment by and through their duly authorized officers on the day and year set forth below. KASH N' KARRY FOOD STORES, INC., a Delaware corporation By: /s/ R. P. Springer Name: Raymond P. Springer Title: SR VP - CFO GSI OUTSOURCING CORPORATION, a Delaware corporation By: /s/ Philippe Guionnet Name: P. Guionnet Title: VP 20/WL/LWH/KNK.SEC/S1.95/EX-10-5B.ASC 5 SCHEDULE? GSI acts as the paying agent for Kash n' Karry on IBM invoices. Kash n' Karry will be re- invoiced monthly for: RX $ 4,876.16 Financing Charge 19,434.00 Capital Lease Equipment 14,426.00 Volume Purchase Agreement 6,128.00 Total $44,864.16 Exhibit 1 EX-10 6 EXHIBIT 10.7(A) FOR S-1 FILING 5/1/95 (As adopted by the Board on 3/9/95) KASH N' KARRY FOOD STORES, INC. 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN TABLE OF CONTENTS 1. Purpose.. . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Definitions.. . . . . . . . . . . . . . . . . . . . . . . 1 2.1. "Affiliate" . . . . . . . . . . . . . . . . . . . . 1 2.2. "Award" . . . . . . . . . . . . . . . . . . . . . . 1 2.3. "Award Agreement" . . . . . . . . . . . . . . . . . 1 2.4. "Board" . . . . . . . . . . . . . . . . . . . . . . 1 2.5. "Cause" . . . . . . . . . . . . . . . . . . . . . . 1 2.6. "Change of Control" . . . . . . . . . . . . . . . . 1 2.7. "Code" . . . . . . . . . . . . . . . . . . . . . . 2 2.8. "Committee" . . . . . . . . . . . . . . . . . . . . 2 2.9. "Common Stock" . . . . . . . . . . . . . . . . . . 2 2.10. "Company" . . . . . . . . . . . . . . . . . . . . . 2 2.11. "Date of Grant" . . . . . . . . . . . . . . . . . . 2 2.12. "Disability" . . . . . . . . . . . . . . . . . . . 2 2.13. "Eligible Director" . . . . . . . . . . . . . . . . 2 2.14. "Exchange Act". . . . . . . . . . . . . . . . . . . 2 2.15. "Fair Market Value" . . . . . . . . . . . . . . . . 2 2.16. "Involuntary Termination" . . . . . . . . . . . . . 3 2.17. "Non-Employee Director" . . . . . . . . . . . . . . 3 2.18. "Option" . . . . . . . . . . . . . . . . . . . . . 3 2.19. "Option Period" . . . . . . . . . . . . . . . . . . 3 2.20. "Original Stockholders" . . . . . . . . . . . . . . 3 2.21. "Plan" . . . . . . . . . . . . . . . . . . . . . . 3 2.22. "SEC" . . . . . . . . . . . . . . . . . . . . . . . 3 2.23. "Subsidiary(ies)" . . . . . . . . . . . . . . . . . 3 2.24. "Voluntary Termination" . . . . . . . . . . . . . . 3 2.25. "Voting Interest" . . . . . . . . . . . . . . . . . 4 3. Administration. . . . . . . . . . . . . . . . . . . . . . 4 3.1. The Committee.. . . . . . . . . . . . . . . . . . . 4 3.2. Plan Administration and Plan Rules. . . . . . . . . 4 3.3. Liability Limitation. . . . . . . . . . . . . . . . 4 4. Term of the Plan/Common Stock Subject to the Plan.. . . . 5 4.1. Term. . . . . . . . . . . . . . . . . . . . . . . . 5 4.2. Common Stock. . . . . . . . . . . . . . . . . . . . 5 5. Awards. . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.1. Type of Options.. . . . . . . . . . . . . . . . . . 5 5.2. Initial Awards. . . . . . . . . . . . . . . . . . . 5 5.3. Subsequent Awards.. . . . . . . . . . . . . . . . . 6 5.4. Exercise Price. . . . . . . . . . . . . . . . . . . 6 5.5. Method of Exercise. . . . . . . . . . . . . . . . . 6 5.6. Form of Payment.. . . . . . . . . . . . . . . . . . 6 5.7. Option Period.. . . . . . . . . . . . . . . . . . . 7 5.8. Right to Exercise.. . . . . . . . . . . . . . . . . 8 5.9. Limitation of Rights. . . . . . . . . . . . . . . . 8 5.10. Regulatory Approval.. . . . . . . . . . . . . . . . 8 i 6. Exercisability. . . . . . . . . . . . . . . . . . . . . . 8 7. Withholding.. . . . . . . . . . . . . . . . . . . . . . . 8 8. Changes in Capitalization and Other Matters.. . . . . . . 9 8.1. No Corporate Action Restriction.. . . . . . . . . . 9 8.2. Recapitalization Adjustments. . . . . . . . . . . . 9 9. Change of Control.. . . . . . . . . . . . . . . . . . . . 9 9.1. Acceleration of Awards Vesting. . . . . . . . . . . 9 9.2. Change of Control.. . . . . . . . . . . . . . . . . 9 10. Amendment; Termination. . . . . . . . . . . . . . . . . . 10 11. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . . 10 11.1. Unfunded Plan. . . . . . . . . . . . . . . . . . . 10 11.2. Listing, Registration and Other Legal Compliance.. . . . . . . . . . . . . . . . . . . . 10 11.3. Award Agreements.. . . . . . . . . . . . . . . . . 11 11.4. Designation of Beneficiary.. . . . . . . . . . . . 11 11.5. Governing Law. . . . . . . . . . . . . . . . . . . 11 11.6. Titles and Headings. . . . . . . . . . . . . . . . 11 11.7. Effective Date.. . . . . . . . . . . . . . . . . . 11 ii KASH N' KARRY FOOD STORES, INC. 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN * * * * * 1. Purpose. The purpose of the Kash n' Karry Food Stores, Inc. 1995 Non-Employee Director Stock Option Plan (the "Plan") is to promote the interests of the Company by enabling the Company to retain the experienced and knowledgeable non-employee directors whose initial election to the Board became effective upon or after consummation of the Company's Plan of Reorganization through grants of non-qualified stock options to acquire the Company's Common Stock, par value $0.01 per share, and certain limited stock appreciation rights in respect thereof. In addition, such grants will encourage the closer alignment of the interests of such directors and the Company's shareholders. 2. Definitions. For purposes of the Plan, the following terms shall have the meanings set forth below: 2.1. "Affiliate" means (a) a member of a controlled group of corporations of which the Company is a member or (b) an unincorporated trade or business which is under common control with the Company as determined in accordance with Section 414(c) of the Code. For purposes hereof, a "controlled group of corporations" shall mean a controlled group of corporations as defined in Section 1563(a) of the Code, determined without regard to Sections 1563(a)(4) and 1563(e)(3)(C). 2.2. "Award" means an award or grant of Options made to an Eligible Director under Section 5 of the Plan. 2.3. "Award Agreement" means the agreement executed by an Eligible Director pursuant to Section 11.3 of the Plan in connection with the granting of an Option. 2.4. "Board" means the Board of Directors of the Company, as constituted from time to time. 2.5. "Cause" means (a) personal dishonesty, (b) incompetence, (c) willful misconduct, (d) intentional failure to perform stated duties, (e) breach of a fiduciary duty involving personal profit or (f) willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order. For purposes of the preceding sentence, no act shall be considered "willful" unless done, or omitted to be done, by the Eligible Director not in good faith and without reasonable belief that such act, or failure to act, was in the best interests of the Company and its Subsidiaries. 2.6. "Change of Control" shall have the meaning ascribed thereto in Section 9.2 of the Plan. 2.7. "Code" means the Internal Revenue Code of 1986, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.8. "Committee" means the Board, or any committee of the Board established to administer the Plan, as described in Section 3 of the Plan. 2.9. "Common Stock" means the common stock, par value $0.01 per share, of the Company or any security of the Company issued by the Company in substitution or exchange therefor. 2.10. "Company" means Kash n' Karry Food Stores, Inc., a Delaware corporation, or any successor corporation to Kash n' Karry Food Stores, Inc. 2.11. "Date of Grant" means, with respect to an Award, the date as of when it is granted or awarded to an Eligible Director. 2.12. "Disability" means any physical or mental disability which is determined in writing to be total and permanent by a medical physician selected in good faith by the Company, as a result of which the Eligible Director is unable to perform for the Company and its Subsidiaries substantially the same duties as he or she performed prior to incurring such physical or mental disability. 2.13. "Eligible Director" means any Non-Employee Director of the Company whose initial election to the Board became effective on or after December 29, 1994. 2.14. "Exchange Act" means the Securities Exchange Act of 1934, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.15. "Fair Market Value" means on, or with respect to, any given date(s), the mean average of the high bid and low asked prices of the Common Stock, as reported on the National Association of Securities Dealers Automated Quotation System, Inc. ("NASDAQ"), for such date(s) or, if the Common Stock was not traded on such date(s), on the next preceding day or days on which the Common Stock was traded. If at any time the Common Stock is not traded on NASDAQ, the Fair Market Value of a share of the Common Stock shall be determined in good faith by the Company. 2 2.16. "Involuntary Termination" means any termination of an Eligible Director's membership on the Board other than a Voluntary Termination or a removal from the Board for Cause. 2.17. "Non-Employee Director" means any director of the Company who is not an employee of, and/or consultant to, the Company or any Subsidiary of the Company. 2.18. "Option" means any non-qualified stock option granted or awarded to an Eligible Director pursuant to Section 5 of the Plan and the relevant Award Agreement, whether as a Level One Grant, or as a Level Two Grant, or as part of a Subsequent Award pursuant to Section 5.3. 2.19. "Option Period" shall mean, with respect to an Option, the period commencing on the Date of Grant and ending on the tenth anniversary of the Date of Grant. 2.20. "Original Stockholders" means members of (x) any group consisting of members of the Board, or (y) the unofficial committee of holders of the Company's 12-3/8% Senior Notes due 1999, the Company's Senior Floating Rate Notes due August 2, 1996, and the Company's 14% Subordinated Debentures due February 1, 2001, (the "Bondholder Committee"), which committee participated in the negotiation of the terms of the Company's Plan of Reorganization dated as of December 12, 1994, filed in the United States Bankruptcy Court for the District of Delaware in respect of Case No. 94-1082 (HSB), or any other group of holders consisting in whole or in part of members of the Bondholder Committee. 2.21. "Plan" means the Kash n' Karry Food Stores, Inc. 1995 Non-Employee Director Stock Option Plan, as set forth herein. 2.22. "SEC" means the United States Securities and Exchange Commission. 2.23. "Subsidiary(ies)" means any corporation(s) (other than the Company) in an unbroken chain of corporations, including and beginning with the Company, if each of such corporations, other than the last corporation in the unbroken chain, owns, directly or indirectly, more than fifty percent (50%) of the voting stock in one of the other corporations in such chain. 2.24. "Voluntary Termination" means a termination of an Eligible Director's membership on the Board due to or as a result of any such Eligible Director's resignation from the Board (other than due to death or Disability) or refusal (other than due to death or Disability) to stand for election to the Board after having been nominated by the Board. 3 2.25. "Voting Interest" means securities of any class or classes or other ownership interests having general voting power under ordinary circumstances to elect members of a board of directors of any entity. 3. Administration. 3.1. The Committee. The Plan shall be administered by the Committee. The Committee shall be appointed from time to time by the Board and shall be comprised of not less than two (2) of the then members of the Board. Consistent with the Bylaws of the Company, members of the Committee serve at the pleasure of the Board and the Board may at any time and from time to time remove members from, or add members to, the Committee. Actions of the Committee shall be taken by the vote of a majority of its members. Any action may be taken by a written instrument signed by a majority of the Committee members, and action so taken shall be fully as effective as if it had been taken by a vote at a meeting. 3.2. Plan Administration and Plan Rules. The Committee is authorized to construe and interpret the Plan and to promulgate, amend, and rescind rules and regulations relating to the implementation, administration and maintenance of the Plan. Subject to the terms and conditions of the Plan, the Committee shall make all determinations necessary or advisable for the implementation, administration and maintenance of the Plan including, without limitation, (a) making Subsequent Awards in such amounts as the Committee shall determine, and (b) correcting any technical defects(s) or technical omission(s), or reconciling any technical inconsistency(ies), in the Plan and/or any Award Agreement. The Committee may designate persons other than members of the Committee to carry out the day-to-day ministerial administration of the Plan under such conditions and limitations as it may prescribe, except that the Committee shall not delegate its authority with regard to the granting of any Subsequent Awards. The Committee's determinations under the Plan need not be uniform and may be made selectively among Eligible Directors, whether or not such Eligible Directors are similarly situated. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration, implementation or maintenance of the Plan shall be final, conclusive and binding upon all Eligible Directors and any person(s) claiming under or through any Eligible Directors. The Company shall effect the granting of Awards under the Plan, in accordance with the determinations made by the Committee, by execution of written agreements and/or other instruments in such form as is approved by the Committee. 3.3. Liability Limitation. Neither the Board nor the Committee, nor any member of either, shall be liable for any act, omission, interpretation, construction or determination made in 4 good faith in connection with the Plan (or any Award Agreement), and the members of the Board and the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys' fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage which may be in effect from time to time. 4. Term of the Plan/Common Stock Subject to the Plan. 4.1. Term. The Plan shall terminate on December 31, 2005, except with respect to Awards then outstanding. After such date, no further Awards shall be granted under the Plan. 4.2. Common Stock. The maximum number of shares of Common Stock in respect of which Options may be granted under the Plan, subject to adjustment as provided in Section 8.2 of the Plan, shall be thirty-six thousand (36,000) shares of the Common Stock. Common Stock which may be issued under the Plan may be either authorized and unissued shares or issued shares which have been reacquired by the Company (in the open market or in private transactions) and which are being held as treasury shares. Shares of Common Stock subject to Options granted under the Plan that remain unissued upon the forfeiture and cancellation of Options by reason of a Voluntary Termination shall become available for further awards under the Plan, but only to Eligible Directors whose initial election or appointment to the Board is for the purpose of filling the vacancy left by the Eligible Director who caused the Voluntary Termination. Except as provided in the foregoing sentence, if any Options expire unexercised or are forfeited, surrendered, cancelled or otherwise terminated, the shares of Common Stock which were theretofore subject to such Options shall not be available for Options under the Plan, and upon any such expiration, forfeiture, surrender, cancellation, or other termination, the maximum number of shares in respect of which Options may be granted under this Plan shall be reduced to such extent. 5. Awards. 5.1. Type of Options. All Options granted under the Plan shall be non-statutory options not intended to qualify as incentive stock options under Section 422 of the Code. 5.2. Initial Awards. Each Eligible Director who is serving in such capacity on the date as of when the Plan is adopted by the Company shall be granted each of the following Awards (collectively, the "Initial Awards"): 5.2.1. a non-qualified stock option to acquire three thousand (3,000) shares of the Common Stock, subject 5 to adjustment in accordance with Section 8.2 of the Plan (the "Level One Grant(s)"); and 5.2.2. a non-qualified stock option to acquire three thousand (3,000) shares of the Common Stock, subject to adjustment in accordance with Section 8.2 of the Plan (the "Level Two Grant(s)"). 5.3. Subsequent Awards. The Committee may grant Options (the "Subsequent Awards") to Eligible Directors whose initial election or appointment to the Board is for the purpose of filling a vacancy left by an Eligible Director who received an Initial Award that was forfeited and cancelled pursuant to Section 5.7 hereof by reason of a Voluntary Termination. 5.4. Exercise Price. The exercise price per share of Common Stock subject to Options granted hereunder shall be: 5.4.1. Fifteen Dollars ($15.00), in the case of Level One Grants; 5.4.2. Twenty Dollars ($20.00), in the case of Level Two Grants; 5.4.3. The Fair Market Value on the business day immediately preceding the Date of Grant, in the case of Subsequent Awards made pursuant to Section 5.3 hereof. 5.5. Method of Exercise. Upon becoming exercisable in accordance with Section 6 of the Plan, and subject to the provisions of Section 5.7 hereof, an Option may be exercised in whole or in part at any time and from time to time during the Option Period. A partial exercise of an Option will not affect an Eligible Director's subsequent right to exercise the Option as to the remaining Common Stock subject to the Option. Any portion of an Option that is exercised may not be exercised again. To exercise an Option, an Eligible Director must do the following: (a) deliver to the Company a written notice of exercise, specifying the number of shares to be purchased; and (b) tender to the Company payment in full of the exercise price. The exercise date of an Option will be the date when the Company has received the notice of exercise and full payment of the exercise price. No Option may be exercised at any time in respect of a fractional share. 5.6. Form of Payment. An Eligible Director may pay all or any part of the exercise price under an Option in cash, by certified check, bank draft or money order payable to the order of the Company or such other form or method of payment as may be acceptable to the Company and available to all Eligible Directors. Payment may also be made in whole or in part by the transfer to the Company of shares of Common Stock already owned 6 by an Eligible Director for at least six months prior to the exercise date and having a Fair Market Value equal to all or a portion of the exercise price as of the exercise date. All payment instruments shall be accepted by the Company subject to collection. 5.7. Option Period. Each Award shall expire on the last day of the Option Period, but shall be subject to earlier termination as follows: 5.7.1. If the Eligible Director is removed from the Board for Cause, all rights of such Eligible Director under any then exercisable and unexercisable Options shall automatically expire and be forfeited and cancelled on the effective date of any such removal. 5.7.2. In the event of a Voluntary Termination, all rights of such Eligible Director under any unexercisable Options shall automatically expire and be forfeited and cancelled on the effective date of such Voluntary Termination, and any then exercisable Options shall expire forty-five (45) days after the date of such Voluntary Termination (but not beyond the last day of the Option Period). 5.7.3. In the event of an Involuntary Termination, the then outstanding Options of such Eligible Director shall become one hundred percent (100%) exercisable, to the full extent of the number of shares of Common Stock remaining covered by such Options, regardless of whether such Options were previously exercisable, and each such Option shall expire forty-five (45) days after the date of such Involuntary Termination (but not beyond the last day of the Option Period) and thereafter such Options shall be forfeited and cancelled by the Company. Notwithstanding the immediately preceding sentence, if any Involuntary Termination is due to the death or Disability of an Eligible Director, such Eligible Director (and such Eligible Director's estate, designated beneficiary or other legal representative, as the case may be) shall have the right, to the extent exercisable immediately prior to or as a result of any such Involuntary Termination, to exercise any Option at any time within the one hundred eighty (180) day period following such cessation to serve (but not beyond the last day of the Option Period). 5.7.4. Exercise of a deceased Eligible Director's Awards that become or remain exercisable shall be by (a) the person or persons whom the Eligible Director has designated in a writing filed with the Company in accordance with Section 11.4 of the Plan, or (b) if no such designation has been made, by the person or persons to whom the Eligible 7 Director's rights have passed by will or the laws of intestate succession. 5.8. Right to Exercise. The right of any Eligible Director to exercise an Award granted under the Plan shall, during the lifetime of such Eligible Director, be exercisable only by such Eligible Director and shall not be assignable or transferable by such Eligible Director other than by will or the laws of intestate succession. 5.9. Limitation of Rights. Neither the recipient of an Award under the Plan nor an Eligible Director's beneficiaries or successors in interest shall have any rights as a shareholder of the Company with respect to any Common Stock subject to any Award until the issuance of a stock certificate in respect of such Common Stock. Neither the Plan, nor the granting of any Award thereunder, nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that an Eligible Director has a right to continue as a director of the Company for any period of time or at any particular rate of remuneration. 5.10. Regulatory Approval. The Company shall not be required to issue any certificates for Common Stock upon the exercise of an Option granted under the Plan or to record as a holder of record of Common Stock the name of the person exercising an Option under the Plan, (a) without first obtaining to the complete satisfaction of the Company the approval of all regulatory bodies deemed necessary by the Company, and (b) without first complying, to the Company's satisfaction, with all rules and regulations under federal, state, or local law deemed applicable by the Company. Common Stock acquired upon exercise of an Option may not be sold or otherwise disposed of prior to six months after the Date of Grant. 6. Exercisability. Subject to Sections 5.7 and 5.10 of the Plan, all Level One Options granted under the Plan shall become exercisable on July 30, 1995, all Level Two Options granted under the Plan shall become exercisable on July 28, 1996, and all Subsequent Awards shall become exercisable in accordance with such vesting schedule as the Committee shall determine at the time of grant. 7. Withholding. The Company shall have the right to require an Eligible Director, upon the exercise of any Option, to remit or otherwise arrange for the payment of any federal, state, local or other taxes of any kind which the Company, in its sole discretion, deems necessary to be withheld to comply with the Code and/or any other applicable law, rule or regulation. 8 8. Changes in Capitalization and Other Matters. 8.1. No Corporate Action Restriction. The existence of the Plan, any Award Agreement and/or the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Company to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company's or any Subsidiary's capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company's or any Subsidiary's capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the Company's or any Subsidiary's assets or business, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Eligible Director, beneficiary or any other person shall have any claim against any member of the Board, the Company or any Subsidiary, or any employees, officers or agents of the Company or any Subsidiary, as a result of any such action. 8.2. Recapitalization Adjustments. If the outstanding shares of Common Stock of the Company are increased, decreased, or changed into or exchanged for, a different number or kind of securities of the Company through a stock dividend, reclassification, stock split, reverse stock split, consolidation, subdivision, split-up, spin-off, split-off or combination, proportionate adjustments shall be made to reflect such change, including, without limitation, with respect to the aggregate number and class of shares of Common Stock subject to and authorized by the Plan, the number of shares of Common Stock covered by each outstanding Option, and the exercise price or other price per share of Common Stock in respect of outstanding Options. 9. Change of Control. 9.1. Acceleration of Awards Vesting. Anything in the Plan to the contrary notwithstanding, if a Change of Control of the Company (as defined in Section 9.2 of the Plan) occurs, all Awards then unexercised and outstanding shall become fully vested and exercisable as of the date of the Change of Control. The immediately preceding sentence shall apply to only those Eligible Directors who are serving in such capacity as of the date of the Change of Control. 9.2. Change of Control. For the purpose of this Plan, a "Change of Control" shall have occurred if at any time either (a) any person or any persons acting together (excluding the Original Stockholders) that constitute a "group" for purposes of Section 13(d) of the Exchange Act shall beneficially own at least 9 fifty percent (50%) of the total Voting Interest of the Company or (b) any person or any persons acting together (excluding the Original Stockholders) that constitute a "group" for purposes of Section 13(d) of the Exchange Act shall succeed in having a sufficient number of its nominees elected to the Board to constitute a majority of the Board. 10. Amendment; Termination. The Board may suspend or terminate the Plan (or any portion thereof) at any time and may amend the Plan at any time and from time to time in such respects as the Board may deem advisable.No such amendment, suspension or termination shall be effective if it would materially adversely affect the rights of any Eligible Director under any outstanding Awards, without the consent of such Eligible Director. 11. Miscellaneous. 11.1. Unfunded Plan. The Plan shall be unfunded and the Company shall not be required to segregate any assets in connection with any Awards under the Plan. Any liability of the Company to any person with respect to any Award under the Plan or any Award Agreement shall be based solely upon the contractual obligations that may be created as a result of the Plan or any such award or agreement. No such obligation of the Company shall be deemed to be secured by any pledge of, encumbrance on, or other interest in, any property or asset of the Company or any Subsidiary. Nothing contained in the Plan or any Award Agreement shall be construed as creating in respect of any Eligible Director (or beneficiary thereof or any other person) any equity or other interest of any kind in the assets of the Company or any Subsidiary or creating a trust of any kind or a fiduciary relationship of any kind between the Company, any Subsidiary and/or any such Eligible Director, any beneficiary thereof or any other person. 