-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UZkNFXMEAy5Pyo1bk+eA8Q8Hzv72Sk9t2C/fgqPxfsYoba66IsHAMxd3AGIIjM7G FOIGOS7O1I6GDP8XirnQ8A== 0000945723-95-000022.txt : 19951030 0000945723-95-000022.hdr.sgml : 19951030 ACCESSION NUMBER: 0000945723-95-000022 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19950730 FILED AS OF DATE: 19951027 SROS: NASD 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25260 FILM NUMBER: 95584948 BUSINESS ADDRESS: STREET 1: 6422 HARNEY RD CITY: TAMPA STATE: FL ZIP: 33610 BUSINESS PHONE: 8136210276 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended July 30, 1995 Commission File No. 34-025260 KASH N' KARRY FOOD STORES, INC. (Exact Name of Registrant as Specified in Charter) Delaware 95-4161591 (State of Incorporation) (IRS Employer Identification Number) 6422 Harney Road, Tampa, Florida 33610 (Address of Registrant's Principal Executive Offices) (813) 621-0200 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.01 Per Share Preferred Share Purchase Rights ------------------------------- (Title of Class) Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] (continues on following page) (continuation of cover page) The aggregate market value of the voting stock held by non- affiliates of the registrant based on the average low bid and high ask prices of such stock as of October 13, 1995 was $27,614,149. For purposes of this report and as used herein, the term "non- affiliate" includes all shareholders of the registrant other than Directors, executive officers, and persons holding more than five percent of the outstanding voting stock of the registrant. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [x] Yes [ ] No As of October 13, 1995, there were 4,649,943 shares outstanding of the registrant's common stock, $0.01 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1995 Annual Meeting of Stockholders of the Company to be filed not more than 120 days after the fiscal year ended July 30, 1995 are incorporated by reference in Part III of this Form 10-K. TABLE OF CONTENTS Page Number PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 6 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . 7 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . 7 Executive Officers of the Registrant . . . . . . . . 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . . . 9 Item 6. Selected Financial Data. . . . . . . . . . . . . . . 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 15 Item 8. Financial Statements and Supplementary Data. . . . . 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 49 PART III Item 10. Directors of the Registrant. . . . . . . . . . . . . * Compliance with Section 16(a) of the Exchange Act. . . . . . . . . . . . . . . . . 50 Item 11. Executive Compensation . . . . . . . . . . . . . . . ** Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . ** Item 13. Certain Relationships and Related Transactions . . . ** * Certain information required by Item 10 of Part III is hereby incorporated by reference to the registrant's definitive proxy statement to be filed not more than 120 days after the fiscal year ended July 30, 1995. ** The information required by Items 11, 12 and 13 of Part III is hereby incorporated by reference to the registrant's definitive proxy statement to be filed not more than 120 days after the fiscal year ended July 30, 1995. PART IV Item 14. Exhibits and Reports on Form 8-K . . . . . . . . . . 51 Signatures . . . . . . . . . . . . . . . . . . . . . 58 PART I ITEM 1. BUSINESS. General The Company is among the three largest food retailers in west central Florida, operating 92 multi-department supermarkets, five conventional supermarkets and 33 liquor stores under the "Kash n' Karry" name and two super warehouse stores under the "Save 'n Pack" name, all supported by a centrally-located warehouse and distribution facility. More than one-half of the Company's stores are located in the Tampa-St. Petersburg area, which is Florida's largest retail food sales market, with the balance located between Gainesville, approximately 130 miles to the north, and Bonita Springs, approximately 150 miles to the south. The west central Florida area has a diverse and growing economy, which includes high technology and financial centers, an insurance industry presence, retirement communities, coastal resorts and commercial agricultural activity. The region's population is estimated to be increasing at an annual rate of approximately 2%. Company Store Profile The following table presents a profile of the Company's stores: Number of Stores at Fiscal Year End Total Square ------------------------ Store Type Footage(1) 1995 1994 1993 1992 1991 - -------------------- -------------- ---- ---- ---- ---- ---- Kash n' Karry Food 40,000--57,000 50 50 48 42 42 Stores 25,000--39,999 42 43 55 57 57 less than 25,000 5 5 9 12 14 Save 'n Pack Super 76,000--88,000 2 2 3 -- -- Warehouse Stores Kash n' Karry Liquor 1,800--2,700 33 33 35 30 31 Stores - -------------------- (1) Includes selling and backroom areas. Supermarket stores The Company currently operates 92 multi-department supermar- kets, 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 October 1992, 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. 