11.2. Listing, Registration and Other Legal Compliance. No Options or Common Stock shall be issued under the Plan unless legal counsel for the Company shall be satisfied that any such issuance will be in compliance with all applicable federal and state securities laws and regulations and any other applicable laws or regulations. The Company may require, as a condition of any payment or share issuance, that certain agreements, undertakings, representations, certificates, and/or information, as the Company may deem necessary or advisable, in its sole discretion, be executed or provided to the Company to assure compliance with all such applicable laws or regulations. Certificates for any Options and/or Common Stock delivered under the Plan may be subject to such stock-transfer orders and such other restrictions as the Company may deem advisable under the rules, regulations, or other requirements of the SEC, any stock exchange upon or trading system in which the Common Stock is then listed or traded, and any applicable federal or state securities 10 law. In addition, if, at any time specified herein (or in any Award Agreement) for the issuance or other distribution of any Options and/or Common Stock, or the payment of amounts to any Eligible Director, any law, rule, regulation or other requirement of any governmental authority or agency shall require either the Company, any Affiliate or any Subsidiary or any Eligible Director (or any estate, designated beneficiary or other legal representative thereof) to take any action in connection therewith, any such issuance or distribution, or any such payment, as the case may be, shall be deferred until such required action is taken. 11.3. Award Agreements. Each Eligible Director shall enter into an Award Agreement with the Company in a form specified by the Company. Each such Eligible Director shall agree therein to the restrictions, terms and conditions set forth in such Award Agreement and/or the Plan. 11.4. Designation of Beneficiary. Each Eligible Director may designate a beneficiary or beneficiaries to exercise an Option or to receive any payment which, under the terms of the Plan and the relevant Award Agreement, may become exercisable or payable on or after the Eligible Director's death. At any time, and from time to time, any such designation may be changed or cancelled by the Eligible Director without the consent of any such beneficiary. Any such designation, change or cancellation must be on a form provided for that purpose by the Company and shall not be effective until received by the Company. If no beneficiary has been designated by a deceased Eligible Director, or if the designated beneficiaries have predeceased the Eligible Director, the beneficiary shall be the Eligible Director's estate. If the Eligible Director designates more than one such beneficiary, any payments under the Plan to such beneficiaries shall be made in equal shares unless the Eligible Director has expressly designated otherwise, in which case the payments shall be made in the shares designated by the Eligible Director. 11.5. Governing Law. The validity, construction, enforcement and interpretation of this Plan, and all actions taken hereunder, are governed by, and shall be construed in accordance with, the laws of the State of Delaware and the federal laws of the United States of America, excluding the laws of those jurisdictions pertaining to the resolution of conflicts with laws of other jurisdictions. 11.6. Titles and Headings. Any titles and headings herein are for reference purposes only, and shall in no way limit, define or otherwise affect the meaning, construction or interpretation of any provisions of the Plan. 11.7. Effective Date. The Plan shall be effective upon its adoption by the Board. 11 20/LWH/KNK.SEC/S1.95/EX-10-7A.ASC EX-10 7 EXHIBIT 10.7(B) FOR S-1 FILING 5/1/95 NON-QUALIFIED STOCK OPTION AGREEMENT pursuant to the KASH N' KARRY FOOD STORES, INC. 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN * * * * * Optionee: Date of Grant: March 9, 1995 Expiration Date: March 8, 2005 * * * * * Level One Grants: Number of Level One Option Shares: 3,000 Exercise Price: $15.00 Per Share Level Two Grants: Number of Level Two Option Shares: 3,000 Exercise Price: $20.00 Per Share * * * * * THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement"), dated as of the Date of Grant specified above, is entered into by and between Kash n' Karry Food Stores, Inc., a Delaware corporation (the "Company"), and the Optionee specified above, pursuant to the Kash n' Karry Food Stores, Inc. 1995 Non- Employee Director Stock Option Plan, as in effect and as amended from time to time (the "Plan"); and WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the non- qualified stock options provided for herein to the Optionee; NOW, THEREFORE, in consideration of the mutual covenants and premises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows: 1. Incorporation By Reference; Plan Document Receipt. This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time if such amendments are expressly intended to apply to the grant of the Award hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto under the Plan. The Optionee hereby acknowledges receipt of a true copy of the Plan and that the Optionee has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. 2. Grant of Options. The Company hereby grants to the Optionee, as of the Date of Grant specified above, non-qualified stock options (collectively, the "Options") to acquire from the Company, at the exercise price of $15.00 per share, 3,000 shares of Common Stock (the "Level One Option Shares"), and at the exercise price of $20.00 per share, 3,000 shares of Common Stock (the "Level Two Option Shares") (collectively, the "Option Shares"). The Options are not to be treated as (and are not intended to qualify as) incentive stock options within the meaning of Section 422 of the Code. 3. Exercise of the Options. 3.1. Exercisability. The Options shall become exercisable in accordance with and to the extent provided by the terms and provisions of Section 6 of the Plan. 3.2. Expiration Date. Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, the Options shall expire and shall no longer be exercisable after the Expiration Date specified above. 3.3. No Fractional Shares. In no event shall the Options be exercisable for a fractional share of Common Stock. 3.4. Acceleration of Exercisability. Notwithstanding any contrary provision herein, the vesting and exercisability of the Options shall be accelerated, in accordance with Section 9 of the Plan, upon the occurrence of a Change of Control of the Company. 4. Method of Exercise and Payment. The Options shall be exercised by the Optionee by delivering to the Secretary of the Company or his designated agent on any business day a written notice of exercise, in such manner and form as may be required by the Company, specifying the number of the Option Shares the Optionee then desires to purchase (the "Exercise Notice"). The Exercise Notice shall be accompanied by payment in full in an amount equal to the product of (a) the exercise price per share specified above, multiplied by (b) the number of Option Shares specified in the Exercise Notice. Such payment shall be made in the manner set forth in Section 5.6 of the Plan. 5. Termination. These Options shall terminate and be of no force or effect in accordance with and to the extent provided 2 by the terms and provisions of Section 5.7 of the Plan. In any event, these Options shall terminate on the Expiration Date. 6. Non-transferability. These Options, and any rights or interests therein, shall not be sold, exchanged, transferred, assigned or otherwise disposed of in any way at any time by the Optionee (or any beneficiary(ies) of the Optionee), other than by testamentary disposition by the Optionee or the laws of intestate succession. These Options shall not be pledged, encumbered or otherwise hypothecated in any way at any time by the Optionee (or any beneficiary(ies) of the Optionee) and shall not be subject to execution, attachment or similar legal process. Any attempt to sell, exchange, pledge, transfer, assign, encumber or otherwise dispose of or hypothecate these Options, or the levy of any execution, attachment or similar legal process upon these Options, contrary to the terms of this Agreement and/or the Plan shall be null and void and without legal force or effect. The Options shall be exercisable during the Optionee's lifetime only by the Optionee. 7. Entire Agreement; Amendment. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. This Agreement may only be modified or amended by a writing signed by both the Company and the Optionee. 8. Miscellaneous. 8.1. Notices. Any Exercise Notice or other notice which may be required or permitted under this Agreement shall be in writing, and shall be delivered in person or via facsimile transmission, overnight courier service or certified mail, return receipt requested, postage prepaid, properly addressed as follows: If such notice is to the Company: To the attention of the Secretary of Kash n' Karry Food Stores, Inc., at P.O. Box 11675, Tampa, Florida 33680 (for delivery via U.S. mail), at 6422 Harney Road, Tampa, Florida 33610 (for delivery in person or via overnight courier service), or at (813) 626-9550 (for delivery via facsimile transmission), or at such other address as the Company, by notice to the Optionee, shall designate in writing from time to time. If such notice is to the Optionee: At his or her address as shown on the Company's records, or at such other address as the Optionee, by notice 3 to the Company, shall designate in writing from time to time. 8.2. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 8.3. Compliance with Laws. The issuance of these Options (and the Option Shares upon exercise of the Options) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, the Exchange Act and the respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue these Options or any of the Option Shares, or make any payment, pursuant to this Agreement if any such action would violate any such requirements. 8.4. Binding Agreement; Assignment. This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Optionee shall not assign any part of this Agreement without the prior express written consent of the Company. 8.5. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 8.6. Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 8.7. Further Assurances. Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as any party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder. 8.8. Severability. The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. 4 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Optionee has hereunto set his hand, all as of the Date of Grant specified above. KASH N' KARRY FOOD STORES, INC. By:__________________________________ Ronald E. Johnson, President _____________________________________ Print Name: Optionee 20/LWH/KNK.SEC/S1.95/EX-10-7B.ASC 5 EX-10 8 EXHIBIT 10.8 FOR S-1 FILING 5/1/95 [CONFORMED COPY] NON-QUALIFIED STOCK OPTION AGREEMENT THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement"), dated as of January 17, 1995 (the "Date of Grant"), is entered into by and between Kash n' Karry Food Stores, Inc., a Delaware corporation (the "Company"), and Green Equity Investors, L.P., a Delaware limited partnership (the "Optionee"). WHEREAS, it has been determined that it would be in the best interests of the Company to grant the non-qualified stock options provided for herein to the Optionee; NOW, THEREFORE, in consideration of the mutual covenants and premises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows: 1. Definitions. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto under the Kash n' Karry Food Stores, Inc. 1995 Non-Employee Stock Option Plan, a copy of which is incorporated by this reference herein (the "Plan"). 2. Grant of Options. The Company hereby grants to the Optionee, as of the Date of Grant, non-qualified stock options (collectively, the "Options") to acquire from the Company, at the exercise price of $15.00 per share, 6,000 shares of Common Stock (the "Level One Option Shares"), and at the exercise price of $20.00 per share, 6,000 shares of Common Stock (the "Level Two Option Shares") (collectively, the "Option Shares"). The Options are not to be treated as (and are not intended to qualify as) incentive stock options within the meaning of Section 422 of the Code. 3. Exercise of the Options. 3.1. Exercisability. Subject to Section 9.3 of this Agreement, the Level One Options shall vest and become exercisable on July 30, 1995, and the Level Two Options shall vest and become exercisable on July 28, 1996. Notwithstanding the above, upon the occurrence of a Change of Control, all Options held by the Optionee, whether or not exercisable at such time, shall become immediately vested and one hundred percent (100%) exercisable. 3.2. Expiration Date. Unless earlier terminated in accordance with the terms and provisions of this Agreement, the Options shall expire and shall no longer be exercisable after January 16, 2005 (the "Expiration Date"). 3.3. No Fractional Shares. In no event shall the Options be exercisable for a fractional share of Common Stock. 3.4. Limitation of Rights. Neither the Optionee nor its successors in interest shall have any rights as a shareholder of the Company with respect to any Common Stock subject to any Option until the issuance of a stock certificate in respect of such Common Stock. 4. Method of Exercise and Payment. Upon becoming exercisable in accordance with Section 3 of this Agreement, the Options may be exercised in whole or in part at any time and from time to time prior to the Expiration Date. A partial exercise of the Options will not affect the Optionee's subsequent right to exercise the Options as to the remaining Option Shares. Any portion of an Option that is exercised may not be exercised again. The Options shall be exercised by the Optionee by delivering to the Secretary of the Company or his designated agent on any business day a written notice of exercise, in such manner and form as may be required by the Company, specifying the number of the Option Shares the Optionee then desires to purchase, or with respect to which the Optionee then desires to exercise his Limited Rights (the "Exercise Notice"). The Exercise Notice shall be accompanied by payment in full in an amount equal to the product of (a) the exercise price per share specified above, multiplied by (b) the number of Option Shares specified in the Exercise Notice. All or any part of the exercise price under the Options may be paid in cash, by certified check, bank draft or money order payable to the order of the Company or such other form or method of payment as may be acceptable to the Company and available to the Eligible Directors under the Plan. Payment may also be made in whole or in part by the transfer to the Company of shares of Common Stock already owned by the Optionee for at least six (6) months prior to the exercise date and having a Fair Market Value equal to all or a portion of the exercise price as of the exercise date. All payment instruments shall be accepted by the Company subject to collection. 5. Non-transferability. These Options, and any rights or interests therein, shall not be sold, exchanged, transferred, assigned or otherwise disposed of in any way at any time by the Optionee. These Options shall not be pledged, encumbered or otherwise hypothecated in any way at any time by the Optionee and shall not be subject to execution, attachment or similar legal process. Any attempt to sell, exchange, pledge, transfer, assign, encumber or otherwise dispose of or hypothecate these Options, or the levy of any execution, attachment or similar legal process upon these Options, contrary to the terms of this Agreement shall be null and void and without legal force or effect. These Options shall be exercisable only by the Optionee. 2 6. Changes in Capitalization and Other Matters. 6.1. No Corporate Action Restriction. The existence of this Agreement and/or the Options granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Company to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company's or any Subsidiary's capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company's or any Subsidiary's capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any Subsidiary, (e) any sale or transfer of all or any part of the Company's or any Subsidiary's assets or business, or (f) any other corporate act or proceeding by the Company or any Subsidiary. Neither the Optionee nor any other person shall have any claim against any member of the Board, the Company or any Subsidiary, or any employees, officers or agents of the Company or any Subsidiary, as a result of any such action. 6.2. Recapitalization Adjustments. If the outstanding shares of Common Stock of the Company are increased, decreased, or changed into or exchanged for, a different number or kind of securities of the Company through a stock dividend, reclassification, stock split, reverse stock split, consolidation, subdivision, split-up, spin-off, split-off or combination, proportionate adjustments shall be made to reflect such change, including, without limitation, with respect to the number of Option Shares and the exercise price or other price per share of Common Stock in respect of the Options. 7. Entire Agreement; Amendment. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. This Agreement may only be modified or amended by a writing signed by both the Company and the Optionee. 8. Miscellaneous. 8.1. Notices. Any Exercise Notice or other notice which may be required or permitted under this Agreement shall be in writing, and shall be delivered in person or via facsimile transmission, overnight courier service or certified mail, return receipt requested, postage prepaid, properly addressed as follows: 3 If such notice is to the Company: To the attention of the Secretary of Kash n' Karry Food Stores, Inc., at P.O. Box 11675, Tampa, Florida 33680 (for delivery via U.S. mail), at 6422 Harney Road, Tampa, Florida 33610 (for delivery in person or via overnight courier service), or at (813) ______-________ (for delivery via facsimile transmission), or at such other address as the Company, by notice to the Optionee, shall designate in writing from time to time. If such notice is to the Optionee: At its address as shown on the Company's records, or at such other address as the Optionee, by notice to the Company, shall designate in writing from time to time. 8.2. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 8.3. Compliance with Laws. The issuance of these Options (and the Option Shares upon exercise of the Options) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, the Exchange Act and the respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue these Options or any of the Option Shares pursuant to this Agreement if any such action would violate any such requirements. The Company may require, as a condition of any payment or share issuance, that certain agreements, undertakings, representations, certificates, and/or information, as the Company may deem necessary or advisable, in its sole discretion, be executed or provided by the Optionee to the Company to assure compliance with all such applicable laws or regulations. Certificates for any Common Stock delivered under this Agreement may be subject to such stock-transfer orders and such other restrictions as the Company may deem advisable under the rules, regulations, or other requirements of the SEC, any stock exchange upon or trading system in which the Common Stock is then listed or traded, and any applicable federal or state securities law. In addition, if, at any time specified herein for the issuance or other distribution of any Options and/or Common Stock, or the payment of amounts to the Optionee, any law, rule, regulation or other requirement of any governmental authority or agency shall require either the Company, any Affiliate or any Subsidiary or the Optionee to take any action in connection therewith, any such issuance or distribution, or any 4 such payment, as the case may be, shall be deferred until such required action is taken. 8.4. Binding Agreement; Assignment. This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Optionee shall not assign any part of this Agreement without the prior express written consent of the Company. 8.5. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 8.6. Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 8.7. Further Assurances. Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as any party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereunder. 8.8. Severability. The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Optionee has hereunto set his hand, all as of the Date of Grant specified above. KASH N' KARRY FOOD STORES, INC. By: /s/ Ronald E. Johnson Ronald E. Johnson, President 5 GREEN EQUITY INVESTORS, L.P. By: LEONARD GREEN & PARTNERS, L.P., Its General Partner By: /s/ Jennifer Holden Dunbar Jennifer Holden Dunbar Its: President, Willow III Inc. a General Partner of Leonard Green & Partners 20/WL/LWH/KNK.SEC/S1.95/EX-10-8.ASC 6 EX-10 9 EXHIBIT 10.10 FOR S-1 FILING 5/1/95 [CONFORMED COPY] EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of January 24, 1995, between KASH N' KARRY FOOD STORES, INC., a Delaware corporation (the "Company"), and RONALD JOHNSON (the "Employee"). WHEREAS, the Company and the Employee desire to enter into this Agreement to assure the Company of the services of the Employee for the benefit of the Company and to set forth the respective rights and duties of the parties hereto; WHEREAS, the Company is in the business of owning, operating and managing supermarkets and retail liquor, food, grocery and warehouse format stores in Florida and may, in the future, own, operate and manage additional supermarkets or retail liquor, food, grocery or warehouse format stores in or outside of Florida (such business, present and future, being hereinafter referred to as the "Business"); NOW, THEREFORE, in consideration of the premises and the mutual covenants, terms and conditions set forth herein, the Company and the Employee agree as follows: ARTICLE 1 Employment 1.1 Employment and Title. The Company hereby employs the Employee, and the Employee hereby accepts such employment as the Chief Executive Officer and President of the Company, upon the terms and conditions set forth herein. 1.2 Services. (a) During the Term (as hereinafter defined) hereof, the Employee agrees to perform diligently and in good faith such duties and services for the Company under the direction of the Board of Directors of the Company (the "Board of Directors") as are consistent with the position of Chief Executive Officer and President of the Company. The Employee agrees to devote his best efforts and all of his full business time, energies and abilities to the services to be performed hereunder and for the exclusive benefit of the Company; provided, that this clause shall not be construed to prevent the Employee from personally, and for his own account, trading in stocks, bonds, securities, real estate, or other forms of investment for his own benefit, so long as any such activity does not materially interfere with the performance of his duties hereunder, and, provided, further, that Employee shall be entitled to engage in those further activities permitted under Section 1.4. The Employee shall be vested with such authority as is generally concomitant with the position to which he is appointed, provided, that the Employee shall have no authority to do any of the following without the express authority and approval of the Board of Directors: (i) acquire on behalf of, or dispose of the Company's interest in, (by lease or otherwise) any real property or interest in real property, except in the ordinary course of business; 2 (ii) dispose of supermarkets, liquor stores, grocery stores, food stores, warehouse stores or any substantial portion of the Business of the Company or any significant part of its assets, except in the ordinary course of its business; (iii) acquire supermarkets, liquor stores, grocery stores, food stores, warehouse stores or other businesses on behalf of the Company, except in the ordinary course of business; (iv) incur indebtedness on behalf of the Company, except in the ordinary course of business; or (v) expend sums in excess of the amounts set forth in a periodic budget as developed and approved by the Board of Directors, except in the ordinary course of business or to meet emergencies, provided that in such case the Employee shall notify the Board of Directors as promptly as practicable after the expenditure has been made. (b) The Employee shall communicate and report to the Board of Directors on a periodic basis as to the operations, financial condition and plans of the Business. 1.3 Location. The principal place of employment and the location of the Employee's principal office and ordinary place of work shall be in Tampa, Florida; provided, however, the Employee shall, when requested by his superiors, or may, if he determines it to be reasonably necessary, temporarily perform services outside said area as are reasonably required for the proper performance of his duties under this Agreement. 3 1.4 Exclusivity. The Employee shall not, without the prior written consent of the Company, directly or indirectly, during the term of this Agreement render services of a business, professional or commercial nature to any other person or entity, whether for compensation or otherwise. 1.5 Representations. Each party represents and warrants to the other that he/it has full power and authority to enter into and perform this Agreement and that his/its execution of and performance of this Agreement shall not constitute a default under or breach of any of the terms of any agreement to which he/it is a party or under which he/it is bound. Each party represents that no consent or approval of any third party is required for his or its execution, delivery and performance of this Agreement. The Employee further represents and warrants to the Company that he is free to accept this employment, and that he has no other obligations or commitments of any kind to any one which would in any way hinder or interfere with his acceptance of, full performance of his obligations under, or exercise of his best efforts with respect to, this Agreement. ARTICLE 2 Term 2.1 Term. The term of the Employee's employment hereunder (the "Term") shall commence on January 24, 1995 (the "Commencement Date") and shall continue until (but not including) the third anniversary of the Commencement Date (the "Scheduled Termination 4 Date") unless earlier terminated pursuant to the provisions of this Agreement. On or before July 24, 1997, the parties agree to begin negotiating the terms of the Employee's employment, if any, after the Scheduled Termination Date. ARTICLE 3 Compensation 3.1 Salary. As compensation for the services to be rendered by the Employee, the Company shall pay the Employee, during the Term of this Agreement, an annual salary in the amount of Three Hundred Twenty-five Thousand Dollars ($325,000), which salary shall accrue weekly (prorated for periods less than a week) and shall be payable in equal weekly installments, in arrears. 3.2 Other Compensation. During the Term hereof, the Employee shall be entitled to participate, on a basis proportionate to the participation of the other executive officers of the Company, in any compensatory plan, contract or arrangement that is available to the Company's most senior executive officers from time to time during the Term hereof, including, but not limited to (a) the Company's current bonus plan, generally referred to as the Incentive Compensation Plan, as in effect on the Commencement Date, and (b) a management stock option plan to be adopted by the Company on such terms as shall be hereafter determined by the Board of Directors (the "Proposed Stock Option Plan"). When the Company adopts the Proposed Stock Option Plan, the Company will grant to the Employee thereunder options to purchase one percent (1%) of the 5 then outstanding common stock of the Company on a fully-diluted basis, on the terms set forth therein. Also, for purposes of determining the Employee's Target Bonus under the Incentive Compensation Plan, for the fiscal year ending in 1995, the parties agree that the Employee's Target Percentage will be not less than fifty percent (50%), and that the Employee's base salary under the plan will be the Employee's annual salary under this Agreement, prorated over the last two (2) quarters of that fiscal year. 3.3 Benefits and Perquisites. The Employee shall be entitled, during the Term hereof, to the same medical, hospital, dental and life insurance coverage and benefits, vacations, and other perquisites, as are available to the Company's most senior executive officers on the Commencement Date or benefits that are substantially comparable; provided, however, that Employee shall be entitled to a two (2) weeks vacation in the fiscal year ending in 1995, which he may take at any time. 3.4 Withholding. Any and all amounts payable under this Agreement, including, without limitation, amounts payable in the event of the termination hereof under Sections 7.3 and 7.4 hereof, are subject to withholding for such federal, state and local taxes as the Company in its reasonable judgment determines to be required pursuant to any applicable law, rule or regulation. 3.5 Annual Review. No less frequently than annually, the Board of Directors shall review the Employee's performance of his duties and services under this Agreement, and may, commensurate with the Employee's and the Company's performance, increase, but 6 not decrease, the salary, stock options, other compensation and benefits payable to the Employee under this Agreement during the remaining Term. ARTICLE 4 Working Facilities, Expenses and Insurance 4.1 Working Facilities and Expenses. The Employee shall be furnished with an office at the principal office of the Company, or at such other location as may be agreed to by the Employee and the Board of Directors, and other working facilities and secretarial and other assistance suitable to his position and adequate for the performance of his duties hereunder. The Company shall reimburse the Employee for all the Employee's reasonable expenses incurred while employed and performing his duties under and in connection with the terms and conditions of the Agreement, subject to the Employee's full appropriate documentation, including, without limitation, receipts for all such expenses in the manner required pursuant to Company's policies and procedures and the Internal Revenue Code. 4.2 Insurance. The Company may secure in its own name or otherwise, and at its own expense, life, disability and other insurance covering the Employee or the Employee and others, and the Employee shall not have any right, title or interest in or to such insurance other than as expressly provided herein. The Employee agrees to assist the Company in procuring such insurance by submitting to the usual and customary medical and other 7 examinations to be conducted by such physician(s) as the Company or such insurance company may designate and by signing such applications and other written instruments as may be required by the insurance companies to which application is made for such insurance. ARTICLE 5 Illness or Incapacity 5.1 Right to Terminate. If, during the Term of this Agreement, the Employee shall be unable to perform in all material respects his duties hereunder for a period exceeding one hundred twenty (120) consecutive calendar days, or a total of one hundred eighty-six (186) non-consecutive calendar days, by reason of illness or incapacity, this Agreement may be terminated by the Company at its election pursuant to Section 7.2(b) hereof. 5.2 Right to Replace. If the Employee's illness or incapacity, whether by physical or mental cause, renders him unable for a minimum period of 30 consecutive calendar days to carry out his duties and responsibilities as set forth herein, the Company shall have the right to designate a person to temporarily succeed the Employee in the capacity described in Article 1 hereof; provided, however, that if the Employee returns to work from such illness or incapacity within the six (6) month period following his inability due to illness or incapacity, he shall be entitled to be reinstated in the capacity described in Article 1 hereof with all duties and privileges attendant thereto. 8 5.3 Rights Prior to Termination. The Employee shall be entitled to his full remuneration and benefits hereunder during such illness or incapacity unless and until an election is made by the Company to terminate this Agreement in accordance with the provisions of this Article. ARTICLE 6 Confidentiality 6.1 Confidentiality. During the Term of this Agreement and at all times thereafter, the Employee agrees to maintain the confidential nature of all trade secrets, including, without limitation, development ideas, acquisition strategies and plans, financial information, records, "know-how", methods of doing business, customer, supplier and distributor lists and all other confidential information of the Company. The Employee shall not be obligated to maintain the confidential nature of information the disclosure of which is required by law or which already is in the public domain. The Employee shall not use (other than in connection with his employment), in any way whatsoever, such trade secrets except as authorized in writing by the Company. The Employee shall, upon terminating his employment, deliver to the Company any and all records, books, documents or any other materials whatsoever (including all copies thereof) containing such trade secrets, which shall be and remain the property of the Company. 9 6.2 Non-Removal of Records. All documents, papers, materials, notes, books, correspondence, drawings and other written and graphical records relating to the Business of the Company which the Employee shall prepare or use, or come into contact with, shall be and remain the sole property of the Company and shall not be removed from their respective premises without the Company's prior written consent. ARTICLE 7 Termination 7.1 Termination For Cause. This Agreement and the employment of the Employee may be terminated by the Company "For Cause" in any of the following circumstances: (a) The Employee has committed any act or acts of fraud or misappropriation that result in or are intended to result in his personal enrichment at the expense of the Company; (b) The Employee is in default in a material respect in the performance of his obligations, services or duties hereunder, which shall include, without limitation, the Employee's disregarding the written instructions (in the Company's minutes or otherwise) from the Company's Board of Directors or his superiors concerning the conduct of his duties hereunder, the Employee's acting in a manner materially inconsistent with the published policies of the Company or its affiliates, as promulgated from time to time and which are generally applicable to all employees and/or senior executives of the Company, the Employee's acting in a manner 10 materially inconsistent with the customary standards of performance applicable to persons in similar positions in the supermarket industry in the United States, or if the Employee has breached any other material provision of this Agreement; provided that if, and only if, such default or breach is curable, the Employee shall not be in default hereunder unless he shall have failed to cure such default or breach within 15 days of written notice thereof by the Company to the Employee; (c) The Employee is grossly negligent, which causes substantial damage or loss to the Company, or engages in willful misconduct in the performance of his duties hereunder; provided, however, that the Employee may be terminated under this paragraph 7.1(c) only if the disinterested directors of the Company's Board of Directors first unanimously approve of the termination; or (d) The Employee has engaged in illegal activities which, individually, or in the aggregate, reflect materially adversely upon, or have a materially adverse impact on, the Company. A termination For Cause under this Section 7.1 shall be effective upon the date set forth in a written notice of termination delivered to the Employee. 7.2 Termination Without Cause. This Agreement and the employment of the Employee may be terminated "Without Cause" as follows: (a) by mutual agreement of the parties hereto; 11 (b) at the election of the Company at any time by its giving at least thirty (30) days advance written notice to the Employee; (c) at the election of the Employee by his giving written notice to the Company in the event that the Company shall default in or breach the performance of any of its obligations under this Agreement, or in the event that the Company shall effect a material diminution or material adverse change in the Employee's title, responsibilities or duties; provided, that if, and only if, such default, breach, diminution or change is curable, the Employee may not elect to give notice under this Section 7.2 (c), unless the Company shall have failed to cure such default, breach, diminution or change within fifteen (15) days of written notice thereof provided by the Employee to the Company; or (d) upon the Employee's death. A termination Without Cause under this Section 7.2 shall be effective upon the date set forth in a written notice of termination delivered hereunder, which shall be not less than thirty (30) days nor more than 45 days after the giving of such notice, except for a termination pursuant to Section 7.2(d) hereof, which shall be automatically effective upon the occurrence of the event described therein. 7.3 Effect of Termination For Cause. If the Employee's employment is terminated For Cause: (a) The Employee shall be entitled to accrued salary through the date of termination; 12 (b) The Employee shall be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 4.1 hereof; and (c) Except as provided in Article 11, this Agreement shall thereupon be of no further force and effect. 7.4 Effect of Termination Without Cause. If the Employee's employment is terminated Without Cause: (a) The Employee shall be entitled to accrued salary through the date of termination; (b) The Employee shall be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 4.1 hereof; and (c) Subject to Section 7.5 and except in the case of a termination Without Cause under Section 7.2(d), the Employee shall be entitled to receive all amounts of salary as would have been payable under Section 3.1 hereof through the Scheduled Termination Date, which amounts shall be paid as and when the same would have been payable under the Agreement had it not been terminated; provided, however, in the case of a Termination Without Cause pursuant to Section 7.2 (c), then Employee is entitled to elect to receive all salary due under this Section 7.4 (c) in a lump sum, discounted to reflect the present value of that salary over the Unexpired Term; (d) Subject to Section 7.5 and except in the case of a termination Without Cause under Section 7.2(d), the Employee shall be entitled to receive all medical, hospital and dental coverage 13 and benefits as would have been payable under Section 3.3 hereof through the Scheduled Termination Date, which amounts shall be paid as and when the same would have been payable under the Agreement had it not been terminated, and if the Employee is not entitled to participate in any such benefit plan under the terms thereof following the termination, then the Company shall provide the Employee with substantially identical coverage and benefits; (e) Subject to Section 7.5, if the Employee is participating in a Company bonus plan as of the date of termination, he shall be entitled to an accrued bonus through the date of termination, computed on a per diem basis based upon the bonus which would have otherwise been payable to the Employee for the fiscal year during which the date of termination falls had the Agreement not been terminated, computed on the same basis as in effect immediately prior to the date of termination, which bonus shall be paid as and when the same would have otherwise been payable under the bonus plan had the Agreement not been terminated; (f) All options granted to Employee pursuant to the Company's stock option plan shall become fully vested, if not already previously vested; and (g) Except as provided in Article 11, this Agreement shall be of no further force or effect. 7.5 Mitigation and Offset. In the event of a termination of employment hereunder, the Employee shall be under no obligation to seek alternative employment or other gainful occupation during the period from the termination of this Agreement through the Scheduled 14 Termination Date (the "Unexpired Term") by way of mitigation of amounts payable to the Employee under this Article 7; provided, however, that, except in the case of Employee's Termination Without Cause under Section 7.2 (c), if the Employee provides, directly or indirectly (including through any personal service entity), any services (whether as employee, consultant, independent contractor or otherwise) to any person engaged in a business similar to the business of the Company as then conducted (a "Third Party") during the Unexpired Term, all amounts paid or payable to the Employee by or on behalf of such Third Party in respect thereof (exclusive of any fringe benefits, profit sharing and deferred compensation arrangements customarily offered to senior management of the Third Party) ("Offset Amounts") shall reduce any amounts payable thereafter by the Company to the Employee under Sections 7.4(c), (d) and (e) hereof on a dollar-for-dollar basis. Upon the request of the Company, from time to time, the Employee shall certify in writing to the Company all Offset Amounts received or receivable by him and shall provide the Company with true copies of all written agreements and a summary of the terms of all oral agreements pursuant to which such Offset Amounts are paid or payable to the Employee. 7.6 Full Settlement. The payments provided for in Article 7 of this Agreement are in full settlement of any claims the Employee may have against the Company arising out of his termination, including, but not limited to, any claims for wrongful discharge; provided, however, that nothing herein shall limit any rights or 15 obligations of the parties under any other agreement with the Company or any pension, severance, retirement, stock option, deferred compensation or other benefit plans of the Company which are applicable to the Employee and which provide for specified rights and obligations in the event of a termination of the Employee's employment with the Company. ARTICLE 8 Non-Competition And Non-Interference 8.1 Non-Competition. The Employee agrees that during the Term hereof and for a period of one year thereafter, except in the case of a Termination Without Cause, the Employee will not, directly, indirectly or as an agent on behalf of or in conjunction with any person, firm, partnership, corporation or other entity, own, manage, control, join, or participate in the ownership, management, operation, or control of, or be financially interested in or advise, lend money to, or be employed by or provide consulting services to, or be connected in any manner with (a) any supermarket, retail food store, grocery store, liquor store, warehouse store or any similar business located in market areas where the Company operates; or (b) any company, entity or business with which Company was in active negotiation for the purchase of a supermarket, retail food store, grocery store, liquor store or warehouse store at the time of termination of the Employee's employment, or with any other company which shall acquire such supermarket, retail food store, grocery store, liquor store or 16 warehouse store. The Employee acknowledges that the business of the Company is presently conducted throughout the counties in Florida listed on Exhibit A attached hereto and any county contiguous thereto and that such counties constitute the present market area of the Company. Ownership of less than 1% of the stock in a publicly-held company shall not be deemed a violation of this Section 8.1. 8.2 Non-Interference. The Employee agrees that during the Term hereof and for a period of one year thereafter, the Employee will not, directly, indirectly or as an agent on behalf of or in conjunction with any person, firm, partnership, corporation or other entity, induce or entice any employee of the Company to leave such employment or cause anyone else to do so. 8.3 Severability. If any covenant or provision contained in Section 8.1 is determined to be void or unenforceable in whole or in part, it shall not be deemed to affect or impair the validity of any other covenant or provision. The parties intend that the covenants contained in Section 8.1 shall be deemed to be a series of separate covenants, one for each county referenced therein. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in such Section. If, in any arbitral or judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included in such Section, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such 17 proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings. ARTICLE 9 Remedies 9.1 Equitable Remedies. The Employee and the Company agree that the services to be rendered by the Employee pursuant to this Agreement, and the rights and interests granted and the obligations to be performed by the Employee to the Company pursuant to this Agreement, are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by the Employee of any of the terms of the Agreement will cause the Company great and irreparable injury and damage. In the event of a breach or threatened breach of Article 6, Section 8.1 or Section 8.2, the Employee hereby expressly agrees that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of the Agreement, both pendente lite and permanently, against the Employee, as such breach would cause irreparable injury to the Company and a remedy at law would be inadequate and insufficient. Therefore, the Company may, in addition to pursuing its other remedies, obtain an injunction from any court having jurisdiction in the matter restraining any further violation. The Employee agrees that a bond in the amount of $5,000 shall be adequate security for issuance of any temporary 18 injunction. The Company shall also be entitled to such damages as it can show it has sustained, directly or indirectly, by reason of said breach. 9.2 Rights and Remedies Preserved. Nothing in this Agreement except Sections 7.6 and 10.11 shall limit any right or remedy the Company or the Employee may have under this Agreement or pursuant to law for any breach of this Agreement by the other party. Except as set forth in Sections 7.6 and 10.11, the rights granted to the Company and the Employee herein are cumulative and the election of one shall not constitute a waiver of such party's right to assert all other legal remedies available under the circumstances. ARTICLE 10 Miscellaneous 10.1 No Waivers. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver of any such provision, nor prevent such party thereafter from enforcing such provision or any other provision of this Agreement. 10.2 Notices. Any notice to be given to the Company and the Employee under the terms of this Agreement may be delivered personally, by telecopy, telex or other form of written electronic transmission, or by registered or certified mail, postage prepaid, and shall be addressed as follows: 19 If to the Company: Attention: Raymond P. Springer, Executive Vice President, Administration Kash n' Karry Food Stores, Inc. 6422 Harney Road Tampa, Florida 33610 Telecopier: (813) 626-9550 With a copy to: Attention: Robert S. Bolt, Esq. Barnett, Bolt, Kirkwood & Long 601 Bayshore Boulevard Suite 700 Tampa, Florida 33606 Telecopier: (813) 251-6711 If to the Employee: Ronald Johnson 928 Forest Lake Circle Chesapeake, Virginia 23320 With a copy to: William R. VanBuren, III Kaufman & Canoles One Commercial Place Norfolk, VA 23514-3037 Telecopier: (804) 624-3169 Either party may hereafter notify the other in writing of any change in address. Any notice shall be deemed duly given (i) when personally delivered, or (ii) on the third day after it is mailed by registered or certified mail, postage prepaid, as provided herein. 10.3 Severability. The provisions of this Agreement are severable and if any provision of this Agreement shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions, or enforceable parts thereof, shall not be affected thereby. 20 10.4 Successors and Assigns. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, including the survivor upon any merger, consolidation or combination of the Company with any other entity. The Employee shall not have the right to assign, delegate or otherwise transfer any duty or obligation to be performed by him hereunder to any person or entity, nor to assign or transfer any rights hereunder. 10.5 Entire Agreement. With respect to the terms of Employee's employment, this Agreement supersedes all prior agreements and understandings between the parties hereto, oral or written, and may not be modified or terminated orally. No modification, termination or attempted waiver shall be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced. This Agreement was the subject of negotiation by the parties hereto and their counsel. The parties agree that no prior drafts of this Agreement shall be admissible as evidence (whether in any arbitration or court of law) in any proceeding which involves the interpretation of any provisions of this Agreement. 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida without reference to the conflict of law principles thereof. 21 10.7 Section Headings. The section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said sections. 10.8 Further Assurances. Each party hereto shall cooperate and shall take such further action and shall execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. 10.9 Gender. Whenever the pronouns "he" or "his" are used herein they shall also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable. Words in the singular shall be read and construed as though in the plural and words in the plural shall be read and construed as though in the singular in all cases where they would so apply. 10.10 Counterparts. This Agreement may be executed in counterparts, all of which taken together shall be deemed one original. 10.11 Arbitration. The parties hereto agree that any dispute concerning or arising out of the provisions of the Agreement shall be resolved by arbitration in accordance with the rules of the American Arbitration Association. Such arbitration shall be held in Tampa, Florida and the decision of the arbitrator(s) shall be conclusive and binding on the parties and shall be enforceable by either party in any court of competent jurisdiction. The arbitrator may, in his or her discretion, award attorneys' fees and costs to such party as he or she sees fit in rendering his or her 22 decision. Notwithstanding the foregoing, if any dispute arises hereunder as to which the Company desires to exercise any rights or remedies under Section 9.1 hereof, the Company may, in its discretion, in lieu of submitting the matter to arbitration, bring an action thereon in any court of competent jurisdiction in Hillsborough County, Florida, which court may grant any and all relief available in equity or at law. In any such action, the prevailing party shall be entitled to reasonable attorneys' fees and costs as may be awarded by the court. ARTICLE 11 Survival 11.1 Survival. The provisions of Article 6, 8, 9 and 10, and Sections 7.3, 7.4, 7.5 and 7.6 of this Agreement shall survive the termination of this Agreement whether upon, or prior to, the Scheduled Termination Date hereof. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. KASH N' KARRY FOOD STORES, INC., a Delaware corporation /s/ Robert S. Bolt By: /s/ R. P. Springer Name:Raymond P. Springer /s/ Anthony R. Petrillo Title:Executive Vice President As to the Company /s/ Robert S. Bolt /s/ Ronald Johnson RONALD JOHNSON /s/ Anthony R. Petrillo Title:Executive Vice President As to the Employee 20\WL\LWH\KNK.SEC\S1.95\ex-10-10.ASC 23 EX-10 10 EXHIBIT 10.11 FOR S-1 FILING 5/1/95 [CONFORMED COPY] EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of March 6, 1995 (the "Execution Date"), between KASH N' KARRY FOOD STORES, INC., a Delaware corporation (the "Company"), and GARY M. SHELL (the "Employee"). WHEREAS, the Company and the Employee desire to enter into this Agreement to assure the Company of the services of the Employee for the benefit of the Company and to set forth the respective rights and duties of the parties hereto; WHEREAS, the Company is in the business of owning, operating and managing supermarkets and retail liquor, food, grocery and warehouse format stores in Florida and may, in the future, own, operate and manage additional supermarkets or retail liquor, food, grocery or warehouse format stores in or outside of Florida (such business, present and future, being hereinafter referred to as the "Business"); NOW, THEREFORE, in consideration of the premises and the mutual covenants, terms and conditions set forth herein, the Company and the Employee agree as follows: ARTICLE 1 Employment 1.1 Employment and Title. The Company hereby employs the Employee, and the Employee hereby accepts such employment as the Senior Vice President, Marketing and Non-Perishables, of the Company, upon the terms and conditions set forth herein. 1.2 Services. During the Term (as hereinafter defined) hereof, the Employee agrees to perform diligently and in good faith such duties and services for the Company under the direction of the Chief Executive Officer as are consistent with the position of Senior Vice President-Marketing and Non-perishables. The Employee agrees to devote his best efforts and all of his full business time, energies and abilities to the services to be performed hereunder and for the exclusive benefit of the Company; provided, that this clause shall not be construed to prevent the Employee from personally, and for his own account, trading in stocks, bonds, securities, real estate, or other forms of investment for his own benefit, so long as any such activity does not materially interfere with the performance of his duties hereunder. The Employee shall be vested with such authority as is generally concomitant with the position to which he is appointed. 