2 Liquor stores Each of the Company's 33 liquor stores is located on property adjacent to one of the Company's supermarket stores and is operated as a department of such store, although, in accordance with Florida law, each liquor store must maintain a separate entrance. Liquor stores complement the Company's core business, as they can be advertised through existing media without incremental expense, pay supermarket (as compared to shopping center) rents and benefit from operating and marketing synergies with the adjacent supermarkets. The liquor stores offer a wide variety of wines, beers and hard liquors, as well as mixers, soft drinks, snacks, ice and other party accessories and a limited number of traditional grocery items. Sales from the Company's liquor stores represent approximately 2% of the Company's total sales. The Company's liquor stores range in size from 1,800 to 2,700 square feet, and most are open seven days a week. 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 recently announced that it will begin supplying grocery products through its warehouse to Goodings Supermarkets of Orlando, Florida. Management estimates that this will increase the volume through its warehouse by approximately $75.0 million, and as a result expects an improvement in its procurement costs and warehousing expenses as a percentage of sales. 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 12 months. 3 Marketing Strategy The Company emphasizes competitive prices on everyday items, strong weekly features, high quality perishables and a broad assortment of both national and corporate brands. The Company's food stores are open seven days a week, with most operating 24 hours a day. The Company seeks to be either first or second among its competitors in assortment of branded merchandise, stocking over 29,000 SKU's (stock keeping units) of national brand and corporate brand items. In addition to a full range of grocery and general merchandise items, most of the Company's multi-department supermarkets also feature expanded perishable goods departments, delicatessens and in-store bakeries, and many contain pharmacies and full-service seafood, full-service floral and video rental departments. In 1992, the Company introduced its own corporate brand merchandise. The Company's corporate brand strategy is to offer a product comparable in quality to the best-selling national brand at a lower price. The Kash n' Karry brand item generally sells for approximately 10% less than the competing best-selling national brand but generates a higher per unit gross profit contribution to the Company. Over 1,100 SKU's in a wide variety of product categories carry the Kash n' Karry brand name. The Company recently began a new marketing program to emphasize its perishable products. The first wave of advertising focuses on Kash n' Karry as "Your Destination for Fresh," highlighted by a "Double Your Money Back" guaranty on produce. Additionally, the Company is remodelling its stores to emphasize the perishable departments, including improved lighting, additional space and a new decor package that supports the perishable emphasis. 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 five fiscal years ending July 31, 1994 and the 22-week period ended January 1, 1995 due primarily to its highly leveraged position. During the 1995 fiscal year, the Company completed a comprehensive financial restructuring (the "Restructuring") pursuant to a "prepackaged" plan of reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code. As a result of the Restructuring, the Company restructured its senior debt, converted its subordinated debt into an 85% equity interest in the Company, and received $10.0 million in cash from Green Equity Investors, L.P. for the remaining 15% equity interest of the Company. The Company emerged from bankruptcy on December 29, 1994. The provisions of the Restructuring had an immediate 4 beneficial impact on the Company's financial condition by reducing its long-term debt in excess of $100.0 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 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 twelve, eight and 21 store openings by principal grocery competitors during the 1995, 1994 and 1993 fiscal years, respectively, 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 re-position 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 discon- tinued. 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 credit agreement and other debt agreements. 5 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 generated during the second and third quarters of its fiscal year. Employees The Company currently employs approximately 3,400 full-time and 6,400 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, "Your Destination for Fresh," "So Much More to Pay Less For!," "Kash $aver," "$mart Buy," "Five Star Meat," "Nature Friendly" and "Save 'n Pack." Except as a means of identifying the source of the Company's products and services, the Company does not believe that any of such trademarks or service marks are material to the operations 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. ITEM 2. PROPERTIES. The Company's 92 multi-department supermarkets and five conventional supermarkets have an aggregate selling area of approximately 3.0 million square feet. The Company owns nine of the supermarkets (comprising approximately 279,000 square feet) and leases the remaining 88 supermarkets. Three of the leased supermarkets are owned by affiliates of the Company. Six of the leased supermarkets are operated under long-term ground leases with the Company owning the improvements at such locations. Nineteen leases expire during the next five years, with the Company having options to renew all but two. Most of the Company's supermarket leases have minimum rentals with additional rentals based on a percentage of sales. The Company's two Save 'n Pack super warehouse stores have an aggregate selling area of approximately 119,000 square feet. The Company leases both super warehouses, one pursuant to a long-term 6 ground lease, and owns the improvements at the ground-leased location. One of those leases expires within the next five years, with the Company having an option to renew. The Company's liquor stores have an aggregate selling area of approximately 53,000 square feet. The Company owns one of the liquor stores and leases the remaining 32 liquor stores. Two 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. ITEM 3. LEGAL PROCEEDINGS. For information regarding the Company's reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company is engaged in various 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 effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders during the quarter ended July 30, 1995. EXECUTIVE OFFICERS OF THE REGISTRANT. Set forth below is certain information regarding each of the executive officers of the Company as of October 13, 1995. Name Age Position - -------------------- --- ---------------------------------- Ronald E. Johnson 45 Chairman of the Board, President, Chief Executive Officer, and Chief Operating Officer Raymond P. Springer 45 Senior Vice President, Chief Financial Officer, Treasurer and Secretary Gary M. Shell 48 Senior Vice President, Nonperishables Marketing 7 Clifford C. Smith Jr. 36 Senior Vice President, Perishables Marketing BJ Mehaffey 46 Senior Vice President, Operations Richard D. Coleman 41 Vice President, Controller During the fiscal year ended July 30, 1995 the Company restructured its executive management. On August 1, 1994, the Company terminated the employment of Ronald J. Floto, who had been the Chief Executive Officer of the Company since October 1988. The Company hired Anthony R. Petrillo as acting Chief Executive Officer on an interim basis pending completion of the Restructuring. In January 1995, the Company implemented its post-Restructuring management succession plan by hiring Ronald E. Johnson as Chief Executive Officer. Other recent changes to the executive management team include the replacement of Dennis V. Carter (a former Executive Vice President, Operations), Thomas A. Whipple (a former Executive Vice President, Marketing), and Edward Kolodzieski (a former Senior Vice President, Operations) with Gary M. Shell, Clifford C. Smith Jr., and BJ Mehaffey. Biographical Information 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. 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, and Chief Financial Officer of the Company from October 1988 to March 1995. Mr. Springer also served as a Director of the Company from October 1988 to July 1991, and from November 1991 to December 1994. Gary M. Shell has been Senior Vice President of Nonperishables Marketing of the Company since March 1995. Mr. Shell served as Vice President of Marketing and Merchandising of B. Green & Company, a food wholesaler and retailer, from May 1991 to February 1995, and as Vice President of Purchasing and Promotions of Rich Foods, Inc. from 1987 to 1991. Clifford C. Smith Jr. has been Senior Vice President of Perishables Marketing 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. 8 BJ Mehaffey has been Senior Vice President, Operations, of the Company since July 1995. Mr. Mehaffey served as District Manager of the Grocery Stores Division of Farm Fresh from 1992 to 1995, and in various capacities with Bi-Lo Incorporated from 1972 to 1992. Richard D. Coleman has been Vice President and Controller of the Company since October 1988, and Director of Risk Management of the Company since January 1995. From October 1988 to January 1995, Mr. Coleman also served as Secretary of the Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 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 the Common Stock. For the period of March 2, 1995 through October 13, 1995, the range of high and low bids for a single share of Common Stock was $29.25 - $12.17, as quoted in the Nasdaq Small Cap Market. The average of the low bid and high ask prices on October 13, 1995 as quoted on the Nasdaq Small Cap Market was $23.75. Such over-the- market quotations reflect inter-dealer prices, without retail mark- up, mark-down or commission, and may not necessarily represent actual transactions. In addition, these quotations have been adjusted to reflect the 3-for-2 stock split effected in the form of a stock dividend paid on July 17, 1995. As of October 13, 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 restrictions in the Company's credit agreement and debt indentures. 9 ITEM 6. SELECTED FINANCIAL DATA. 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, 1995, 1994, 1993, 1992 and 1991, and is derived from the audited financial statements of the Company. Such financial statements, and the reports thereon, for the 1995, 1994 and 1993 fiscal years are included elsewhere in this document, and should be read in conjunction with this selected financial data and "Management's Discussion and Analysis of Financial Condition and Results of Operations." As discussed herein, the Restructuring was consummated on December 29, 1994 (the "Effective Date"). The financial statements as of and for the 30 weeks ended July 30, 1995 and for the 22 weeks ended January 1, 1995, respectively, reflect the Company's emergence from Chapter 11 and were prepared utilizing the princi- ples 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 30 weeks ended July 30, 1995 and for the 22 weeks ended 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." The selected store data have been derived from the Company's management reporting records. 