1.3 Location. The principal place of employment and the location of the Employee's principal office and ordinary place of work shall be in Tampa, Florida; provided, however, the Employee shall, when requested by his superiors, or may, if he determines it to be reasonably necessary, temporarily perform services outside said area as are reasonably required for the proper performance of his duties under this Agreement. 1.4 Exclusivity. The Employee shall not, without the prior written consent of the Company, directly or indirectly, during the term of this Agreement render services of a business, professional 2 or commercial nature to any other person or entity, whether for compensation or otherwise. 1.5 Representations. Each party represents and warrants to the other that he/it has full power and authority to enter into and perform this Agreement and that his/its execution of and performance of this Agreement shall not constitute a default under or breach of any of the terms of any agreement to which he/it is a party or under which he/it is bound. Each party represents that no consent or approval of any third party is required for his or its execution, delivery and performance of this Agreement. The Employee further represents and warrants to the Company that he is free to accept this employment, and that he has no other obligations or commitments of any kind to any one which would in any way hinder or interfere with his acceptance of, full performance of his obligations under, or exercise of his best efforts with respect to, this Agreement. ARTICLE 2 Term 2.1 Term. The term of the Employee's employment hereunder (the "Term") shall commence on March 6, 1995, (the "Commencement Date") and shall continue until (but not including) the third anniversary of the Commencement Date (the "Scheduled Termination Date") unless earlier terminated pursuant to the provisions of this Agreement. 3 ARTICLE 3 Compensation 3.1 Salary. As compensation for the services to be rendered by the Employee, the Company shall pay the Employee, during the Term of this Agreement, an annual salary in the amount of One Hundred Thirty Thousand Dollars ($130,000), which salary shall accrue weekly (prorated for periods less than a week) and shall be payable in equal weekly installments, in arrears. 3.2 Other Compensation. During the Term hereof, the Employee shall be entitled to participate, on a basis proportionate to the participation of the other executive officers of the Company, in any compensatory plan, contract or arrangement that is available to the Company's most senior executive officers from time to time during the Term hereof, including, but not limited to the Company's current bonus plan, generally referred to as the Incentive Compensation Plan, as in effect on the Commencement Date. For purposes of determining the Employee's Target Bonus under the Incentive Compensation Plan for the fiscal year ending in 1995, the parties agree that the Employee's Target Percentage will be not less than Fifty Percent (50%), and that the Employee's base salary under the Incentive Compensation Plan will be the Employee's annual salary under this Agreement, prorated on a weekly basis over the remaining period of that fiscal year. On the Execution Date, the Company will grant to the Employee, pursuant to its 1995 Key Employee Stock Option Plan (the "Stock Option Plan"), options to purchase 20,309 shares of common stock of the Company, representing 4 six-tenths of one percent (.6%) of the then outstanding common stock of the Company on a fully-diluted basis, for the exercise price of $15.00 per share and on the other terms set forth in the Stock Option Plan. 3.3 Benefits and Perquisites. The Employee shall be entitled, during the Term hereof, to the same medical, hospital, dental and life insurance coverage and benefits, vacations, and other perquisites, as are available to the Company's most senior executive officers on the Commencement Date or benefits that are substantially comparable, including those benefits described in the letter dated February 20, 1995, from Ron Johnson to the Employee, a copy of which is attached hereto as Exhibit A. 3.4 Withholding. Any and all amounts payable under this Agreement, including, without limitation, amounts payable in the event of the termination hereof under Sections 7.3 and 7.4 hereof, are subject to withholding for such federal, state and local taxes as the Company in its reasonable judgment determines to be required pursuant to any applicable law, rule or regulation. 3.5 Annual Review. No less frequently than annually, the Chief Executive Officer of the Company shall review the Employee's performance of his duties and services under this Agreement, and may, commensurate with the Employee's and the Company's performance and subject to the approval of the Board of Directors of the Company, increase, but not decrease, the salary, stock options, other compensation and benefits payable to the Employee under this Agreement during the remaining Term. 5 ARTICLE 4 Working Facilities, Expenses and Insurance 4.1 Working Facilities and Expenses. The Employee shall be furnished with an office at the principal office of the Company, or at such other location as may be agreed to by the Employee and the Chief Executive Officer of the Company, and other working facilities and secretarial and other assistance suitable to his position and adequate for the performance of his duties hereunder. The Company shall reimburse the Employee for all the Employee's reasonable expenses incurred while employed and performing his duties under and in connection with the terms and conditions of the Agreement, subject to the Employee's full appropriate documentation, including, without limitation, receipts for all such expenses in the manner required pursuant to Company's policies and procedures and the Internal Revenue Code. 4.2 Insurance. The Company may secure in its own name or otherwise, and at its own expense, life, disability and other insurance covering the Employee or the Employee and others, and the Employee shall not have any right, title or interest in or to such insurance other than as expressly provided herein. The Employee agrees to assist the Company in procuring such insurance by submitting to the usual and customary medical and other examinations to be conducted by such physician(s) as the Employee, the Company or such insurance company may agree to and designate and by signing such applications and other written instruments as 6 may be required by the insurance companies to which application is made for such insurance. ARTICLE 5 Illness or Incapacity 5.1 Right to Terminate. If, during the Term of this Agreement, the Employee shall be unable to perform in all material respects his duties hereunder for a period exceeding one hundred twenty (120) consecutive calendar days, or a total of one hundred eighty-six (186) non-consecutive calendar days, by reason of illness or incapacity, this Agreement may be terminated by the Company at its election pursuant to Section 7.2(b) hereof. 5.2 Right to Replace. If the Employee's illness or incapacity, whether by physical or mental cause, renders him unable for a minimum period of 30 consecutive calendar days to carry out his duties and responsibilities as set forth herein, the Company shall have the right to designate a person to temporarily succeed the Employee in the capacity described in Article 1 hereof; provided, however, that if the Employee returns to work from such illness or incapacity within the six (6) month period following his inability due to illness or incapacity, he shall be entitled to be reinstated in the capacity described in Article 1 hereof with all duties and privileges attendant thereto. 5.3 Rights Prior to Termination. The Employee shall be entitled to his full remuneration and benefits hereunder during such illness or incapacity unless and until an election is made by 7 the Company to terminate this Agreement in accordance with the provisions of this Article. ARTICLE 6 Confidentiality 6.1 Confidentiality. During the Term of this Agreement and at all times thereafter, the Employee agrees to maintain the confidential nature of all trade secrets, including, without limitation, development ideas, acquisition strategies and plans, financial information, records, "know-how", methods of doing business, customer, supplier and distributor lists and all other confidential information of the Company. The Employee shall not be obligated to maintain the confidential nature of information the disclosure of which is required by law or which already is in the public domain. The Employee shall not use (other than in connection with his employment), in any way whatsoever, such trade secrets except as authorized in writing by the Company. The Employee shall, upon terminating his employment, deliver to the Company any and all records, books, documents or any other materials whatsoever (including all copies thereof) containing such trade secrets, which shall be and remain the property of the Company. 6.2 Ownership of Records. All documents, papers, materials, notes, books, correspondence, drawings and other written and graphical records relating to the Business of the Company which the Employee shall prepare or use, or come into contact with, shall 8 be and remain the sole property of the Company. The Employee shall be allowed to remove any of the above listed materials from the Company's premises for a business purpose for use at Employee's home or elsewhere, unless specifically prohibited by a written notice received from the Company. ARTICLE 7 Termination 7.1 Termination For Cause. This Agreement and the employment of the Employee may be terminated by the Company "For Cause" in any of the following circumstances: (a) The Employee has committed any act or acts of fraud or misappropriation that result in or are intended to result in his personal enrichment at the expense of the Company; (b) The Employee is in default in a material respect in the performance of his obligations, services or duties hereunder, which shall include, without limitation, the Employee's disregarding the instructions from the Company's Chief Executive Officer concerning the conduct of his duties hereunder, the Employee's failure to achieve agreed upon performance objectives, the Employee's acting in a manner materially inconsistent with the policies of the Company or its affiliates, as promulgated from time to time in writing and which are generally applicable to all employees and/or senior executives of the Company, the Employee's acting in a manner materially inconsistent with the customary standards of performance applicable to persons in similar positions 9 in the supermarket industry in the United States, or if the Employee has breached any other material provision of this Agreement; provided that if, and only if, such default or breach is curable, the Employee shall not be in default hereunder unless he shall have failed to cure such default or breach within a reasonable period of time (depending upon the type of default or breach) after receipt of written notice thereof by the Company to the Employee; (c) The Employee is grossly negligent, which causes substantial damage or loss to the Company, or engages in willful misconduct in the performance of his duties hereunder; or (d) The Employee has engaged in illegal activities which, individually, or in the aggregate, reflect substantially and materially adversely upon, or have a substantially and materially adverse impact on, the Company. A termination For Cause under this Section 7.1 shall be effective upon the date set forth in a written notice of termination delivered to the Employee. 7.2 Termination Without Cause. This Agreement and the employment of the Employee may be terminated "Without Cause" as follows: (a) by mutual agreement of the parties hereto; (b) at the election of the Company at any time by its giving at least thirty (30) days advance written notice to the Employee; 10 (c) at the election of the Employee by his giving written notice to the Company in the event that the Company shall default in or breach the performance of any of its obligations under this Agreement, or in the event that the Company shall effect a material diminution or material adverse change in the Employee's title, responsibilities or duties; provided, that if, and only if, such default, breach, diminution or change is curable, the Employee may not elect to give notice under this Section 7.2 (c), unless the Company shall have failed to cure such default, breach, diminution or change within fifteen (15) days of written notice thereof provided by the Employee to the Company; or (d) upon the Employee's death. A termination Without Cause under this Section 7.2 shall be effective upon the date set forth in a written notice of termination delivered hereunder, which shall be not less than thirty (30) days nor more than forty-five (45) days after the giving of such notice, except for a termination pursuant to Section 7.2(d) hereof, which shall be automatically effective upon the occurrence of the event described therein. 7.3 Effect of Termination For Cause. If the Employee's employment is terminated For Cause: (a) The Employee shall be entitled to accrued salary through the date of termination; (b) The Employee shall be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 4.1 hereof; and 11 (c) Except as provided in Article 11, this Agreement shall thereupon be of no further force and effect. 7.4 Effect of Termination Without Cause. If the Employee's employment is terminated Without Cause: (a) The Employee shall be entitled to accrued salary through the date of termination; (b) The Employee shall be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 4.1 hereof; and (c) Subject to Section 7.5 and except in the case of a termination Without Cause under Section 7.2(d), the Employee shall be entitled to receive all amounts of salary as would have been payable under Section 3.1 hereof through the Scheduled Termination Date, which amounts shall be paid as and when the same would have been payable under the Agreement had it not been terminated; (d) Subject to Section 7.5 and except in the case of a termination Without Cause under Section 7.2(d), the Employee shall be entitled to receive all medical, hospital and dental coverage and benefits as would have been payable under Section 3.3 hereof through the Scheduled Termination Date, which amounts shall be paid as and when the same would have been payable under the Agreement had it not been terminated, and if the Employee is not entitled to participate in any such benefit plan under the terms thereof following the termination, then the Company shall provide the Employee with substantially identical coverage and benefits; 12 (e) Subject to Section 7.5, if the Employee is participating in a Company bonus plan as of the date of termination, he shall be entitled to an accrued bonus through the date of termination, computed on a per diem basis based upon the bonus which would have otherwise been payable to the Employee for the fiscal year during which the date of termination falls had the Agreement not been terminated, computed on the same basis as in effect immediately prior to the date of termination, which bonus shall be paid as and when the same would have otherwise been payable under the bonus plan had the Agreement not been terminated; and (f) Except as provided in Article 11, this Agreement shall be of no further force or effect. 7.5 Mitigation and Offset. In the event of a termination of employment hereunder, the Employee shall be under no obligation to seek alternative employment or other gainful occupation during the period from the termination of this Agreement through the Scheduled Termination Date (the "Unexpired Term") by way of mitigation of amounts payable to the Employee under this Article 7; provided, however, that if the Employee provides, directly or indirectly (including through any personal service entity), any services (whether as employee, consultant, independent contractor or otherwise) to any person engaged in a business similar to the business of the Company as then conducted (a "Third Party") during the Unexpired Term, all amounts paid or payable to the Employee by or on behalf of such Third Party in respect thereof ("Offset 13 Amounts") shall reduce any amounts payable thereafter by the Company to the Employee under Sections 7.4(c), (d) and (e) hereof on a dollar-for-dollar basis. Upon the request of the Company, from time to time, the Employee shall certify in writing to the Company all Offset Amounts received or receivable by him and shall provide the Company with true copies of all written agreements and a summary of the terms of all oral agreements pursuant to which such Offset Amounts are paid or payable to the Employee. 7.6 Full Settlement. The payments provided for in Article 7 of this Agreement are in full settlement of any claims the Employee may have against the Company arising out of his termination, including, but not limited to, any claims for wrongful discharge; provided, however, that nothing herein shall limit any rights or obligations of the parties under any other agreement with the Company or any pension, severance, retirement, stock option, deferred compensation or other benefit plans of the Company which are applicable to the Employee and which provide for specified rights and obligations in the event of a termination of the Employee's employment with the Company. ARTICLE 8 Non-Competition And Non-Interference 8.1 Non-Competition. The Employee agrees that during the Term hereof and for a period of one year thereafter, except in the case of a Termination Without Cause, the Employee will not, directly, indirectly or as an agent on behalf of or in conjunction 14 with any person, firm, partnership, corporation or other entity, own, manage, control, join, or participate in the ownership, management, operation, or control of, or be financially interested in or advise, lend money to, or be employed by or provide consulting services to, or be connected in any manner with (a) any supermarket, retail food store, grocery store, liquor store, warehouse store or any similar business located in market areas where the Company operates; or (b) any company, entity or business with which Company was in active negotiation for the purchase of a supermarket, retail food store, grocery store, liquor store or warehouse store at the time of termination of the Employee's employment, or with any other company which shall acquire such supermarket, retail food store, grocery store, liquor store or warehouse store. The Employee acknowledges that the business of the Company is presently conducted throughout the counties in Florida listed on Exhibit B attached hereto and any county contiguous thereto and that such counties constitute the present market area of the Company. Ownership of less than 1% of the stock in a publicly-held company shall not be deemed a violation of this Section 8.1. 8.2 Non-Interference. The Employee agrees that during the Term hereof and for a period of one year thereafter, the Employee will not, directly, indirectly or as an agent on behalf of or in conjunction with any person, firm, partnership, corporation or other entity, induce or entice any employee of the Company to leave such employment or cause anyone else to do so. 15 8.3 Severability. If any covenant or provision contained in Section 8.1 is determined to be void or unenforceable in whole or in part, it shall not be deemed to affect or impair the validity of any other covenant or provision. The parties intend that the covenants contained in Section 8.1 shall be deemed to be a series of separate covenants, one for each county referenced therein. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in such Section. If, in any arbitral or judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included in such Section, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings. ARTICLE 9 Remedies 9.1 Equitable Remedies. The Employee and the Company agree that the services to be rendered by the Employee pursuant to this Agreement, and the rights and interests granted and the obligations to be performed by the Employee to the Company pursuant to this Agreement, are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by the Employee of any of the terms of the Agreement will cause the Company great and irreparable 16 injury and damage. In the event of a breach or threatened breach of Article 6, Section 8.1 or Section 8.2, the Employee hereby expressly agrees that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of the Agreement, both pendente lite and permanently, against the Employee, as such breach would cause irreparable injury to the Company and a remedy at law would be inadequate and insufficient. Therefore, the Company may, in addition to pursuing its other remedies, obtain an injunction from any court having jurisdiction in the matter restraining any further violation. The Employee agrees that a bond in the amount of $5,000 shall be adequate security for issuance of any temporary injunction. The Company shall also be entitled to such damages as it can show it has sustained, directly or indirectly, by reason of said breach. 9.2 Rights and Remedies Preserved. Nothing in this Agreement except Sections 7.6 and 10.11 shall limit any right or remedy the Company or the Employee may have under this Agreement or pursuant to law for any breach of this Agreement by the other party. Except as set forth in Sections 7.6 and 10.11, the rights granted to the Company and the Employee herein are cumulative and the election of one shall not constitute a waiver of such party's right to assert all other legal remedies available under the circumstances. 17 ARTICLE 10 Miscellaneous 10.1 No Waivers. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver of any such provision, nor prevent such party thereafter from enforcing such provision or any other provision of this Agreement. 10.2 Notices. Any notice to be given to the Company and the Employee under the terms of this Agreement may be delivered personally, by telecopy, telex or other form of written electronic transmission, or by registered or certified mail, postage prepaid, and shall be addressed as follows: If to the Company: Attention: Raymond P. Springer Senior Vice President, CFO Kash n' Karry Food Stores, Inc. 6422 Harney Road Tampa, Florida 33610 Telecopier: (813) 626-9550 With a copy to: Attention: Robert S. Bolt, Esq. Barnett, Bolt, Kirkwood & Long 601 Bayshore Boulevard Suite 700 Tampa, Florida 33606 Telecopier: (813) 251-6711 If to the Employee: Gary M. Shell 8 Falls Glen Court Parkton, Maryland 21120 With a copy to: _______________________________ _______________________________ _______________________________ Either party may hereafter notify the other in writing of any change in address. Any notice shall be deemed duly given (i) when personally delivered, or (ii) on the third day after it is mailed 18 by registered or certified mail, postage prepaid, as provided herein. 10.3 Severability. The provisions of this Agreement are severable and if any provision of this Agreement shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions, or enforceable parts thereof, shall not be affected thereby. 10.4 Successors and Assigns. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, including the survivor upon any merger, consolidation or combination of the Company with any other entity. The Employee shall not have the right to assign, delegate or otherwise transfer any duty or obligation to be performed by him hereunder to any person or entity, nor to assign or transfer any rights hereunder. 10.5 Entire Agreement. With respect to the terms of Employee's employment, this Agreement supersedes all prior agreements and understandings between the parties hereto, oral or written, and may not be modified or terminated orally. No modification, termination or attempted waiver shall be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced. This Agreement was the subject of negotiation by the parties hereto and their counsel. The parties agree that no prior drafts of this Agreement shall be admissible as evidence (whether in any arbitration or court of law) 19 in any proceeding which involves the interpretation of any provisions of this Agreement. 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida without reference to the conflict of law principles thereof. 10.7 Section Headings. The section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said sections. 10.8 Further Assurances. Each party hereto shall cooperate and shall take such further action and shall execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. 10.9 Gender. Whenever the pronouns "he" or "his" are used herein they shall also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable. Words in the singular shall be read and construed as though in the plural and words in the plural shall be read and construed as though in the singular in all cases where they would so apply. 10.10 Counterparts. This Agreement may be executed in counterparts, all of which taken together shall be deemed one original. 10.11 Arbitration. The parties hereto agree that any dispute concerning or arising out of the provisions of the Agreement shall 20 be resolved by arbitration in accordance with the rules of the American Arbitration Association. Such arbitration shall be held in Tampa, Florida and the decision of the arbitrator(s) shall be conclusive and binding on the parties and shall be enforceable by either party in any court of competent jurisdiction. The arbitrator may, in his or her discretion, award attorneys' fees and costs to such party as he or she sees fit in rendering his or her decision. Notwithstanding the foregoing, if any dispute arises hereunder as to which the Company desires to exercise any rights or remedies under Section 9.1 hereof, the Company may, in its discretion, in lieu of submitting the matter to arbitration, bring an action thereon in any court of competent jurisdiction in Hillsborough County, Florida, which court may grant any and all relief available in equity or at law. In any such action, the prevailing party shall be entitled to reasonable attorneys' fees and costs as may be awarded by the court. ARTICLE 11 Survival 11.1 Survival. The provisions of Article 6, 8, 9 and 10, and Sections 7.3, 7.4, 7.5 and 7.6 of this Agreement shall survive the termination of this Agreement whether upon, or prior to, the Scheduled Termination Date hereof. 