10 Reorganized Predecessor Company Company -------- -------- 30 Weeks 22 Weeks Ended Ended July 30, January 1, 1995 1995 ------- -------- (In Thousands, Except Per Share Amounts) Statement of Operations Data: Sales . . . . . . . . . . . . . . . . . $599,320 $426,681 Cost of sales . . . . . . . . . . . . . 471,401 340,802 ------- -------- Gross profit. . . . . . . . . . . . . . 127,919 85,879 Selling, general and administrative expenses . . . . . . . 90,482 68,819 Depreciation and amortization. . . . . . 14,802 10,234 ------- -------- Operating income . . . . . . . . . . . . 22,635 6,826 Interest expense (1) . . . . . . . . . . 15,810 13,719 ------- -------- Income (loss) from operations before reorganization items, income taxes, extraordinary items and change in accounting principle . . . . . . . . 6,825 (6,893) Reorganization items . . . . . . . . . -- (4,869) Provision for income taxes . . . . . . (3,682) -- Extraordinary item - gain on debt discharge . . . . . . . . . . . . -- 70,166 Cumulative effect of change in accounting principle - post- retirement medical benefits . . . . . -- (2,000) ------- -------- Net income. . . . . . . . . . . . . . . $ 3,143 $56,404 ======= ======== Income per common share (2), (3) . . . $0.67 -- ======= ======== 11 Predecessor Company --------------------------------------------- Fiscal Year Ended Sunday Nearest July 31, (4) --------------------------------------------- 1994 1993 1992 1991 ---------- ---------- ---------- ---------- (In Thousands) Statement of Operations Data: Sales . . . . . . . . . . . $1,065,165 $1,086,125 $1,071,038 $1,059,636 Cost of sales . . . . . . . 845,597 856,156 848,441 842,687 ---------- ---------- ---------- ---------- Gross profit. . . . . . . . 219,568 229,969 222,597 216,949 Selling, general and administrative expenses . . 176,945 175,177 164,897 159,359 Depreciation and amortization . . . . . . . 24,112 23,455 20,132 54,435 Store closing and other costs . . . . . . . . . . . 11,016 -- -- -- ---------- ---------- ---------- ---------- Operating income. . . . . . . 7,495 31,337 37,568 3,155 Interest expense (1) . . . . 45,390 43,257 44,869 45,610 ---------- ---------- ---------- ---------- Loss from operations before extraordinary items . . . (37,895) (11,920) (7,301) (42,455) Extraordinary item - gain on debt repurchase . . . . . -- -- -- 3,427 ---------- ---------- ---------- ---------- Net loss . . . . . . . . . . $(37,895) $(11,920) $(7,301) $(39,028) ========== ========== ========== ========== 12 Reorganized Predecessor Company Company ---------- ---------------------------------- Fiscal Year Ended Sunday Nearest July 31, (4) ---------------------------------------------- 1995 1994 1993 1992 1991 --------- -------- -------- -------- -------- (Dollar Amounts in Thousands) Balance Sheet Data: Total assets . . . . . . . . $373,572 $389,893 $423,208 $399,419 $401,860 Inventories . . . . . . . . . 86,840 76,094 95,385 91,226 92,451 Property and equipment, net . 139,967 160,491 164,937 145,372 146,513 Working capital . . . . . . . 13,164 (12,747) 19,137 26,031 15,684 Total long-term debt and capital leases (including current maturities) (5) . . 223,694 360,121 351,890 316,220 342,826 Preferred stock . . . . . . . -- 4,650 4,650 4,650 45,991 Total stockholders' equity (deficit) . . . . . . . . . 49,638 (61,054) (23,159) (11,239) (72,640) Other Data: Operating cash flow (adjusted EBITDA) (6) . . . $54,497 $42,623 $54,792 $57,700 $57,590 Capital expenditures (7). . . 6,247 15,471 37,703 15,385 15,672 Store Data: Food stores open at end of period (8). . . . . . . . . 99 100 115 111 113 Avg. selling sq. ft. during period (in thousands) (9) . 2,913 3,084 3,100 2,970 2,949 Avg. sales per store week (10) $199 $196 $183 $181 $180 13 Notes to Selected Financial Information (Dollar Amounts in Thousands) (1) Includes amortization of deferred financing costs of $809 and $1,152 for the 30 weeks ended July 30, 1995 and the 22 weeks ended January 1, 1995, respectively, and $2,950, $2,850, $2,932 and $3,017 for the 1994, 1993, 1992 and 1991 fiscal years, respectively. (2) Reflects the 3-for-2 stock split effected in the form of a stock dividend paid on July 17, 1995. Based on 4,649,943 shares (the weighted average number of shares of Common Stock outstanding). (3) Net income per share of Common Stock is not meaningful prior to January 1, 1995 due to the significant change in the capital structure in connection with the Restructuring. (4) The Company's fiscal year is based on a 52/53 week fiscal year ending on the Sunday nearest to July 31. Therefore, the 1992 fiscal year included 53 weeks of operations. The 1995, 1994, 1993 and 1991 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 interest expense (which includes amortization of deferred financing costs), provision for income taxes, depreciation and amortization, store closing and other costs, reorganization items, extraordinary items, and cumulative effect of change in accounting principle. Operating cash flow (adjusted EBITDA) is presented here as a measure of the Company's debt service ability, and should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) or to cash flows from operating activities (as determined on the Statements of Cash Flows in the Company's financial statements). (7) Capital expenditures consist of cash expenditures, additions to capital leases and, for the 1994, 1993 and 1992 fiscal years, amounts funded under the capital improvements revolving credit facility under the Old Credit Agreement (as defined in "Management's Discussion and Analysis of Financial Condition and Results of Operations"). (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. 