21 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. KASH N' KARRY FOOD STORES, INC., a Delaware corporation /s/ Julie E. Hicks By: /s/ R. P. Springer Name: R. P. Springer /s/ Denise A. Matthys Title: Senior Vice President As to the Company /s/ Julie E. Hicks /s/ Gary M. Shell GARY M. SHELL /s/ Denise A. Matthys As to the Employee 20\WL\LWH\KNK.SEC\S1.95\ex-10-11.ASC 22 EXHIBIT A Ron Johnson President and Chief Executive Officer February 20, 1995 Gary Shell 8 Falls Glen Court Parkton, Maryland 21120 Dear Gary, We would very much like you to join Kash n' Karry as our Senior Vice President, Marketing and Non-Perishables. As the leader of our marketing and non-perishables team, you will play a key role in the future of our Company. Here are the particulars of our offer: . Your base compensation will be $130,000 per year accrued and paid weekly. Salary reviews normally occur each September. . You will be a participant in the Kash n' Karry Management Incentive Compensation Plan. Your target bonus will be 50% of base compensation. You will receive a pro rata portion of your bonus for that part of fiscal 1995 during which you are employed. Bonuses are normally paid in September. . You will be a participant in the Kash n' Karry Management Stock Option Plan. The options will represent .6% of the outstanding common shares of the Company. The strike price has been set at $15.00 per share. . We will take care of your out of pocket relocation expenses per the attached Relocation Policy, including the following: - All expenses incurred in connection with selling your current residence will be reimbursed - A check for $5,000 will be given to you to cover incidental expenses connected with your new residence - Temporary housing expenses will be covered for up to 90 days (transition period) - We will gross-up your tax withholding for amounts reimbursed that are not deductible under the Internal Revenue Code. - The Company will pay for two trips per month for either you or your spouse during the transition period - The Company will pay for two additional trips for house hunting - The Company will pay for the travel costs of your children to visit Tampa on one occasion Gary Shell Page 2 . After your first 90 days of employment, you will become eligible for the Kash n' Karry medical/dental plan known as Smart Choice. The Company will reimburse you for your COBRA premiums during the interim period. . You will receive a monthly car allowance of $486. Additionally, we will reimburse you for all business miles at $0.09 per mile. . You may purchase both life and accidental death and disability insurance up to 4 times base compensation. Amounts in excess of $250,000 will require a health questionnaire. . You will become eligible for our tax qualified 401K plan known as Kash n' Karry Retirement Estates beginning the first day of the quarter following your one year anniversary date. . You will also be immediately eligible to participate in our tax non-qualified Key Employee Savings Plan. This plan allows you to defer up to 15% of your annual base compensation. For calendar year 1995, the Company will match dollar for dollar on the first 3% and accrue interest on the weekly balance at 11% per annum. . Vacations are earned as of January 1 of each year. You are eligible for two weeks in calendar 1995 and three weeks each year thereafter. We will document much of this offer in an employment contract once you're on board. The contract will run for 3 years and include income protection language in the event of a "without cause" termination. Gary, I hope you'll accept our offer. Kash n' Karry is better positioned, both financially and operationally, than anytime in the last 6 years. All we need is a few key players like yourself. Please let me have your answer no later than Friday, March 3. We would like you to begin work within two weeks of your decision date. Very truly yours, RJ:jeh KASH N' KARRY FOOD STORES, INC. RELOCATION GUIDELINES KEY MANAGEMENT POSITIONS (STORE MANAGERS AND ABOVE) The following guidelines are intended to clarify, for the individuals involved, the basic relocation program provided by Kash n' Karry Food Stores, Inc. when relocating key management personnel at the store manager and above levels. INCOME TAX CONSIDERATIONS In all cases, it is understood that any payments made to or on behalf of employees who are relocating, may be treated as taxable income under the then current IRS regulations. Individuals relocating need to take into consideration in planning their move the income tax ramifications of these expenses and the effect they have on their tax liability during the total time it takes for the relocation to be completed. SALE/PURCHASE OF RESIDENCE Expenses will be covered up to a maximum of $10,000.00 for items related to the sale of the current residence such a realtor fees, title search and attorney fees. On the new home purchase, attorney fees are covered; points and discount fees, which are generally treated as interest and deductible expenses under current IRS regulations, are excluded. MOVING COSTS Expenses related to moving household goods from the current (old) residence to the new residence, are covered, excluding such unusual items as rock collections, boats, second automobiles. Storage of household goods is not covered. MORTGAGE ASSISTANCE For a period not to exceed 12 months, the company will pay the lesser of the two (2) mortgage payments (New residence or Old Residence). To qualify and be eligible for continuing payments, you must: 1) Be actively marketing the property for Sale by a licensed Real Estate Firm, 2) The Real Estate Firm must have written authority to discuss the sale of the property with representatives of the Company, 3) The property must be maintained in good, clean selling appearance, inside and out, 4) Any damage by storm, vandals or other acts must be immediately repaired at your expense. Any reduction in the mortgage principal balance during the time the company is making mortgage payments on your behalf shall be used to offset the total expense incurred during the relocation and be treated as part of the direct payments by Kash n' Karry Food Stores, Inc. to you for covered expenses. TEMPORARY BRIDGE LOAN To expedite your relocation, the company will provide an interest free bridge loan, payable immediately on the sale of the old residence. The bridge loan shall be for up to 75% of the equity value in the "old" residence, not to exceed $50,000.00. The equity value shall be determined by the average of at least two (2) Market Analysis reports submitted by independent, licensed Real Estate Brokers, minus the current mortgage principal balance as certified in writing by your mortgage company. A promissory note must be signed and a Deed of Trust against the new property may be required. Repayment of the bridge loan is required immediately at the time of Closing/Settlement on the old residence. RELOCATION OF SPOUSE/FAMILY Generally one (1) round trip airfare will be provided for your spouse to "house hunt" in the area. This expense is evaluated on an individual basis. We assume that the employee, spouse and family will drive to the area for the relocation. During this travel, expenses for motel(s), meal(s) and gasoline are covered based on submission of receipts for actual expense incurred. Meals are covered at the rate of $12.00 per day per family member. TRANSITION EXPENSE/TEMPORARY HOUSING We will cover temporary housing during relocation for you for up to sixty (60) days. Should you be housed in a location that does not offer kitchen facilities, we provide $60.00 per week allowance for meals. No receipts are necessary should this arrangement be necessary. If kitchen facilities are available no food allowance is provided. LAUNDRY EXPENSE Laundry expenses are covered, when your temporary residence does not include laundry. Receipts are required for reimbursement of this expense. EXHIBIT "B" TO THE EMPLOYMENT AGREEMENT BETWEEN KASH N' KARRY FOOD STORES, INC. AND GARY M. SHELL Alachua Charlotte Citrus Hardee Hernando Highlands Hillsborough Lee Manatee Marion Osceola Pasco Pinellas Polk Sarasota Volusia EX-10 11 EXHIBIT 10.12 FOR S-1 FILING 5/1/95 [CONFORMED COPY] EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of March 16, 1995, between KASH N' KARRY FOOD STORES, INC., a Delaware corporation (the "Company"), and CLIFF SMITH (the "Employee"). WHEREAS, the Company and the Employee desire to enter into this Agreement to assure the Company of the services of the Employee for the benefit of the Company and to set forth the respective rights and duties of the parties hereto; WHEREAS, the Company is in the business of owning, operating and managing supermarkets and retail liquor, food, grocery and warehouse format stores in Florida and may, in the future, own, operate and manage additional supermarkets or retail liquor, food, grocery or warehouse format stores in or outside of Florida (such business, present and future, being hereinafter referred to as the "Business"); NOW, THEREFORE, in consideration of the premises and the mutual covenants, terms and conditions set forth herein, the Company and the Employee agree as follows: ARTICLE 1 Employment 1.1 Employment and Title. The Company hereby employs the Employee, and the Employee hereby accepts such employment as the Senior Vice President-Perishables of the Company, upon the terms and conditions set forth herein. 1.2 Services. (a) During the Term (as hereinafter defined) hereof, the Employee agrees to perform diligently and in good faith such duties and services for the Company under the direction of the Chief Executive Officer as are consistent with the position of Senior Vice President-Perishables. The Employee agrees to devote his best efforts and all of his full business time, energies and abilities to the services to be performed hereunder and for the exclusive benefit of the Company; provided, that this clause shall not be construed to prevent the Employee from personally, and for his own account, trading in stocks, bonds, securities, real estate, or other forms of investment for his own benefit, so long as any such activity does not materially interfere with the performance of his duties hereunder. The Employee shall be vested with such authority as is generally concomitant with the position to which he is appointed. 1.3 Location. The principal place of employment and the location of the Employee's principal office and ordinary place of work shall be in Tampa, Florida; provided, however, the Employee shall, when requested by his superiors, or may, if he determines it to be reasonably necessary, temporarily perform services outside said area as are reasonably required for the proper performance of his duties under this Agreement. 1.4 Exclusivity. The Employee shall not, without the prior written consent of the Company, directly or indirectly, during the 2 term of this Agreement render services of a business, professional or commercial nature to any other person or entity, whether for compensation or otherwise. 1.5 Representations. Each party represents and warrants to the other that he/it has full power and authority to enter into and perform this Agreement and that his/its execution of and performance of this Agreement shall not constitute a default under or breach of any of the terms of any agreement to which he/it is a party or under which he/it is bound. Each party represents that no consent or approval of any third party is required for his or its execution, delivery and performance of this Agreement. The Employee further represents and warrants to the Company that he is free to accept this employment, and that he has no other obligations or commitments of any kind to any one which would in any way hinder or interfere with his acceptance of, full performance of his obligations under, or exercise of his best efforts with respect to, this Agreement. ARTICLE 2 Term 2.1 Term. The term of the Employee's employment hereunder (the "Term") shall commence on March 26, 1995 (the "Commencement Date") and shall continue until (but not including) the third anniversary of the Commencement Date (the "Scheduled Termination Date") unless earlier terminated pursuant to the provisions of this Agreement. 3 ARTICLE 3 Compensation 3.1 Salary. As compensation for the services to be rendered by the Employee, the Company shall pay the Employee, during the Term of this Agreement, an annual salary in the amount of One Hundred Thirty Thousand Dollars ($130,000), which salary shall accrue weekly (prorated for periods less than a week) and shall be payable in equal weekly installments, in arrears. 3.2 Other Compensation. During the Term hereof, the Employee shall be entitled to participate, on a basis proportionate to the participation of the other executive officers of the Company, in any compensatory plan, contract or arrangement that is available to the Company's most senior executive officers from time to time during the Term hereof, including, but not limited to (a) the Company's current bonus plan, generally referred to as the Incentive Compensation Plan, as in effect on the Commencement Date, and (b) a management stock option plan to be adopted by the Company on such terms as shall be hereafter determined by the Board of Directors (the "Proposed Stock Option Plan"). When the Company adopts the Proposed Stock Option Plan, the Company will grant to the Employee thereunder options to purchase Six-tenths of One Percent (.6%) of the then outstanding common stock of the Company on a fully-diluted basis, on the terms set forth therein. Also, for purposes of determining the Employee's Target Bonus under the Incentive Compensation Plan, for the fiscal year ending in 1995, the parties agree that the Employee's Target Percentage will be not 4 less than Fifty Percent (50%), and that the Employee's base salary under the plan will be the Employee's annual salary under this Agreement, prorated on a weekly basis over the remaining period of that fiscal year. 3.3 Benefits and Perquisites. The Employee shall be entitled, during the Term hereof, to the same medical, hospital, dental and life insurance coverage and benefits, vacations, and other perquisites, as are available to the Company's most senior executive officers on the Commencement Date or benefits that are substantially comparable, including those benefits described in the letter dated February 20, 1995, from Ron Johnson to Cliff Smith, attached hereto as Exhibit A. 3.4 Withholding. Any and all amounts payable under this Agreement, including, without limitation, amounts payable in the event of the termination hereof under Sections 7.3 and 7.4 hereof, are subject to withholding for such federal, state and local taxes as the Company in its reasonable judgment determines to be required pursuant to any applicable law, rule or regulation. 3.5 Annual Review. No less frequently than annually, the Chief Executive Officer of the Company shall review the Employee's performance of his duties and services under this Agreement, and may, commensurate with the Employee's and the Company's performance and subject to the approval of the Board of Directors of the Company, increase, but not decrease, the salary, stock options, other compensation and benefits payable to the Employee under this Agreement during the remaining Term. 5 ARTICLE 4 Working Facilities, Expenses and Insurance 4.1 Working Facilities and Expenses. The Employee shall be furnished with an office at the principal office of the Company, or at such other location as may be agreed to by the Employee and the Chief Executive Officer of the Company, and other working facilities and secretarial and other assistance suitable to his position and adequate for the performance of his duties hereunder. The Company shall reimburse the Employee for all the Employee's reasonable expenses incurred while employed and performing his duties under and in connection with the terms and conditions of the Agreement, subject to the Employee's full appropriate documentation, including, without limitation, receipts for all such expenses in the manner required pursuant to Company's policies and procedures and the Internal Revenue Code. 4.2 Insurance. The Company may secure in its own name or otherwise, and at its own expense, life, disability and other insurance covering the Employee or the Employee and others, and the Employee shall not have any right, title or interest in or to such insurance other than as expressly provided herein. The Employee agrees to assist the Company in procuring such insurance by submitting to the usual and customary medical and other examinations to be conducted by such physician(s) as the Employee, the Company or such insurance company may agree to and designate and by signing such applications and other written instruments as 6 may be required by the insurance companies to which application is made for such insurance. ARTICLE 5 Illness or Incapacity 5.1 Right to Terminate. If, during the Term of this Agreement, the Employee shall be unable to perform in all material respects his duties hereunder for a period exceeding one hundred twenty (120) consecutive calendar days, or a total of one hundred eighty-six (186) non-consecutive calendar days, by reason of illness or incapacity, this Agreement may be terminated by the Company at its election pursuant to Section 7.2(b) hereof. 5.2 Right to Replace. If the Employee's illness or incapacity, whether by physical or mental cause, renders him unable for a minimum period of 30 consecutive calendar days to carry out his duties and responsibilities as set forth herein, the Company shall have the right to designate a person to temporarily succeed the Employee in the capacity described in Article 1 hereof; provided, however, that if the Employee returns to work from such illness or incapacity within the six (6) month period following his inability due to illness or incapacity, he shall be entitled to be reinstated in the capacity described in Article 1 hereof with all duties and privileges attendant thereto. 5.3 Rights Prior to Termination. The Employee shall be entitled to his full remuneration and benefits hereunder during such illness or incapacity unless and until an election is made by 7 the Company to terminate this Agreement in accordance with the provisions of this Article. ARTICLE 6 Confidentiality 6.1 Confidentiality. During the Term of this Agreement and at all times thereafter, the Employee agrees to maintain the confidential nature of all trade secrets, including, without limitation, development ideas, acquisition strategies and plans, financial information, records, "know-how", methods of doing business, customer, supplier and distributor lists and all other confidential information of the Company. The Employee shall not be obligated to maintain the confidential nature of information the disclosure of which is required by law or which already is in the public domain. The Employee shall not use (other than in connection with his employment), in any way whatsoever, such trade secrets except as authorized in writing by the Company. The Employee shall, upon terminating his employment, deliver to the Company any and all records, books, documents or any other materials whatsoever (including all copies thereof) containing such trade secrets, which shall be and remain the property of the Company. 6.2 Ownership of Records. All documents, papers, materials, notes, books, correspondence, drawings and other written and graphical records relating to the Business of the Company which the Employee shall prepare or use, or come into contact with, shall 8 be and remain the sole property of the Company. The Employee shall be allowed to remove any of the above listed materials from the Company's premises for a business purpose for use at Employee's home or elsewhere, unless specifically prohibited by a written notice received from the Company. ARTICLE 7 Termination 7.1 Termination For Cause. This Agreement and the employment of the Employee may be terminated by the Company "For Cause" in any of the following circumstances: (a) The Employee has committed any act or acts of fraud or misappropriation that result in or are intended to result in his personal enrichment at the expense of the Company; (b) The Employee is in default in a material respect in the performance of his obligations, services or duties hereunder, which shall include, without limitation, the Employee's disregarding the instructions from the Company's Chief Executive Officer concerning the conduct of his duties hereunder, the Employee's failure to achieve agreed upon performance objectives, the Employee's acting in a manner materially inconsistent with the policies of the Company or its affiliates, as promulgated from time to time in writing and which are generally applicable to all employees and/or senior executives of the Company, the Employee's acting in a manner materially inconsistent with the customary standards of performance applicable to persons in similar positions 9 in the supermarket industry in the United States, or if the Employee has breached any other material provision of this Agreement; provided that if, and only if, such default or breach is curable, the Employee shall not be in default hereunder unless he shall have failed to cure such default or breach within a reasonable period of time (depending upon the type of default or breach) after receipt of written notice thereof by the Company to the Employee; (c) The Employee is grossly negligent, which causes substantial damage or loss to the Company, or engages in willful misconduct in the performance of his duties hereunder; or (d) The Employee has engaged in illegal activities which, individually, or in the aggregate, reflect substantially and materially adversely upon, or have a substantially and materially adverse impact on, the Company. A termination For Cause under this Section 7.1 shall be effective upon the date set forth in a written notice of termination delivered to the Employee. 7.2 Termination Without Cause. This Agreement and the employment of the Employee may be terminated "Without Cause" as follows: (a) by mutual agreement of the parties hereto; (b) at the election of the Company at any time by its giving at least thirty (30) days advance written notice to the Employee; 10 (c) at the election of the Employee by his giving written notice to the Company in the event that the Company shall default in or breach the performance of any of its obligations under this Agreement, or in the event that the Company shall effect a material diminution or material adverse change in the Employee's title, responsibilities or duties; provided, that if, and only if, such default, breach, diminution or change is curable, the Employee may not elect to give notice under this Section 7.2 (c), unless the Company shall have failed to cure such default, breach, diminution or change within fifteen (15) days of written notice thereof provided by the Employee to the Company; or (d) upon the Employee's death. A termination Without Cause under this Section 7.2 shall be effective upon the date set forth in a written notice of termination delivered hereunder, which shall be not less than thirty (30) days nor more than forty-five (45) days after the giving of such notice, except for a termination pursuant to Section 7.2(d) hereof, which shall be automatically effective upon the occurrence of the event described therein. 7.3 Effect of Termination For Cause. If the Employee's employment is terminated For Cause: (a) The Employee shall be entitled to accrued salary through the date of termination; (b) The Employee shall be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 4.1 hereof; and 11 (c) Except as provided in Article 11, this Agreement shall thereupon be of no further force and effect. 7.4 Effect of Termination Without Cause. If the Employee's employment is terminated Without Cause: (a) The Employee shall be entitled to accrued salary through the date of termination; (b) The Employee shall be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 4.1 hereof; and (c) Subject to Section 7.5 and except in the case of a termination Without Cause under Section 7.2(d), the Employee shall be entitled to receive all amounts of salary as would have been payable under Section 3.1 hereof through the Scheduled Termination Date, which amounts shall be paid as and when the same would have been payable under the Agreement had it not been terminated; (d) Subject to Section 7.5 and except in the case of a termination Without Cause under Section 7.2(d), the Employee shall be entitled to receive all medical, hospital and dental coverage and benefits as would have been payable under Section 3.3 hereof through the Scheduled Termination Date, which amounts shall be paid as and when the same would have been payable under the Agreement had it not been terminated, and if the Employee is not entitled to participate in any such benefit plan under the terms thereof following the termination, then the Company shall provide the Employee with substantially identical coverage and benefits; 12 (e) Subject to Section 7.5, if the Employee is participating in a Company bonus plan as of the date of termination, he shall be entitled to an accrued bonus through the date of termination, computed on a per diem basis based upon the bonus which would have otherwise been payable to the Employee for the fiscal year during which the date of termination falls had the Agreement not been terminated, computed on the same basis as in effect immediately prior to the date of termination, which bonus shall be paid as and when the same would have otherwise been payable under the bonus plan had the Agreement not been terminated; and (f) Except as provided in Article 11, this Agreement shall be of no further force or effect. 7.5 Mitigation and Offset. In the event of a termination of employment hereunder, the Employee shall be under no obligation to seek alternative employment or other gainful occupation during the period from the termination of this Agreement through the Scheduled Termination Date (the "Unexpired Term") by way of mitigation of amounts payable to the Employee under this Article 7; provided, however, that if the Employee provides, directly or indirectly (including through any personal service entity), any services (whether as employee, consultant, independent contractor or otherwise) to any person engaged in a business similar to the business of the Company as then conducted (a "Third Party") during the Unexpired Term, all amounts paid or payable to the Employee by or on behalf of such Third Party in respect thereof ("Offset 13 Amounts") shall reduce any amounts payable thereafter by the Company to the Employee under Sections 7.4(c), (d) and (e) hereof on a dollar-for-dollar basis. Upon the request of the Company, from time to time, the Employee shall certify in writing to the Company all Offset Amounts received or receivable by him and shall provide the Company with true copies of all written agreements and a summary of the terms of all oral agreements pursuant to which such Offset Amounts are paid or payable to the Employee. 