14 ITEM 7. 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. Historical results of operations are given for the Company's 52 week periods of operations ended July 30, 1995, July 31, 1994 and August 1, 1993 (respectively, the "1995, 1994 and 1993 Fiscal Years"). The financial statements as of and for the 30 weeks ended July 30, 1995 reflect the Company's emergence from Chapter 11 proceedings on December 29, 1994 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"). The Restructuring During the 1995 Fiscal Year, the Company completed a comprehensive financial restructuring pursuant to a "prepackaged" plan of reorganization (the "Restructuring") pursuant to Chapter 11 of the U.S. Bankruptcy Code. The Company filed its prepackaged plan with the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on November 9, 1994 (the "Petition Date"). 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 Restructuring 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 provisions of the Restructuring, 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; 15 (2) Each $1,000 principal amount of the Company's $50.0 million 12 3/8% Senior Fixed Rate Notes due February 1, 1999 (the "Old Senior Fixed Rate Notes") was exchanged for (a) New Senior Floating Rate Notes in an original principal amount equal to $1,000 plus 100% of the accrued interest under the Old Senior Fixed Rate Notes from and including February 2, 1994, through but not including the Petition Date, or, at such holder's election, (b) New Senior Fixed Rate Notes in the same original principal amount, or, at such holder's election, (c) an amount of New Senior Floating Rate Notes and an amount of New Senior Fixed Rate Notes equal, in the aggregate, to 100% of such claim; (3) the Company's $105.0 million 14% Subordinated Debentures due February 1, 2001 (the "Old Subordinated Debentures") were exchanged for the aggregate amount of 2,634,973 (3,952,443 after giving effect to the 3-for-2 stock split in July 1995) shares of newly-issued Common Stock, representing 85 percent of the Common Stock outstanding on the Effective Date; (4) Green Equity Investors, L.P. ("GEI") invested $10.0 million cash in exchange for 465,000 (697,500 after giving effect to the 3-for-2 stock split in July 1995) shares of newly-issued Common Stock, representing 15 percent of the Common Stock outstanding on the Effective Date; and (5) all of the existing preferred stock, common stock, and options and warrants to purchase common stock of the Company were extinguished. Also pursuant to the Restructuring, 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 "-- Financial Condition." 16 Results of Operations The discussion below compares the results of operations for the 1995, 1994 and 1993 Fiscal Years. 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 Fiscal Year, and that the combined operating results of the individual 30-week period and 22-week period ended July 30, 1995 and January 1, 1995, respectively, are indicative of the results of operations for the 52-week period ended July 30, 1995. The following table sets forth certain items from the Company's Statements of Operations as a percentage of sales for the periods indicated: Reorganized Predecessor Company Company -------- ------------------ 1995 1994 1993 Fiscal Fiscal Fiscal Year Year Year ------- ------- ------- Sales 100.0% 100.0% 100.0% Gross profit 20.8% 20.6% 21.2% Selling, general and administrative expenses 15.5% 16.6% 16.1% Depreciation and amortization 2.4% 2.3% 2.2% Operating income 2.9% 0.7% 2.9% Interest expense 2.9% 4.3% 4.0% Net income (loss) 5.8%(1) -3.6%(2) -1.1% (1) Net income for the 1995 Fiscal Year includes a non-recurring gain on debt discharge (6.8% of sales) offset by other reorganization items (-0.5% of sales) and cumulative effect of change in accounting principle (-0.2% of sales) recorded for the 22-week period ended January 1, 1995. Net income, as a percentage of sales, for the 30 weeks ended July 30, 1995 (post-Restructuring) was 0.5%. (2) Net income for the 1994 Fiscal Year included expenses of $11,016, or 1.0% of sales, applicable to store closing and other costs. 17 Sales Reorganized Predecessor Company Company -------- ------------------ 1995 1994 1993 Fiscal Fiscal Fiscal Year Year Year -------- -------- -------- Sales (in millions) $1,026 $1,065 $1,086 Number of stores: Food stores opened or acquired -- 2 8 Food stores closed 1 17 4 Expansion remodels -- 1 2 Total food stores at period end 99 100 115 Average selling square feet during year (in thousands) 2,913 3,084 3,100 Average sales per store week (in thousands) $199 $196 $183 Total sales have decreased slightly over the last three years as a result of operating twelve fewer stores, low overall retail price increases, and the impact of 41 additional competitive supermarket openings during this period. Gross Profit The improvement in gross profit, as a percentage of sales, for the 1995 Fiscal Year was primarily due to restoring investment in forward buy inventory, improved perishable margins, and increased efficiencies in store-level product preparation and handling costs. Partially offsetting these improvements was the receipt of substantially less promotional funds due in part to the credit restrictions placed on the Company by its vendors during the period preceding the Company's emergence from bankruptcy. 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. Selling, General and Administrative Expenses The reductions of selling, general and administrative expenses for the 1995 Fiscal Year compared with the 1994 Fiscal Year were due to lower store labor costs (approximately 0.3% of sales), reduced corporate overhead expenses (approximately 0.3% of sales), and lower advertising expenditures (approximately 0.4% of sales) associated with a comprehensive operational restructuring of the Company initiated during the year; and the elimination of 18 operating costs associated with stores that were closed during the 1994 Fiscal Year. These improvements were partially offset by an increase in workers' compensation insurance reserves. 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. Depreciation and Amortization The increase in depreciation and amortization expenses for the 1995 Fiscal Year was primarily attributable to increased amortization of intangible assets. The increase in depreciation and amortization expenses from the 1993 Fiscal Year to the 1994 Fiscal Year was primarily attributable to the new stores and major remodels. Store Closing and Other Costs During the first quarter of the 1994 Fiscal Year, the Company recorded a non-recurring charge of $11.0 million. This charge included $1.9 million of costs associated with a proposed public offering of debt securities and a proposed real estate-based revolving credit facility, neither of which was consummated, $4.2 million of favorable lease interests written off in connection with the closing of 12 underperforming stores, $4.0 million representing an adjustment to the expected lease liability on closed stores, net of sublease income, and $.9 million of other store closing and related expenses. Interest Expense Reorganized Predecessor Company Company ------- ------------------- 1995 1994 1993 Fiscal Fiscal Fiscal Year Year Year -------- -------- ------- (In Thousands) Interest expense $27,638 $42,917 $41,211 Amortization of deferred financing costs 1,961 2,950 2,850 Capitalized interest (70) (477) (804) -------- -------- -------- Total interest expense $29,529 $45,390 $43,257 ======== ======== ======== 19 Interest expense for the 1994 and 1993 Fiscal Years was primarily comprised of interest under the Old Credit Agreement, the Old Senior Floating Rate Notes, the Old Senior Fixed Rate Notes, the Old Subordinated Debentures, and various mortgages and capital leases. For the 1995 Fiscal Year, interest expense was incurred on the Old Senior Floating Rate Notes, the Old Senior Fixed Rate Notes, and the Old Subordinated Debentures through the Petition Date; and interest expense was incurred on the New Senior Floating Rate Notes and the New Senior Fixed Rate Notes from the Effective Date through July 30, 1995. In accordance with the provisions of the Restructuring, no interest was due to the holders of the Old Senior Floating Rate Notes, Old Senior Fixed Rate Notes, or Old Subordinated Debentures for the period between the Petition Date and the Effective Date, and therefore no interest expense was recorded for this period. As provided in the Restructuring, 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 newly issued Common Stock. Reorganization Costs In accordance with SOP 90-7, income and costs directly related to the reorganization have been segregated and are separately disclosed. The major components consist of adjustments to fair value, provision for store closing costs, provision for severance benefits, provision for other restructuring activities, and professional fees. Gain on Debt Discharge The gain on debt discharge reflects the conversion of $105.0 million of Old Subordinated Debentures, plus accrued interest from and including February 2, 1994 through the Petition Date, into $39.5 million of stockholders' equity, resulting in a $70.2 million gain. The gain is presented net of write-offs and costs associated with the debt discharged. Financial Condition Prior to the Petition Date, the Company's Old Credit Agreement provided for a revolving credit facility with individual sublimits of $30.0 million for working capital loans and $25.0 million for letters of credit, with a maximum of $50.0 million outstanding under the total facility at any one time. During the weeks immediately preceding the bankruptcy filing, the Company, with the approval of its bank lenders, increased its cash position by fully 20 drawing the remaining availability under its working capital line. On the Petition Date, the Bankruptcy Court approved the use of cash collateral and a letter of credit facility of $17.7 million under the Old Credit Agreement, and additional debtor-in-possession financing provided by BankAmerica Business Credit, Inc. of $11.2 million, subject to certain terms and conditions. The outstanding borrowings under those facilities were refinanced on the Effective Date, when the Company entered into the New Credit Agreement with The CIT Group/Business Credit Inc. ("CIT") and certain bank lenders to provide a 