7.6 Full Settlement. The payments provided for in Article 7 of this Agreement are in full settlement of any claims the Employee may have against the Company arising out of his termination, including, but not limited to, any claims for wrongful discharge; provided, however, that nothing herein shall limit any rights or obligations of the parties under any other agreement with the Company or any pension, severance, retirement, stock option, deferred compensation or other benefit plans of the Company which are applicable to the Employee and which provide for specified rights and obligations in the event of a termination of the Employee's employment with the Company. ARTICLE 8 Non-Competition And Non-Interference 8.1 Non-Competition. The Employee agrees that during the Term hereof and for a period of one year thereafter, except in the case of a Termination Without Cause, the Employee will not, directly, indirectly or as an agent on behalf of or in conjunction 14 with any person, firm, partnership, corporation or other entity, own, manage, control, join, or participate in the ownership, management, operation, or control of, or be financially interested in or advise, lend money to, or be employed by or provide consulting services to, or be connected in any manner with (a) any supermarket, retail food store, grocery store, liquor store, warehouse store or any similar business located in market areas where the Company operates; or (b) any company, entity or business with which Company was in active negotiation for the purchase of a supermarket, retail food store, grocery store, liquor store or warehouse store at the time of termination of the Employee's employment, or with any other company which shall acquire such supermarket, retail food store, grocery store, liquor store or warehouse store. The Employee acknowledges that the business of the Company is presently conducted throughout the counties in Florida listed on Exhibit B attached hereto and any county contiguous thereto and that such counties constitute the present market area of the Company. Ownership of less than 1% of the stock in a publicly-held company shall not be deemed a violation of this Section 8.1. 8.2 Non-Interference. The Employee agrees that during the Term hereof and for a period of one year thereafter, the Employee will not, directly, indirectly or as an agent on behalf of or in conjunction with any person, firm, partnership, corporation or other entity, induce or entice any employee of the Company to leave such employment or cause anyone else to do so. 15 8.3 Severability. If any covenant or provision contained in Section 8.1 is determined to be void or unenforceable in whole or in part, it shall not be deemed to affect or impair the validity of any other covenant or provision. The parties intend that the covenants contained in Section 8.1 shall be deemed to be a series of separate covenants, one for each county referenced therein. Except for geographic coverage, each such separate covenant shall be deemed identical in terms to the covenant contained in such Section. If, in any arbitral or judicial proceeding, a court shall refuse to enforce all of the separate covenants deemed included in such Section, then such unenforceable covenants shall be deemed eliminated from the provisions hereof for the purpose of such proceedings to the extent necessary to permit the remaining separate covenants to be enforced in such proceedings. ARTICLE 9 Remedies 9.1 Equitable Remedies. The Employee and the Company agree that the services to be rendered by the Employee pursuant to this Agreement, and the rights and interests granted and the obligations to be performed by the Employee to the Company pursuant to this Agreement, are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by the Employee of any of the terms of the Agreement will cause the Company great and irreparable 16 injury and damage. In the event of a breach or threatened breach of Article 6, Section 8.1 or Section 8.2, the Employee hereby expressly agrees that the Company shall be entitled to the remedies of injunction, specific performance and other equitable relief to prevent a breach of the Agreement, both pendente lite and permanently, against the Employee, as such breach would cause irreparable injury to the Company and a remedy at law would be inadequate and insufficient. Therefore, the Company may, in addition to pursuing its other remedies, obtain an injunction from any court having jurisdiction in the matter restraining any further violation. The Employee agrees that a bond in the amount of $5,000 shall be adequate security for issuance of any temporary injunction. The Company shall also be entitled to such damages as it can show it has sustained, directly or indirectly, by reason of said breach. 9.2 Rights and Remedies Preserved. Nothing in this Agreement except Sections 7.6 and 10.11 shall limit any right or remedy the Company or the Employee may have under this Agreement or pursuant to law for any breach of this Agreement by the other party. Except as set forth in Sections 7.6 and 10.11, the rights granted to the Company and the Employee herein are cumulative and the election of one shall not constitute a waiver of such party's right to assert all other legal remedies available under the circumstances. 17 ARTICLE 10 Miscellaneous 10.1 No Waivers. The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver of any such provision, nor prevent such party thereafter from enforcing such provision or any other provision of this Agreement. 10.2 Notices. Any notice to be given to the Company and the Employee under the terms of this Agreement may be delivered personally, by telecopy, telex or other form of written electronic transmission, or by registered or certified mail, postage prepaid, and shall be addressed as follows: If to the Company: Attention: Raymond P. Springer, Executive Vice President, Administration Kash n' Karry Food Stores, Inc. 6422 Harney Road Tampa, Florida 33610 Telecopier: (813) 626-9550 With a copy to: Attention: Robert S. Bolt, Esq. Barnett, Bolt, Kirkwood & Long 601 Bayshore Boulevard Suite 700 Tampa, Florida 33606 Telecopier: (813) 251-6711 If to the Employee: Cliff Smith 8029 Long Nook Lane Charlotte, NC 28277 With a copy to: Jeffrey Koenig, Esq. 1130 E. 3rd St., Suite 400 Charlotte, NC 28204 Telecopier: (704) 335-5472 Either party may hereafter notify the other in writing of any change in address. Any notice shall be deemed duly given (i) when 18 personally delivered, or (ii) on the third day after it is mailed by registered or certified mail, postage prepaid, as provided herein. 10: Severability. The provisions of this Agreement are severable and if any provision of this Agreement shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the provisions, or enforceable parts thereof, shall not be affected thereby. 10.4 Successors and Assigns. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company, including the survivor upon any merger, consolidation or combination of the Company with any other entity. The Employee shall not have the right to assign, delegate or otherwise transfer any duty or obligation to be performed by him hereunder to any person or entity, nor to assign or transfer any rights hereunder. 10.5 Entire Agreement. With respect to the terms of Employee's employment, this Agreement supersedes all prior agreements and understandings between the parties hereto, oral or written, and may not be modified or terminated orally. No modification, termination or attempted waiver shall be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced. This Agreement was the subject of negotiation by the parties hereto and their counsel. The parties agree that no prior drafts of this Agreement shall be admissible as evidence (whether in any arbitration or court of law) 19 in any proceeding which involves the interpretation of any provisions of this Agreement. 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida without reference to the conflict of law principles thereof. 10.7 Section Headings. The section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said sections. 10.8 Further Assurances. Each party hereto shall cooperate and shall take such further action and shall execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. 10.9 Gender. Whenever the pronouns "he" or "his" are used herein they shall also be deemed to mean "she" or "hers" or "it" or "its" whenever applicable. Words in the singular shall be read and construed as though in the plural and words in the plural shall be read and construed as though in the singular in all cases where they would so apply. 10.10 Counterparts. This Agreement may be executed in counterparts, all of which taken together shall be deemed one original. 10.11 Arbitration. The parties hereto agree that any dispute concerning or arising out of the provisions of the Agreement shall 20 be resolved by arbitration in accordance with the rules of the American Arbitration Association. Such arbitration shall be held in Tampa, Florida and the decision of the arbitrator(s) shall be conclusive and binding on the parties and shall be enforceable by either party in any court of competent jurisdiction. The arbitrator may, in his or her discretion, award attorneys' fees and costs to such party as he or she sees fit in rendering his or her decision. Notwithstanding the foregoing, if any dispute arises hereunder as to which the Company desires to exercise any rights or remedies under Section 9.1 hereof, the Company may, in its discretion, in lieu of submitting the matter to arbitration, bring an action thereon in any court of competent jurisdiction in Hillsborough County, Florida, which court may grant any and all relief available in equity or at law. In any such action, the prevailing party shall be entitled to reasonable attorneys' fees and costs as may be awarded by the court. ARTICLE 11 Survival 11.1 Survival. The provisions of Article 6, 8, 9 and 10, and Sections 7.3, 7.4, 7.5 and 7.6 of this Agreement shall survive the termination of this Agreement whether upon, or prior to, the Scheduled Termination Date hereof. 21 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. KASH N' KARRY FOOD STORES, INC., a Delaware corporation /s/ Robert S. Bolt By: /s/ Ronald E. Johnson Name: Ronald E. Johnson /s/ Gary M. Shell Title: President and CEO As to the Company /s/ Shonn L. Ross /s/ Cliff Smith CLIFF SMITH /s/ R. Patrick Snoddy As to the Employee 20\WL\LWH\KNK.SEC\S1.95\EX-10-12.ASC 22 Ron Johnson EXHIBIT A President and Chief Executive Officer February 20, 1995 Cliff Smith 8029 Long Nook Lane Charlotte, NC 28277 Dear Cliff, We would very much like you to join Kash n' Karry as our Senior Vice President, Perishables. As the leader of our perishables team, you will play a key role in the future of our Company. Here are the particulars of our offer: * Your base compensation will be $130,000 per year accrued and paid weekly. Salary reviews normally occur each September. * You will be a participant in the Kash n' Karry Management Incentive Compensation Plan. Your target bonus will be 50% of base compensation. You will receive a pro rata portion of your bonus for that part of fiscal 1995 during which you are employed. Bonuses are normally paid in September. * You will be a participant in the Kash n' Karry Management Stock Option Plan. The options will represent .6% of the outstanding common shares of the Company. The strike price has been set at $15.00 per share. * We will take care of your out of pocket relocation expenses per the attached Relocation Policy, including the following: - All expenses incurred in connection with selling your current residence will be reimbursed - A check for $5,000 will be given to you to cover incidental expenses connected with your new residence - Temporary housing expenses will be covered for up to 90 days (transition period) - We will gross-up your tax withholding for amounts reimbursed that are not deductible under the Internal Revenue Code. - The Company will pay for two trips per month for either you or your spouse during the transition period - The Company will pay for two additional trips for house hunting - The Company will pay for the travel costs of your children to visit Tampa on one occasion Cliff Smith Page 2 * After your first 90 days of employment, you will become eligible for the Kash n' Karry medical/dental plan known as Smart Choice. The Company will reimburse you for your COBRA premiums during the interim period. * You will receive a monthly car allowance of $486. Additionally, we will reimburse you for all business miles at $0.09 per mile. * You may purchase both life and accidental death and disability insurance up to 4 times base compensation. Amounts in excess of $250,000 will require a health questionnaire. * You will become eligible for our tax qualified 401K plan known as Kash n' Karry Retirement Estates beginning the first day of the quarter following your one year anniversary date. * You will also be immediately eligible to participate in our tax non-qualified Key Employee Savings Plan. This plan allows you to defer up to 15% of your annual base compensation. For calendar year 1995, the Company will match dollar for dollar on the first 3% and accrue interest on the weekly balance at 11% per annum. * Vacations are earned as of January 1 of each year. You are eligible for two weeks in calendar 1995 and three weeks each year thereafter. We will document much of this offer in an employment contract once you're on board. The contract will run for 3 years and include income protection language in the event of a "without cause" termination. Cliff, I hope you'll accept our offer. Kash n' Karry is better positioned, both financially and operationally, than anytime in the last 6 years. All we need is a few key players like yourself. Please let me have your answer no later than Friday, March 3. We would like you to begin work within two weeks of your decision date. Very truly yours, /s/ Ron RJ:jeh KASH N' KARRY FOOD STORES, INC. RELOCATION GUIDELINES KEY MANAGEMENT POSITIONS (STORE MANAGERS AND ABOVE) The following guidelines are intended to clarify, for the individuals involved, the basic relocation program provided by Kash n' Karry Food Stores, Inc. when relocating key management personnel at the store manager and above levels. INCOME TAX CONSIDERATIONS In all cases, it is understood that any payments made to or on behalf of employees who are relocating, may be treated as taxable income under the then current IRS regulations. Individuals relocating need to take into consideration in planning their move the income tax ramifications of these expenses and the effect they have on their tax liability during the total time it takes for the relocation to be completed. SALE/PURCHASE OF RESIDENCE Expenses will be covered up to a maximum of $10,000.00 for items related to the sale of the current residence such a realtor fees, title search and attorney fees. On the new home purchase, attorney fees are covered; points and discount fees, which are generally treated as interest and deductible expenses under current IRS regulations, are excluded. MOVING COSTS Expenses related to moving household goods from the current (old) residence to the new residence, are covered, excluding such unusual items as rock collections, boats, second automobiles. Storage of household goods is not covered. MORTGAGE ASSISTANCE For a period not to exceed 12 months, the company will pay the lesser of the two (2) mortgage payments (New residence or Old Residence). To qualify and be eligible for continuing payments, you must: 1) Be actively marketing the property for Sale by a licensed Real Estate Firm, 2) The Real Estate Firm must have written authority to discuss the sale of the property with representatives of the Company, 3) The property must be maintained in good, clean selling appearance, inside and out, 4) Any damage by storm, vandals or other acts must be immediately repaired at your expense. Any reduction in the mortgage principal balance during the time the company is making mortgage payments on your behalf shall be used to offset the total expense incurred during the relocation and be treated as part of the direct payments by Kash n' Karry Food Stores, Inc. to you for covered expenses. TEMPORARY BRIDGE LOAN To expedite your relocation, the company will provide an interest free bridge loan, payable immediately on the sale of the old residence. The bridge loan shall be for up to 75% of the equity value in the "old" residence, not to exceed $50,000.00. The equity value shall be determined by the average of at least two (2) Market Analysis reports submitted by independent, licensed Real Estate Brokers, minus the current mortgage principal balance as certified in writing by your mortgage company. A promissory note must be signed and a Deed of Trust against the new property may be required. Repayment of the bridge loan is required immediately at the time of Closing/Settlement on the old residence. RELOCATION OF SPOUSE/FAMILY Generally one (1) round trip airfare will be provided for your spouse to "house hunt" in the area. This expense is evaluated on an individual basis. We assume that the employee, spouse and family will drive to the area for the relocation. During this travel, expenses for motel(s), meal(s) and gasoline are covered based on submission of receipts for actual expense incurred. Meals are covered at the rate of $12.00 per day per family member. TRANSITION EXPENSE/TEMPORARY HOUSING We will cover temporary housing during relocation for you for up to sixty (60) days. Should you be housed in a location that does not offer kitchen facilities, we provide $60.00 per week allowance for meals. No receipts are necessary should this arrangement be necessary. If kitchen facilities are available no food allowance is provided. LAUNDRY EXPENSE Laundry expenses are covered, when your temporary residence does not include laundry. Receipts are required for reimbursement of this expense. EXHIBIT "B" TO THE EMPLOYMENT AGREEMENT BETWEEN KASH N' KARRY FOOD STORES, INC. AND CLIFF SMITH Alachua Charlotte Citrus Hardee Hernando Highlands Hillsborough Lee Manatee Marion Osceola Pasco Pinellas Polk Sarasota Volusia EX-10 12 EXHIBIT 10.13 FOR S-1 FILING 5/1/95 Incentive Compensation Plan Introduction Selected positions are eligible for the Kash n' Karry Incentive Compensation Plan. The list of eligible positions is annually reviewed and approved by the Executive Committee. Each eligible position is assigned a bonus percentage based upon a number of factors including the responsibility of the job and the direct impact the job has upon the Company's operating profit. Each participant will receive a letter from the Executive Committee stating his/her target percentage for the upcoming year. To determine your Target Bonus simply multiply your base salary by the target percentage: Example: 1) Target Percentage 15% 2) Base Salary $40,000 3) Target Bonus (1 X 2) $6,000 Changes in responsibility or base salary during the year will be pro-rated as appropriate. Adjusted Target Bonus At the end of the fiscal year, your Target Bonus may be adjusted either up or down based upon our achievement of Budgeted Operating Profit. If the Company exceeds Budgeted Operating Profit your Target Bonus could double! But, if the Company fails to achieve its Budgeted Operating Profit, your Target bonus will be reduced. The following will be used to determine your Adjusted Target Bonus: Adjusted Target Bonus Table Performance Target Bonus Ratio Multiplier 120% & above 2.00 115% 1.75 110% 1.50 105% 1.25 100% 1.00 99% .95 98% .90 97% .85 96% .80 95% .75 94% .60 93% .50 92% .30 91% .15 90% 0 Performance Ratio = Actual Operating Profit divided by Budgeted Operating Profit Operating Profit = Earnings Before Interest, Taxes, Depreciation and Amortization The following illustrates both a situation in which the Company exceeds or falls short of its budget. Example A: Budgeted Operating Profit $54.5 Actual Operating Profit $57.0 Performance Ratio 105% Target Bonus Multiplier 1.25 Adjusted Target Bonus $6,000 X 1.25 = $7,500 Example B: Budgeted Operating Profit $54.5 Actual Operating Profit $53.0 Performance Ratio 97% Target Bonus Multiplier .85 Adjusted Target Bonus $6,000 X .85 = $5,100 Achievement and Payout Ratio Your Bonus Award is based upon the achievement of your Performance Planning Objectives. Kash n' Karry has used PPO's for many years as a means to focus effort toward the achievement of goals that are most important to the success of the Company. The Plan calls for PPO's to be written so that 80% of the weighting is based on the achievement of specific budgets approved by the Executive Committee. The remainder are to be tied to personal development and customer service goals as determined by you and your supervisor. The actual weighting of these goals will be communicated to you during the performance planning process. The following table is to be used to determine the Payout Ratio for given levels of achievement of a specific budget objective: Achievement Table A % of Achievement Payout Ratio 100% or above 100% 1% unfavorable 95% 2% unfavorable 90% 3% unfavorable 85% 4% unfavorable 80% 5% unfavorable 75% 6% unfavorable 60% 7% unfavorable 50% 8% unfavorable 30% 9% unfavorable 15% 10% unfavorable 0 The following two examples illustrate both an expense objective and a profit objective. Example A: 1) Budgeted R & M Expenses .79% of sales 2) Actual R & M Expenses .81% of sales 3) % Achievement = .81%/.79% = 102.53 or 3% unfavorable 4) Payout Ratio = 85% Example B: 1) Budgeted District Operating Profit $12.0 2) Actual District Operating Profit $12.5 3) % Achievement = 104.2 4) Payout Ratio = 100% Personal development and customer service objectives may not lend themselves to measurement against Table A. For example, an objective might be to train and become competent in another area of the business for personal development. The achievement of this objective is not objectively measurable and will be subject to the judgement of your supervisor. The following table is to be used to determine the Payout Ratio for these types of objectives. Achievement Table B Level of Achievement Payout Ratio A Meet or exceed objective 100% B Satisfied most of objective .90 C Satisfied majority of the objective .50 D Did something right .30 F Unsatisfactory achievement 0 Determining the Bonus Award After each objective is measured and the payout ratio is determined using the appropriate table, the payout ratio for each objective is then multiplied by the weighted factor for the objective to determine the weighted payout percentage. The weights are assigned at the beginning of the year during the Performance Planning Process. Example: Objective Table Weight % Achievement Weighted Payout 1 A 50% X 85% = 42.5 2 A 20% X 100% = 20.0 3 B 10% X 90% = 9.0 4 B 15% X 50% = 7.5 5 B 5% X 0 = 0 100% 79.0% In this example, the participant would be paid 79.0% of the Adjusted Target Bonus. In the two examples discussed under Adjusted Target Bonus - that would be: Example A 79% X $7,500 = $5,925 Example B 79% X $5,100 = $4,029 Plan Administration The Company has the right to make changes to this Plan at any time. In addition, if Kash n' Karry's overall financial condition does not warrant the paying of Bonus Awards, awards could be reduced or eliminated for a period of time. The Board of Directors makes the final determination of Bonus Award payouts. While the Company expects to continue the Plan, it reserves the right to change, modify, suspend, interpret, or cancel the program in whole or in part, without advance notice, without having to give cause or justification. It is also important to understand that this program does not constitute a contract of employment or in any way contravene our employment at will policy. approved 10/26/94 EX-10 13 EXHIBIT 10.16(A) FOR S-1 FILING 5/1/95 [As adopted by the Board on 3/9/95] KASH N' KARRY FOOD STORES, INC. 1995 KEY EMPLOYEE STOCK OPTION PLAN TABLE OF CONTENTS 1. Purpose.. . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Definitions.. . . . . . . . . . . . . . . . . . . . . . . 1 2.1. "Affiliate" . . . . . . . . . . . . . . . . . . . . 1 2.2. "Award" . . . . . . . . . . . . . . . . . . . . . . 1 2.3. "Award Agreement" . . . . . . . . . . . . . . . . . 1 2.4. "Board" . . . . . . . . . . . . . . . . . . . . . . 1 2.5. "Change of Control" . . . . . . . . . . . . . . . . 1 2.6. "Code" . . . . . . . . . . . . . . . . . . . . . . 1 2.7. "Committee" . . . . . . . . . . . . . . . . . . . . 1 2.8. "Common Stock" . . . . . . . . . . . . . . . . . . 1 2.9. "Company" . . . . . . . . . . . . . . . . . . . . . 2 2.10. "Date of Grant" . . . . . . . . . . . . . . . . . . 2 2.11. "Disability" . . . . . . . . . . . . . . . . . . . 2 2.12. "Exchange Act". . . . . . . . . . . . . . . . . . . 2 2.13. "Fair Market Value" . . . . . . . . . . . . . . . . 2 2.14. "Fiscal Year" . . . . . . . . . . . . . . . . . . . 2 2.15. "Incentive Option". . . . . . . . . . . . . . . . . 2 2.16. "Nonqualified Option" . . . . . . . . . . . . . . . 2 2.17. "Original Stockholders" . . . . . . . . . . . . . . 2 2.18. "Participant" . . . . . . . . . . . . . . . . . . . 3 2.19. "Plan" . . . . . . . . . . . . . . . . . . . . . . 3 2.20. "Retirement" . . . . . . . . . . . . . . . . . . . 3 2.21. "SEC" . . . . . . . . . . . . . . . . . . . . . . . 3 2.22. "SEC Rule 16b-3" . . . . . . . . . . . . . . . . . 3 2.23. "Stock Option" . . . . . . . . . . . . . . . . . . 3 2.24. "Subsidiary(ies)" . . . . . . . . . . . . . . . . . 3 2.25. "Termination for Cause" . . . . . . . . . . . . . . 3 2.26. "Voting Interest" . . . . . . . . . . . . . . . . . 4 3. Administration. . . . . . . . . . . . . . . . . . . . . . 4 3.1. The Committee. . . . . . . . . . . . . . . . . . . . 4 3.2. Plan Administration and Plan Rules.. . . . . . . . . 4 3.3. Liability Limitation.. . . . . . . . . . . . . . . . 5 4. Term of Plan/Common Stock Subject to Plan. . . . . . . . . 5 4.1. Term.. . . . . . . . . . . . . . . . . . . . . . . . 5 4.2. Common Stock.. . . . . . . . . . . . . . . . . . . . 5 4.3. Computation of Available Shares. . . . . . . . . . . 6 5. Eligibility.. . . . . . . . . . . . . . . . . . . . . . . 6 6. Awards. . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.1. Terms and Conditions.. . . . . . . . . . . . . . . . 6 6.2. Grant. . . . . . . . . . . . . . . . . . . . . . . . 6 6.3. Exercise Price.. . . . . . . . . . . . . . . . . . . 7 6.4. Term.. . . . . . . . . . . . . . . . . . . . . . . . 7 6.5. Incentive Options. . . . . . . . . . . . . . . . . . 7 i 6.6. Method of Exercise.. . . . . . . . . . . . . . . . . 7 6.7. Exercisability.. . . . . . . . . . . . . . . . . . . 8 7. Termination of Employment.. . . . . . . . . . . . . . . . 9 7.1. Unexercisable Options. . . . . . . . . . . . . . . . 9 7.2. Exercisable Options. . . . . . . . . . . . . . . . . 9 7.3. Committee Discretion.. . . . . . . . . . . . . . . . 10 8. Non-transferability of Awards.. . . . . . . . . . . . . . 10 9. Changes in Capitalization and Other Matters.. . . . . . . 10 9.1. No Corporate Action Restriction. . . . . . . . . . . 10 9.2. Recapitalization Adjustments.. . . . . . . . . . . . 11 9.3. Certain Mergers. . . . . . . . . . . . . . . . . . . 11 10. Change of Control.. . . . . . . . . . . . . . . . . . . . 11 10.1. Acceleration of Awards Vesting. . . . . . . . . . . 11 10.2. Change of Control.. . . . . . . . . . . . . . . . . 11 11. Amendment, Suspension, and Termination. . . . . . . . . . 12 11.1. In General. . . . . . . . . . . . . . . . . . . . . 12 11.2. Award Agreement Modifications.. . . . . . . . . . . 12 12. Miscellaneous.. . . . . . . . . . . . . . . . . . . . . . 13 12.1. Tax Withholding.. . . . . . . . . . . . . . . . . . 13 12.2. No Right to Perform Services. . . . . . . . . . . . 13 12.3. Unfunded Plan.. . . . . . . . . . . . . . . . . . . 13 12.4. Other Company Benefit and Compensation Programs.. . 13 12.5. Listing, Registration and Other Legal Compliance. . . . . . . . . . . . . . . . . . . . . 14 12.6. Designation of Beneficiary. . . . . . . . . . . . . 14 12.7. Leaves of Absence/Transfers.. . . . . . . . . . . . 15 12.8. Governing Law.. . . . . . . . . . . . . . . . . . . 15 12.9. Titles and Headings.. . . . . . . . . . . . . . . . 15 12.10. Effective Date.. . . . . . . . . . . . . . . . . . 15 ii KASH N' KARRY FOOD STORES, INC. 1995 KEY EMPLOYEE STOCK OPTION PLAN * * * * * 1. Purpose. The purpose of the Kash n' Karry Food Stores, Inc. 1995 Key Employee Stock Option Plan (the "Plan") is (a) to further and promote the interests of the Company, its Subsidiaries and its shareholders by enabling the Company and its Subsidiaries to attract, retain and motivate salaried key employees or those who will become salaried key employees, and (b) to align the interests of those individuals and the Company's shareholders. To do this, the Plan offers equity-based opportunities to provide such key employees with a proprietary interest in maximizing the growth, profitability and overall success of the Company and its Subsidiaries. 2. Definitions. For purposes of the Plan, the following terms shall have the meanings set forth below: 2.1. "Affiliate" means (a) a member of a controlled group of corporations of which the Company is a member or (b) an unincorporated trade or business which is under common control with the Company as determined in accordance with Section 414(c) of the Code. For purposes hereof, a "controlled group of corporations" shall mean a controlled group of corporations as defined in Section 1563(a) of the Code, determined without regard to Sections 1563(a)(4) and 1563(e)(3)(C). 2.2. "Award" means an award or grant made to a Participant under Section 6 of the Plan. 2.3. "Award Agreement" means the agreement executed by a Participant pursuant to Section 6.2 of the Plan in connection with the granting of an Award. 2.4. "Board" means the Board of Directors of the Company, as constituted from time to time. 2.5. "Change of Control" shall have the meaning ascribed thereto in Section 10.3 of the Plan. 2.6. "Code" means the Internal Revenue Code of 1986, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.7. "Committee" means the committee of the Board established to administer the Plan, as described in Section 3 of the Plan. 2.8. "Common Stock" means the common stock, par value $0.01 per share, of the Company or any security of the Company issued by the Company in substitution or exchange therefor. 2.9. "Company" means Kash n' Karry Food Stores, Inc., a Delaware corporation, or any successor corporation to Kash n' Karry Food Stores, Inc. 2.10. "Date of Grant" means, with respect to an Award, the date as of when it is granted or awarded to a Participant. 2.11. "Disability" means (a) disability as defined in the Participant's then effective employment agreement with the Company or any Subsidiary, or (b) if the Participant is not then a party to an effective employment agreement with the Company or a Subsidiary which defines disability, "Disability" shall mean any physical or mental disability which is determined in writing to be total and permanent by a medical physician selected in good faith by the Committee, as a result of which the Participant is unable to perform for the Company and its Subsidiaries substantially the same services as he or she performed prior to incurring such physical or mental disability. 2.12. "Exchange Act" means the Securities Exchange Act of 1934, as in effect and as amended from time to time, or any successor statute thereto, together with any rules, regulations and interpretations promulgated thereunder or with respect thereto. 2.13. "Fair Market Value" means on, or with respect to, any given date(s), the mean average of the high bid and low asked prices of the Common Stock, as reported on the National Association of Securities Dealers Automated Quotation System, Inc. ("NASDAQ"), for such date(s) or, if the Common Stock was not traded on such date(s), on the next preceding day or days on which the Common Stock was traded. If at any time the Common Stock is not traded on NASDAQ, the Fair Market Value of a share of the Common Stock shall be determined in good faith by the Committee. 2.14. "Fiscal Year" shall mean each of the fiscal years of the Company ending on the Sunday closest to July 31st, commencing with the fiscal year of the Company ending on July 30, 1995. 2.15. "Incentive Option" means a Stock Option granted under this Plan that is intended to qualify as an "incentive stock option," as defined in Section 422 of the Code. 2.16. "Nonqualified Option" means a Stock Option granted under this Plan that is not designated as an Incentive Option. 2.17. "Original Stockholders" means members of (x) any group consisting of members of the Board, or (y) the unofficial committee of holders of the Company's 12-3/8% Senior Notes due 2 1999, the Company's Senior Floating Rate Notes due August 2, 1996, and the Company's 14% Subordinated Debentures due February 1, 2001, (the "Bondholder Committee"), which committee participated in the negotiation of the terms of the Company's Plan of Reorganization dated as of December 12, 1994, filed in the United States Bankruptcy Court for the District of Delaware in respect of Case No. 94-1082 (HSB), or any other group of holders consisting in whole or in part of members of the Bondholder Committee. 2.18. "Participant" means any individual eligible under Section 5 of the Plan who is selected from time to time under Section 3.2 of the Plan to receive an Award under the Plan. 2.19. "Plan" means the Kash n' Karry Food Stores, Inc. 1995 Key Employee Stock Option Plan, as set forth herein and as in effect and as amended from time to time (together with any rules and regulations promulgated by the Committee with respect thereto). 2.20. "Retirement" means the retirement by the Participant from active employment with the Company and its Subsidiaries on or after the attainment of age sixty-five (65). 2.21. "SEC" means the United States Securities and Exchange Commission. 2.22. "SEC Rule 16b-3" means Rule 16b-3, as promulgated by the SEC under Section 16(b) of the Exchange Act, or any successor rule or regulation thereto, as such Rule is amended or applied from time to time. 2.23. "Stock Option" means an option to purchase Common Stock from the Company that is granted to a Participant pursuant to this Plan, whether as an Incentive Option or a Nonqualified Option. 2.24. "Subsidiary(ies)" means any corporation(s) (other than the Company) in an unbroken chain of corporations, including and beginning with the Company, if each of such corporations, other than the last corporation in the unbroken chain, owns, directly or indirectly, more than fifty percent (50%) of the voting stock in one of the other corporations in such chain. 2.25. "Termination for Cause" means, unless otherwise defined in the Participant's individual employment agreement with the Company or any Subsidiary (in which case such employment agreement definition shall govern), termination of employment as a result of (a) such Participant's violation of any rule or policy of the Company or any Subsidiary that results in damage to the Company or its Subsidiaries or which, after written notice to 3 do so, such Participant fails to correct within a reasonable time; (b) any material failure by a Participant to comply with a reasonable direction of the Board or the willful misconduct by a Participant in the responsibilities reasonably assigned to him or her; (c) any willful failure by a Participant to perform his or her job as required to meet the objectives of the Company or its Subsidiaries; (d) a Participant's performing services for any other corporation or person which competes with the Company or its Subsidiaries while he or she is employed by the Company or its Subsidiaries and without the written approval of the Chief Executive Officer of the Company (or, in case the Chief Executive Officer is the Participant, then without the written approval of the Board); (e) conviction by a court of competent jurisdiction of a felony; or (f) any other action or condition that may result in termination of an employee for cause pursuant to any generally applied standard adopted by the Board from time to time. 2.26. "Voting Interest" means securities of any class or classes or other ownership interests having general voting power under ordinary circumstances to elect members of a board of directors of any entity. 3. Administration. 3.1. The Committee. The Plan shall be administered by the Committee. The Committee shall be appointed from time to time by the Board and shall be comprised of not less than two (2) of the then members of the Board. No member of the Committee shall be eligible to receive Awards under the Plan. To the extent required for transactions under the Plan to qualify for the exemptions available under SEC Rule 16b-3, no person may serve on the Committee if, during the year preceding such service, he or she was granted or awarded equity securities of the Company (including options on such securities) under the Plan or any other plan of the Company or any Affiliate thereof. Consistent with the Bylaws of the Company, members of the Committee serve at the pleasure of the Board and the Board, subject to the immediately preceding sentence, may at any time and from time to time remove members from, or add members to, the Committee. Actions of the Committee shall be taken by the vote of a majority of its members. Any action may be taken by a written instrument signed by a majority of the Committee members, and action so taken shall be fully as effective as if it had been taken by a vote at a meeting. 3.2. Plan Administration and Plan Rules. The Committee is authorized to construe and interpret the Plan and to promulgate, amend, and rescind rules and regulations relating to the implementation, administration and maintenance of the Plan. Subject to the terms and conditions of the Plan, the Committee shall make all determinations necessary or advisable for the implementation, administration and maintenance of the Plan 4 including, without limitation, (a) selecting the Plan's Participants, (b) making Awards in such amounts and form as the Committee shall determine, (c) imposing such restrictions, terms and conditions upon such Awards as the Committee shall deem appropriate, and (d) correcting any technical defects(s) or technical omission(s), or reconciling any technical inconsistency(ies), in the Plan and/or any Award Agreement. The Committee may designate persons other than members of the Committee to carry out the day-to-day ministerial administration of the Plan under such conditions and limitations as it may prescribe, except that the Committee shall not delegate its authority with regard to the selection of Participants in the Plan and/or the granting of any Awards to Participants. The Committee's determinations under the Plan need not be uniform and may be made selectively among Participants, whether or not such Participants are similarly situated. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration, implementation or maintenance of the Plan shall be final, conclusive and binding upon all Participants and any person(s) claiming under or through any Participants. The Company shall effect the granting of Awards under the Plan, in accordance with the determinations made by the Committee, by execution of written agreements and/or other instruments in such form as is approved by the Committee. 3.3. Liability Limitation. Neither the Board nor the Committee, nor any member of either, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan (or any Award Agreement), and the members of the Board and the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys' fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage which may be in effect from time to time. 4. Term of Plan/Common Stock Subject to Plan. 4.1. Term. The Plan shall terminate on December 31, 2005, except with respect to Awards then outstanding. After such date, no further Awards shall be granted under the Plan. 4.2. Common Stock. The maximum number of shares of Common Stock in respect of which Stock Options may be granted under the Plan, subject to adjustment as provided in Section 9.2 of the Plan, shall not exceed 236,946 shares of Common Stock. In the event of a change in the Common Stock of the Company that is limited to a change in the designation thereof to "Capital Stock" or other similar designation, or to a change in the par value thereof, or from par value to no par value, without increase or decrease in the number of issued shares, the shares resulting 5 from any such change shall be deemed to be the Common Stock for purposes of the Plan. Common Stock which may be issued under the Plan may be either authorized and unissued shares or issued shares which have been reacquired by the Company (in the open market or in private transactions) and which are being held as treasury shares. No fractional shares of Common Stock shall be issued under the Plan. 4.3. Computation of Available Shares. For the purpose of computing the total number of shares of Common Stock available for Stock Options under the Plan, there shall be counted against the limitations set forth in Section 4.2 of the Plan the maximum number of shares of Common Stock potentially subject to issuance upon exercise of Stock Options granted under Section 6 of the Plan, determined as of the Date of Grant. If any Stock Options expire unexercised or are forfeited, surrendered, cancelled or otherwise terminated, or if any shares of Common Stock are tendered in payment of any Stock Options, the shares of Common Stock which were theretofore subject to such Stock Options shall again be available for Stock Options under the Plan to the extent of such expiration, forfeiture, surrender, cancellation, or other termination of such Stock Options. 5. Eligibility. Individuals eligible for Awards under the Plan shall consist of all salaried key employees (including officers), or those who will become salaried key employees (including officers), of the Company and/or its Subsidiaries or Affiliates. A Participant who has been granted an Award under the Plan may be granted an additional Award or Awards under the Plan if the Committee shall so determine. 6. Awards. 6.1. Terms and Conditions. Stock Options granted under the Plan shall be in respect of Common Stock. The Committee may designate any Stock Option as an Incentive Option, in which case the Stock Option must comply with the requirements of Section 6.5. If no designation is made, a Stock Option will constitute a Nonqualified Option. The Committee may grant a Participant both Incentive Options and Nonqualified Options, at the same time or at different times. Awards shall be subject to the terms and conditions set forth in this Section 6, and any additional terms and conditions, not inconsistent with the express terms and provisions of the Plan, as the Committee shall set forth in the relevant Award Agreement. Award Agreements need not be uniform. No Stock Option granted under the Plan may be exercised prior to the approval of the Plan by the Company's shareholders. 6.2. Grant. No Award shall be effective unless the Participant executes and delivers to the Company, within thirty (30) days following the date when he or she is given written 6 notice of the Award, an Award Agreement (in a form prescribed by the Committee). 6.3. Exercise Price. The exercise price per share of Common Stock subject to a Stock Option shall be determined by the Committee, including, without limitation, a determination based on a formula determined by the Committee, but shall in no event be less than the par value per share of Common Stock. 6.4. Term. The term of each Stock Option shall be such period of time as is fixed by the Committee. 6.5. Incentive Options. Notwithstanding anything in this Plan to the contrary, an Incentive Option must satisfy the following additional requirements: 6.5.1. The Incentive Option must be designated as such by the Committee when it is granted; 6.5.2. This Plan must be approved by the shareholders of the Company within twelve (12) months before or after the effective date of the Plan; 6.5.3. The exercise price under the Incentive Option must equal at least one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Stock Option; 6.5.4. The Incentive Option must expire not more than ten (10) years after its Date of Grant; and 6.5.5. If, at the time an Incentive Option is granted to a Participant, such Participant owns (within the meaning of Section 422(b)(6) of the Code) stock representing more than ten percent (10%) of the total combined Voting Interest of all classes of outstanding stock of either the Company or any Subsidiary, then: (a) the exercise price under the Incentive Option must equal at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock subject to the Stock Option; (b) the Incentive Option must expire not more than five (5) years after its Date of Grant; and (c) in the event of a termination of the Participant's employment due to death, Retirement or Disability, the Participant's right to exercise any then exercisable Stock Options pursuant to Section 7.2 hereof shall expire on the ninetieth (90th) day following such termination of employment. 6.6. Method of Exercise. Subject to the provisions of Section 6.7 of the Plan, a Stock Option may be exercised, in whole or in part, or in increments, at any time or from time to time before it expires. A partial exercise of a Stock Option 7 will not affect the Participant's subsequent right to exercise the Stock Option as to the remaining Common Stock subject to the Stock Option. Any portion of a Stock Option that is exercised may not be exercised again. To exercise a Stock Option, a Participant must do the following: (a) deliver to the Company a written notice of exercise, specifying the number of shares to be purchased; (b) tender to the Company payment in full of the exercise price; and (c) comply with such other reasonable requirements as the Committee may establish. The exercise date of a Stock Option will be the date when the Company has received the notice of exercise and full payment of the exercise price and all other requirements established by the Committee have been satisfied. A Participant may pay all or any part of the exercise price under a Stock Option in cash, by certified check, bank draft or money order payable to the order of the Company or, if permitted by the Committee (in its sole discretion) and applicable law, rule or regulation, by delivery of, alone or in conjunction with a partial cash or instrument payment, (x) shares of Common Stock already owned by the Participant for at least six (6) months, or (y) some other form of payment acceptable to the Committee. The Committee may also permit Participants (either on a selective or group basis) to simultaneously exercise Stock Options and sell the shares of Common Stock thereby acquired pursuant to a "cashless exercise" arrangement or program, selected by and approved of in all respects in advance by the Committee. Payment instruments shall be received by the Company subject to collection. The proceeds received by the Company upon exercise of any Stock Option may be used by the Company for general corporate purposes. No one has the rights of a shareholder with respect to Common Stock subject to a Stock Option until a certificate evidencing such Common Stock has been delivered to the person exercising the Stock Option. 6.7. Exercisability. In respect of any Stock Option granted under the Plan, unless otherwise determined by the Committee (in its sole discretion) at any time and from time to time in respect of any such Stock Option, such Stock Option shall not be exercisable during the Fiscal Year in which its Date of Grant occurs, and thereafter will become exercisable in serial increments after the last day of each Fiscal Year (without any proration of vesting for a portion of any Fiscal Year) as follows: Percent Exercisable After Fiscal Year Per Year Cumulatively 1* 20% 20% 2 20% 40% 3 20% 60% 4 20% 80% 5 20% 100% _______________ 8 * The Fiscal Year in which the Date of Grant occurs. For example, with respect to Stock Options granted in the Fiscal Year ending July 30, 1995, such Stock Options will not be exercisable on or before July 30, 1995, and will become exercisable in serial increments after July 30, 1995, and each successive Fiscal year as follows: After Fiscal Year ending on the Sunday closest to the last Percent Exercisable day of July in: Per Year Cumulatively 1995 20% 20% 1996 20% 40% 1997 20% 60% 1998 20% 80% 1999 20% 100% 7. Termination of Employment. 7.1. Unexercisable Options. Except as is otherwise provided in the relevant Award Agreement as determined by the Committee (in its sole discretion), and subject to any determination of the Committee pursuant to Section 6.7 of the Plan, if a Participant's employment with or performance of services for the Company and its Subsidiaries terminates for any reason (other than a Termination for Cause) any then unexercisable Stock Options shall be forfeited and cancelled by the Company. In the event of a Termination for Cause, all rights under the terminated Participant's exercisable and unexercisable Stock Options shall expire and be forfeited and cancelled upon any such termination. 7.2. Exercisable Options. Except as otherwise provided in this Section 7.2, in the relevant Award Agreement or in Section 7.3 below, if a Participant's employment with or performance of services for the Company and its Subsidiaries terminates for any reason, other than by reason of a Termination for Cause, such Participant's rights, if any, to exercise any then exercisable Stock Options shall terminate forty-five (45) days after the date of such termination (but not beyond the stated term of any such Stock Option as determined under Section 6.4 of the Plan) and thereafter such Stock Options shall be forfeited and cancelled by the Company. Notwithstanding the immediately preceding sentence, except as otherwise provided in Section 6.5, in the relevant Award Agreement, or in Section 7.3 below, if any termination of employment is due to death, Retirement or Disability, a Participant (and such Participant's estate, designated beneficiary or other legal representative, as the case may be and as determined by the Committee) shall have the right, to the extent exercisable immediately prior to or as a 9 result of any such termination, to exercise any Stock Option, if any, at any time within the one hundred eighty (180) day period following such termination (but not beyond the stated term of any such Stock Option as determined under Section 6.4 of the Plan). 7.3. Committee Discretion. The Committee, in its sole discretion, may determine that any Stock Option, to the extent exercisable immediately prior to or as a result of any termination of employment, may remain exercisable for an additional specified period after such forty-five (45) day or one hundred eighty (180) day period, or such longer period as may be provided in the relevant Award Agreement, as the case may be, expires (subject to any other applicable terms and provisions of the Plan and the relevant Award Agreement), but not beyond the stated term of any such Stock Option, as determined under Section 6.4 of the Plan. 8. Non-transferability of Awards. No Award under the Plan or any Award Agreement, and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged, or otherwise hypothecated or disposed of by a Participant or any beneficiary(ies) of any Participant, except by testamentary disposition by the Participant or the laws of intestate succession. Upon any attempt to so assign, transfer, sell, exchange, encumber, pledge or otherwise hypothecate or dispose of any such Award contrary to the provisions hereof, such Award shall immediately become null and void and of no further force and effect. No such interest shall be subject to execution, attachment or similar legal process, including, without limitation, seizure for the payment of the Participant's debts, judgements, alimony or separate maintenance. Stock Options, if any, are exercisable during the lifetime of a Participant only by the Participant and after his or her death by his or her estate, designated beneficiary or other legal representative, and not otherwise, regardless of any community property interest therein of the spouse of such Participant or such spouse's successor in interest. 9. Changes in Capitalization and Other Matters. 9.1. No Corporate Action Restriction. The existence of the Plan, any Award Agreement and/or the Awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Company to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company's or any Subsidiary's capital structure or its business, (b) any merger, consolidation or change in the ownership of the Company or any Subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference stocks ahead of or affecting the Company's or any Subsidiary's capital stock or the rights thereof, (d) any dissolution or liquidation of the Company or any 10 Subsidiary, (e) any sale or transfer of all or any part of the Company's or any Subsidiary's assets or business, or (f) any other corporate act or proceeding by the Company or any Subsidiary. No Participant, beneficiary or any other person shall have any claim against any member of the Board or the Committee, the Company or any Subsidiary, or any employees, officers or agents of the Company or any Subsidiary, as a result of any such action. 9.2. Recapitalization Adjustments. If the outstanding shares of Common Stock of the Company are increased, decreased, or changed into or exchanged for, a different number or kind of securities of the Company through a stock dividend, reclassification, stock split, reverse stock split, consolidation, subdivision, split-up, spin-off, split-off, or combination, the Board shall authorize and make such proportionate adjustments, if any, as the Board deems appropriate to reflect such change, including, without limitation, with respect to the aggregate number of shares of the Common Stock for which Stock Options in respect thereof may be granted under the Plan, the number of shares of the Common Stock covered by each outstanding Stock Option, and the exercise price or other price per share of Common Stock in respect of outstanding Stock Options. 9.3. Certain Mergers. If the Company enters into or is involved in any merger, reorganization or other business combination with any person or entity (such merger, reorganization or other business combination to be referred to herein as a "Merger Event") and as a result of any such Merger Event the Company will not be, or is not, the surviving corporation, all Stock Options then unexercised and outstanding shall become fully vested and exercisable as of the date of the consummation of the Merger Event. 10. Change of Control. 10.1. Acceleration of Awards Vesting. Anything in the Plan to the contrary notwithstanding, if a Change of Control of the Company (as defined in Section 10.2 of the Plan) occurs, all Stock Options then unexercised and outstanding shall become fully vested and exercisable as of the date of the Change of Control. The immediately preceding sentence shall apply to only those Participants who are employed by the Company and/or one of its Subsidiaries as of the date of the Change of Control. 10.2. Change of Control. For the purpose of this Plan, a "Change of Control" shall have occurred if at any time 11 either (a) any person or any persons acting together (excluding the Original Stockholders) that constitute a "group" for purposes of Section 13(d) of the Exchange Act shall beneficially own at least fifty percent (50%) of the total Voting Interest of the Company or (b) any person or any persons acting together (excluding the Original Stockholders) that constitute a "group" for purposes of Section 13(d) of the Exchange Act shall succeed in having a sufficient number of its nominees elected to the Board to constitute a majority of the Board. 11. Amendment, Suspension, and Termination. 11.1. In General. The Board may suspend or terminate the Plan (or any portion thereof) at any time and may amend the Plan at any time and from time to time in such respects as the Board may deem advisable to insure that any and all Awards conform to or otherwise reflect any change in applicable laws or regulations, or to permit the Company or the Participants to benefit from any change in applicable laws or regulations, or in any other respect the Board may deem to be in the best interests of the Company or any Subsidiary; provided, however, that no such amendment to the Plan shall, without shareholder approval: (a) except as provided in Section 9 of the Plan, materially increase the number of shares of Common Stock which may be issued under the Plan, (b) materially modify the requirements as to eligibility for participation in the Plan, (c) materially increase the benefits accruing to Participants under the Plan (this Section 11.1(c) shall not apply to any amendment or modification of any Award Agreement permitted under Section 11.2 if such amendment or modification would not require shareholder approval under SEC Rule 16b-3), (d) extend the termination date of the Plan, or (e) amend clauses (a) through (d) of this Section 11.1. No such amendment, suspension or termination shall (i) materially adversely affect the rights of any Participant under any outstanding Stock Options, without the consent of such Participant, or (ii) make any change that would disqualify the Plan, or any other plan of the Company or any Subsidiary intended to be so qualified, from the exemption provided by SEC Rule 16b- 3, or any successor provisions thereof. 11.2. Award Agreement Modifications. The Committee may (in its sole discretion) amend or modify at any time and from time to time the terms and provisions of any outstanding Stock Options, in any manner to the extent that the Committee under the Plan or any Award Agreement could have initially determined the restrictions, terms and provisions of such Stock Options, including, without limitation, changing or accelerating the date or dates as of which such Stock Options shall become exercisable. No such amendment or modification shall, however, materially adversely affect the rights of any Participant under any such Award without the consent of such Participant. 12 12. Miscellaneous. 12.1. Tax Withholding. The Company shall have the right to require the Participant, upon the exercise of any Stock Option, to remit or otherwise arrange for the payment of any federal, state, local or other taxes of any kind which the Committee, in its sole discretion, deems necessary to be withheld to comply with the Code and/or any other applicable law, rule or regulation. 12.2. No Right to Perform Services. Neither the adoption of the Plan, the granting of any Award, nor the execution of any Award Agreement, shall confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, as the case may be, nor shall it interfere in any way with the right, if any, of the Company or any Subsidiary to terminate the employment of any employee at any time for any reason. 12.3. Unfunded Plan. The Plan shall be unfunded and the Company shall not be required to segregate any assets in connection with any Awards under the Plan. Any liability of the Company to any person with respect to any Award under the Plan or any Award Agreement shall be based solely upon the contractual obligations that may be created as a result of the Plan or any such award or agreement. No such obligation of the Company shall be deemed to be secured by any pledge of, encumbrance on, or other interest in, any property or asset of the Company or any Subsidiary. Nothing contained in the Plan or any Award Agreement shall be construed as creating in respect of any Participant (or beneficiary thereof or any other person) any equity or other interest of any kind in the assets of the Company or any Subsidiary or creating a trust of any kind or a fiduciary relationship of any kind between the Company, any Subsidiary and/or any such Participant, any beneficiary thereof or any other person. 12.4. Other Company Benefit and Compensation Programs. Payments and other benefits received by a Participant under an Award made pursuant to the Plan shall not be deemed a part of a Participant's compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Subsidiary unless expressly provided in such other plans or arrangements, or except where the Board expressly determines in writing that an Award or portion of an Award should be included to accurately reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of competitive annual base salary or other cash compensation. Awards under the Plan may be made in addition to, in combination with, or as alternatives to, grants, awards or payments under any other plans or arrangements of the Company or its Subsidiaries. The 13 existence of the Plan notwithstanding, the Company or any Subsidiary may adopt such other compensation plans or programs and additional compensation arrangements as it deems necessary to attract, retain and motivate employees. 12.5. Listing, Registration and Other Legal Compliance. No Awards or shares of the Common Stock shall be required to be granted or issued under the Plan unless legal counsel for the Company shall be satisfied that such grant or issuance will be in compliance with all applicable federal and state securities laws and regulations and any other applicable laws or regulations. The Committee may require, as a condition of any payment or share issuance, that certain agreements, undertakings, representations, certificates, and/or information, as the Committee may deem necessary or advisable, in its sole discretion, be executed or provided to the Company to assure compliance with all such applicable laws or regulations. Certificates for shares of the Common Stock delivered under the Plan may be subject to such stock-transfer orders and such other restrictions as the Committee may deem advisable under the rules, regulations, or other requirements of the SEC, any stock exchange or trading system upon which the Common Stock is then listed or traded, and any applicable federal or state securities law. In addition, if, at any time specified herein (or in any Award Agreement or otherwise) for (a) the making of any Award, or the making of any determination, (b) the issuance or other distribution of Common Stock, or (c) the payment of amounts to a Participant with respect to any Award, any law, rule, regulation or other requirement of any governmental authority or agency shall require either the Company, any Subsidiary or any Participant (or any estate, designated beneficiary or other legal representative thereof, as the case may be, and as determined by the Committee in its sole discretion) to take any action in connection with any such determination, any shares to be issued or distributed, any such payment, or the making of any such determination, as the case may be, shall be deferred until such required action is taken. 12.6. Designation of Beneficiary. Each Participant to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any option or to receive any payment which, under the terms of the Plan and the relevant Award Agreement, may become exercisable or payable on or after the Participant's death. At any time, and from time to time, any such designation may be changed or cancelled by the Participant without the consent of any such beneficiary. Any such designation, change or cancellation must be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased Participant, or if the designated beneficiaries have predeceased the Participant, the beneficiary shall be the Participant's estate. If the Participant designates 14 more than one (1) such beneficiary, any payments under the Plan to such beneficiaries shall be made in equal shares unless the Participant has expressly designated otherwise, in which case the payments shall be made in the shares designated by the Participant. 12.7. Leaves of Absence/Transfers. The Committee shall have the power to promulgate rules and regulations and to make determinations, as it deems appropriate, under the Plan in respect of any leave of absence from the Company or any Subsidiary granted to a Participant. Without limiting the generality of the foregoing, the Committee may determine whether any such leave of absence shall be treated as if the Participant has terminated employment with the Company or any such Subsidiary. If a Participant transfers within the Company, or to or from any Subsidiary, such Participant shall not be deemed to have terminated employment as a result of such transfers. 12.8. Governing Law. The validity, construction, enforcement and interpretation of this Plan, and all actions taken hereunder, are governed by, and shall be construed in accordance with, the laws of the State of Delaware and the federal laws of the United States of America, excluding the laws of those jurisdictions pertaining to the resolution of conflicts with laws of other jurisdictions. 12.9. Titles and Headings. Any titles and headings herein are for reference purposes only, and shall in no way limit, define or otherwise affect the meaning, construction or interpretation of any provisions of the Plan. 12.10. Effective Date. The Plan, which has been established and approved by the Committee, shall be effective upon its adoption and ratification by the Board. To the extent required for compliance with Section 422 of the Code or SEC Rule 16b-3, the Plan is subject to and conditioned upon the approval of the Plan by the Company's shareholders. 20/LWH/KNK.SEC/S1.95/EX-1016A.ASC 15 EX-10 14 EXHIBIT 10.16(B) FOR S-1 FILING 5/1/95 [CONFORMED COPY] NON-QUALIFIED STOCK OPTION AGREEMENT pursuant to the KASH N' KARRY FOOD STORES, INC. 1995 KEY EMPLOYEE STOCK OPTION PLAN * * * * * Optionee: RONALD E. JOHNSON Date of Grant: March 9, 1995 Expiration Date: March 8, 2005 Number of Option Shares: 33,849 Exercise Price: $15.00 Per Share * * * * * THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement"), dated as of the Date of Grant specified above, is entered into by and between Kash n' Karry Food Stores, Inc., a Delaware corporation (the "Company"), and the Optionee specified above, pursuant to the Kash n' Karry Food Stores, Inc. 1995 Key Employee Stock Option Plan, as in effect and as amended from time to time (the "Plan"); and WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the non- qualified stock option and other rights provided for herein to the Optionee (i) as an inducement to commence employment with, or to remain in the employment of, the Company (and/or one of its Subsidiaries), and (ii) as an incentive for increased effort during such service; NOW, THEREFORE, in consideration of the mutual covenants and premises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows: 1. Incorporation By Reference; Plan Document Receipt. This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time if such amendments are expressly intended to apply to the grant of the Stock Option hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto under the Plan. The Optionee hereby acknowledges receipt of a true copy of the Plan and that the Optionee has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. 2. Grant of Stock Options. The Company hereby grants to the Optionee, as of the Date of Grant specified above, a non- qualified stock option (this "Stock Option") to acquire from the Company, at the Exercise Price per share specified above, the aggregate number of shares of the Common Stock specified above (the "Option Shares"). This Stock Option is not to be treated as (and is not intended to qualify as) an incentive stock option within the meaning of Section 422 of the Code. 3. Exercise of the Stock Option. 3.1. Exercisability. Unless otherwise provided in Section 3.4 below or determined by the Committee, this Option shall become exercisable in accordance with and to the extent provided by the terms and provisions of Section 6.7 of the Plan. 3.2. Expiration Date. Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, this Option shall expire and shall no longer be exercisable after the Expiration Date specified above. 3.3. No Fractional Shares. In no event shall this Stock Option be exercisable for a fractional share of Common Stock. 3.4. Acceleration of Exercisability. Notwithstanding any contrary provision herein, the vesting and exercisability of the Award shall be accelerated: (a) in accordance with Sections 9 and 10 of the Plan, upon the occurrence of a Merger Event or a Change of Control of the Company; and (b) upon the termination of the Optionee's employment with the Company under that certain Employment Agreement dated as of January 24, 1995, Without Cause (as defined in said Employment Agreement). 4. Method of Exercise and Payment. The Option shall be exercised by the Optionee by delivering to the Secretary of the Company or his designated agent on any business day a written notice of exercise, in such manner and form as may be required by the Company, specifying the number of the Option Shares the Optionee then desires to purchase, or with respect to which the Optionee then desires to exercise his or her Limited Rights (the "Exercise Notice"). In the case of an exercise of a Stock Option, the Exercise Notice shall be accompanied by payment in full in an amount equal to the product of (a) the Exercise Price per share specified above, multiplied by (b) the number of Option Shares specified in the Exercise Notice. Such payment shall be made in the manner set forth in Section 6.6 of the Plan. 2 5. Termination. Unless otherwise determined by the Committee, this Option shall terminate and be of no force or effect in accordance with and to the extent provided by the terms and provisions of Section 7 of the Plan. In any event, this Option shall terminate on the Expiration Date. 6. Non-transferability. This Option, and any rights or interests therein, shall not be sold, exchanged, transferred, assigned or otherwise disposed of in any way at any time by the Optionee (or any beneficiary(ies) of the Optionee), other than by testamentary disposition by the Optionee or the laws of intestate succession. This Option shall not be pledged, encumbered or otherwise hypothecated in any way at any time by the Optionee (or any beneficiary(ies) of the Optionee) and shall not be subject to execution, attachment or similar legal process. Any attempt to sell, exchange, pledge, transfer, assign, encumber or otherwise dispose of or hypothecate this Option, or the levy of any execution, attachment or similar legal process upon this Option, contrary to the terms of this Agreement and/or the Plan shall be null and void and without legal force or effect. This Option shall be exercisable during the Optionee's lifetime only by the Optionee. 7. Entire Agreement; Amendment. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Board or the Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan; provided, however, that no such modification or amendment shall materially adversely affect the rights of the Optionee under this Option without the consent of the Optionee. The Company shall give written notice to the Optionee of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof. This Agreement may also be modified or amended by a writing signed by both the Company and the Optionee. 8. Miscellaneous. 8.1. Notices. Any Exercise Notice or other notice which may be required or permitted under this Agreement shall be in writing, and shall be delivered in person or via facsimile transmission, overnight courier service or certified mail, return receipt requested, postage prepaid, properly addressed as follows: If such notice is to the Company: To the attention of the Secretary of Kash n' Karry Food Stores, Inc., at P.O. Box 11675, Tampa, Florida 33680 (for 3 delivery via U.S. mail), at 6422 Harney Road, Tampa, Florida 33610 (for delivery in person or via overnight courier service), or at (813) 626-9550 (for delivery via facsimile transmission), or at such other address as the Company, by notice to the Optionee, shall designate in writing from time to time. If such notice is to the Optionee: At his or her address as shown on the Company's records, or at such other address as the Optionee, by notice to the Company, shall designate in writing from time to time. 8.2. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 8.3. Compliance with Laws. The issuance of this Option (and the Option Shares or the payments upon exercise of this Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, the Exchange Act and the respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue this Option or any of the Option Shares, or make any payment, pursuant to this Agreement if any such action would violate any such requirements. 8.4. Binding Agreement; Assignment. This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Optionee shall not assign any part of this Agreement without the prior express written consent of the Company. 8.5. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 8.6. Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 8.7. Further Assurances. Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as any party hereto reasonably may request in order to carry out the intent 4 and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder. 8.8. Severability. The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Optionee has hereunto set his hand, all as of the Date of Grant specified above. KASH N' KARRY FOOD STORES, INC. By: /s/ Ronald E. Johnson Ronald E. Johnson, President /s/ Ronald E. Johnson RONALD E. JOHNSON 20/WL/LWH/KNK.SEC/S1.95/EX-10-7B.ASC 5 EX-10 15 EXHIBIT 10.16(C) FOR S-1 FILING 5/1/95 NON-QUALIFIED STOCK OPTION AGREEMENT pursuant to the KASH N' KARRY FOOD STORES, INC. 1995 KEY EMPLOYEE STOCK OPTION PLAN * * * * * Optionee: Date of Grant: Expiration Date: Number of Option Shares:_________ Exercise Price: $ Per Share * * * * * THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement"), dated as of the Date of Grant specified above, is entered into by and between Kash n' Karry Food Stores, Inc., a Delaware corporation (the "Company"), and the Optionee specified above, pursuant to the Kash n' Karry Food Stores, Inc. 1995 Key Employee Stock Option Plan, as in effect and as amended from time to time (the "Plan"); and WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the non- qualified stock option and other rights provided for herein to the Optionee (i) as an inducement to commence employment with, or to remain in the employment of, the Company (and/or one of its Subsidiaries), and (ii) as an incentive for increased effort during such service; NOW, THEREFORE, in consideration of the mutual covenants and premises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows: 1. Incorporation By Reference; Plan Document Receipt. This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time if such amendments are expressly intended to apply to the grant of the Stock Option hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto under the Plan. The Optionee hereby acknowledges receipt of a true copy of the Plan and that the Optionee has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control. 2. Grant of Stock Options. The Company hereby grants to the Optionee, as of the Date of Grant specified above, a non- qualified stock option (this "Stock Option") to acquire from the Company, at the Exercise Price per share specified above, the aggregate number of shares of the Common Stock specified above (the "Option Shares"). This Stock Option is not to be treated as (and is not intended to qualify as) an incentive stock option within the meaning of Section 422 of the Code. 3. Exercise of the Stock Option. 3.1. Exercisability. Unless otherwise provided in Section 3.4 below or determined by the Committee, this Option shall become exercisable in accordance with and to the extent provided by the terms and provisions of Section 6.7 of the Plan. 3.2. Expiration Date. Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, this Option shall expire and shall no longer be exercisable after the Expiration Date specified above. 3.3. No Fractional Shares. In no event shall this Stock Option be exercisable for a fractional share of Common Stock. 3.4. Acceleration of Exercisability. Notwithstanding any contrary provision herein, the vesting and exercisability of the Option shall be accelerated, in accordance with Sections 9 and 10 of the Plan, upon the occurrence of a Merger Event or a Change of Control of the Company. 4. Method of Exercise and Payment. The Option shall be exercised by the Optionee by delivering to the Secretary of the Company or his designated agent on any business day a written notice of exercise, in such manner and form as may be required by the Company, specifying the number of the Option Shares the Optionee then desires to purchase, or with respect to which the Optionee then desires to exercise his or her Limited Rights (the "Exercise Notice"). In the case of an exercise of a Stock Option, the Exercise Notice shall be accompanied by payment in full in an amount equal to the product of (a) the Exercise Price per share specified above, multiplied by (b) the number of Option Shares specified in the Exercise Notice. Such payment shall be made in the manner set forth in Section 6.6 of the Plan. 5. Termination. Unless otherwise determined by the Committee, this Option shall terminate and be of no force or 2 effect in accordance with and to the extent provided by the terms and provisions of Section 7 of the Plan. In any event, this Option shall terminate on the Expiration Date. 6. Non-transferability. This Option, and any rights or interests therein, shall not be sold, exchanged, transferred, assigned or otherwise disposed of in any way at any time by the Optionee (or any beneficiary(ies) of the Optionee), other than by testamentary disposition by the Optionee or the laws of intestate succession. This Option shall not be pledged, encumbered or otherwise hypothecated in any way at any time by the Optionee (or any beneficiary(ies) of the Optionee) and shall not be subject to execution, attachment or similar legal process. Any attempt to sell, exchange, pledge, transfer, assign, encumber or otherwise dispose of or hypothecate this Option, or the levy of any execution, attachment or similar legal process upon this Option, contrary to the terms of this Agreement and/or the Plan shall be null and void and without legal force or effect. This Option shall be exercisable during the Optionee's lifetime only by the Optionee. 7. Entire Agreement; Amendment. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Board or the Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan; provided, however, that no such modification or amendment shall materially adversely affect the rights of the Optionee under this Option without the consent of the Optionee. The Company shall give written notice to the Optionee of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof. This Agreement may also be modified or amended by a writing signed by both the Company and the Optionee. 8. Miscellaneous. 8.1. Notices. Any Exercise Notice or other notice which may be required or permitted under this Agreement shall be in writing, and shall be delivered in person or via facsimile transmission, overnight courier service or certified mail, return receipt requested, postage prepaid, properly addressed as follows: If such notice is to the Company: To the attention of the Secretary of Kash n' Karry Food Stores, Inc., at P.O. Box 11675, Tampa, Florida 33680 (for delivery via U.S. mail), at 6422 Harney Road, Tampa, Florida 33610 (for delivery in person or via overnight courier 3 service), or at (813) 626-9550 (for delivery via facsimile transmission), or at such other address as the Company, by notice to the Optionee, shall designate in writing from time to time. If such notice is to the Optionee: At his or her address as shown on the Company's records, or at such other address as the Optionee, by notice to the Company, shall designate in writing from time to time. 8.2. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to the principles of conflict of laws thereof. 8.3. Compliance with Laws. The issuance of this Option (and the Option Shares or the payments upon exercise of this Option) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act of 1933, the Exchange Act and the respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue this Option or any of the Option Shares, or make any payment, pursuant to this Agreement if any such action would violate any such requirements. 8.4. Binding Agreement; Assignment. This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Optionee shall not assign any part of this Agreement without the prior express written consent of the Company. 8.5. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 8.6. Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. 8.7. Further Assurances. Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as any party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder. 4 8.8. Severability. The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Optionee has hereunto set his hand, all as of the Date of Grant specified above. KASH N' KARRY FOOD STORES, INC. By:__________________________________ _____________________________________ 20/LWH/KNK.SEC/S1.95/EX-1016C.ASC 5 EX-23 16 EXHIBIT 23.2 FOR S-1 FILING 5/1/95 The Board of Directors Kash n' Karry Food Stores, Inc.: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. Our report dated September 16, 1994, except with respect to Notes 1 and 5, which are as of November 9, 1994, contains an explanatory paragraph that states that "the Company has suffered recurring losses from operations and has a net capital deficiency. As discussed in Note 1 to the financial statements, Kash n' Karry Food Stores, Inc. filed a pre-packaged petition under Chapter 11 of the United States Bankruptcy Code on November 9, 1994 and these matters raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty." /s/ KPMG Peat Marwick LLP _ _ _ _ _ _ _ _ _ _ _ _ _ Tampa, Florida May 1, 1995 EX-27 17 FINANCIAL DATA SCHEDULE FOR S-1 FILING 5/1/95 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 0000842913 KASH N KARRY FOOD STORES INC 1,000 US DOLLARS YEAR QTR-1 QTR-2 JUL-31-1994 OCT-30-1994 JAN-29-1995 AUG-02-1993 AUG-01-1994 OCT-31-1995 JUL-31-1994 OCT-30-1994 JAN-29-1995 1 1 1 6,852 12,622 10,517 0 0 0 8,084 6,439 6,701 0 0 0 76,094 74,171 78,756 103,835 387,032 99,220 241,841 251,880 145,140 81,350 86,101 1,327 389,893 387,032 381,751 116,582 128,911 92,013 317,381 312,327 227,522 28 28 31 4,650 4,650 0 0 0 0 (61,082) (69,801) 47,271 389,893 387,032 381,751 1,065,165 240,147 272,889 1,065,165 240,147 272,889 845,597 191,732 218,010 1,046,654 238,306 264,695 11,016 0 0 0 0 0 45,390 10,560 5,561 (37,895) (8,719) 2,633 0 0 0 (37,895) (8,719) 2,633 0 0 0 0 0 67,728 0 0 0 0 0 69,773 0 0 0.26 0 0 0.26 EPS is meaningless. Income-Pretax is before reorganization item, extraordinary item, and change in accounting principle. Extraordinary includes reorganization items and change in accounting principle.
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