3-year $35.0 million term loan facility and a 3-year $50.0 million revolving credit facility. Beginning August 1, 1994, the Company implemented a new short- term business strategy to improve the Company's financial performance. The focus of this strategy was to conserve capital, reduce administrative and operating expenses, and direct management attention toward the operation of existing stores. During the 1995 Fiscal Year the Company significantly improved its liquidity as a result of the payment moratorium on interest due on the Old Senior Fixed Rate Notes, Old Senior Floating Rate Notes, and Old Subordinated Debentures; managing working capital; reducing operating expenses by approximately $12.0 million on an annualized basis; and limiting capital expenditures. During the pendency of its bankruptcy case, the Company operated its business in the ordinary course, and paid all pre-petition and post-petition claims of the Company's general unsecured creditors, trade creditors, and employees in full. The provisions of the Restructuring, which are discussed in footnote 1 to the accompanying financial statements, had an immediate beneficial impact on the Company's financial condition, primarily as a result of significantly deleveraging the Company's balance sheet, as indicated below: Reorganized Predecessor Company Company --------- --------- July 30, July 31, 1995 1994 --------- --------- (Dollar Amounts in Thousands) Current portion of long-term debt $ 5,563 $ 42,740 Total long-term debt 223,694 360,121 Operating cash flow (adjusted EBITDA)(1) 54,497 42,623 Total interest expense 26,814(2) 45,390 Cash interest expense 11,340(2) 42,440 Capital expenditures 6,247 15,471 Long-term debt/operating cash flow 4.25(3) 8.45 Operating cash flow/ total interest expense 2.03 0.94 Operating cash flow/ cash interest expense 4.81 1.00 21 (1) Represents twelve month trailing earnings before interest expense (which includes amortization of deferred financing costs), provision for income taxes, depreciation and amortization, store closing and other costs, reorganization items, extraordinary items, and cumulative effect of change in accounting principle. Operating cash flow (adjusted EBITDA) is presented here as a measure of the Company's debt service ability and should not be construed as an alternative to operating income (as determined in accordance with generally accepted accounting principles) or to cash flows from operating activities (as determined on the Statements of Cash Flows in the Company's financial statements). (2) Interest expense for the trailing twelve-month period is not meaningful due to the payment moratorium on the Old Senior Notes and Old Subordinated Debentures. Therefore, total interest expense and cash interest expense as shown here represent annualized proforma amounts based on reported interest expense for the third and fourth quarters of the 1995 Fiscal Year. (3) Assumes long-term debt is increased by the non-cash interest accrued as of July 30, 1995. The Company recently completed a financing of three of its fee-owned store properties and applied the net proceeds of $9.1 million to the outstanding balance of the term loan under the New Credit Agreement. The Company is still actively pursuing an additional refinancing transaction on eight other mortgaged store properties, the sale-leaseback of an additional store facility that is operating as a ground lease, the sale of an unencumbered real estate site, and the sale of its beneficial interest in three real estate trusts, the total of which could provide up to an additional $10.0 million of net cash proceeds. In addition, in August the Company exercised its option of paying interest in kind on the New Senior Floating Rate Notes and the New Senior Fixed Rate Notes, and has the option of paying in kind the next subsequent semi-annual interest payment on the New Senior Fixed Rate Notes. As a result of its increased liquidity and the application of the proceeds of the financing discussed above, the Company has prepaid a total of $24.9 million on its term loan. As of October 13, 1995, the outstanding principal balance under the term loan facility was $4.8 million, and the Company had $21.9 million in borrowings and $12.5 million in letters of credit outstanding under the revolving loan facility under the New Credit Agreement. The Company intends to repay the remaining balance of its term loan facility with the net cash proceeds from the transactions described above. Additionally, the Company has received a commitment from CIT to amend the New Credit Agreement by extending the term through December 1998 and providing more favorable terms. 22 Consistent with its short-term business strategy for the 1995 fiscal year, the Company did not open or acquire any new stores during the year, but spent $6.2 million to upgrade its existing stores. For the 1996 fiscal year, the Company expects that capital expenditures of approximately $28.0 million will be used to open two new stores and complete major and minor remodels of approximately ten stores and 24 stores. In March 1995, the Company entered into a ten year agreement to outsource its information systems. As a result of the outsourcing agreement, the Company anticipates that its total annual information systems expenditures through 2000 will range from approximately $8.6 million to $9.9 million, as compared with total information systems expenditures of $9.5 million and $9.1 million, respectively, for the 1993 and 1994 Fiscal Years, and approximately $8.9 million for the 1995 Fiscal Year. The outsourcing agreement provides for new application software in the areas of merchandise procurement, store billings, warehouse control, accounts payable, and labor tracking/scheduling, as well as new point-of-sale equipment for each store. Absent the outsourcing agreement, the Company estimates that these system enhancements would have required approximately $10.0 million in additional capital outlays during the 1995 and 1996 Fiscal Years. Based upon the Company's ability to generate working capital through its operations and its $50.0 million revolving credit facility, the Company believes that it has the financial resources necessary to pay its capital obligations and implement its business plan. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data for the Company begin on page 24. 23 [COOPERS & LYBRAND LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Kash n' Karry Food Stores, Inc.: We have audited the accompanying balance sheet of Kash n' Karry Food Stores, Inc. (the Company) as of July 30, 1995 and the related statements of operations, stockholders' equity and cash flows for the thirty weeks ended July 30, 1995 and the twenty-two weeks ended January 1, 1995. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kash n' Karry Food Stores, Inc. as of July 30, 1995, and the results of its operations and its cash flows for the thirty weeks ended July 30, 1995 and the twenty-two weeks ended January 1, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, the Bankruptcy Court confirmed the Company's prepackaged Plan of Reorganization dated December 12, 1994, and the Company emerged from bankruptcy on December 29, 1994. On January 1, 1995 the Company accounted for the reorganization and adopted "fresh start accounting." As a result, the Company's July 30, 1995 balance sheet is not comparable to the July 31, 1994 balance sheet, since it presents the financial position of the reorganized entity. As discussed in Note 12 to the financial statements, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions," as of January 1, 1995. /s/ Coopers & Lybrand, L.L.P. - ----------------------------------- Tampa, Florida September 15, 1995 24 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Kash n' Karry Food Stores, Inc.: We have audited the accompanying balance sheet of Kash n' Karry Food Stores, Inc. as of July 31, 1994 and the related statements of operations, stockholders' deficit, and cash flows for the fifty-two weeks ended July 31, 1994 and August 1, 1993. 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 the results of its operations and its cash flows for the fifty-two weeks ended July 31, 1994 and August 1, 1993, 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 Note 1, which is as of November 9, 1994 25 KASH N' KARRY FOOD STORES, INC. BALANCE SHEETS (Dollar Amounts in Thousands, Except Per Share Amounts) ASSETS Reorganized Predecessor Company Company ------------ ----------- July 30, July 31, 1995 1994 ------------ ----------- (Note 1) Current assets: Cash and cash equivalents $ 4,803 $ 6,852 Accounts receivable 6,504 8,084 Inventories 86,840 76,094 Prepaid expenses and other current assets 4,310 12,805 --------- --------- Total current assets 102,457 103,835 Property and equipment, at cost, less accumulated depreciation 139,967 160,491 Favorable lease interests, less accumulated amortization of $1,152 and $13,543 28,802 12,312 Deferred financing costs, less accumulated amortization of $809 and $22,572 3,684 12,630 Reorganization value in excess of amount allocable to identifiable assets, less accumulated amortization of $6,627 94,692 -- Excess of cost over net assets acquired, less accumulated amortization of $16,288 -- 96,758 Deferred tax asset 1,200 -- Other assets 2,770 3,867 --------- --------- Total assets $373,572 $389,893 ========= ========= See accompanying notes to financial statements. 26 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 ------------ ----------- July 30, July 31, 1995 1994 ------------ ----------- (Note 1) Current liabilities: Current portion of long-term debt $ 5,563 $ 42,740 Accounts payable 39,231 34,908 Accrued expenses 44,499 38,934 --------- --------- Total current liabilities 89,293 116,582 Long-term debt, less current obligations 218,131 317,381 Other long-term liabilities 16,510 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. -- 3,875 Old Series C Convertible Preferred Stock of $.01 par value. Authorized 100,000 shares; 77,500 shares outstanding. -- 775 Stockholders' equity (deficit): New Common Stock of $.01 par value. Authorized 5,500,000 shares; 4,649,943 shares outstanding. 46 -- Old Common Stock of $.01 par value. Authorized 4,000,000 shares; 2,819,589 shares outstanding. -- 28 New Preferred Stock of $0.01 par value. Authorized 1,000,000 shares; no shares outstanding. -- -- Capital in excess of par value 46,449 77,695 Retained earnings (deficit) 3,143 (138,740) Less cost of treasury stock - 2,437 shares at July 31, 1994 -- (37) --------- --------- Total stockholders' equity (deficit) 49,638 (61,054) --------- --------- Total liabilities & stockholders' equity $373,572 $389,893 ========= ========= See accompanying notes to financial statements. 27 KASH N' KARRY FOOD STORES, INC. STATEMENTS OF OPERATIONS (Dollar Amounts in Thousands, Except Per Share Amounts) Reorganized Company Predecessor Company ---------- ---------------------------------- 30 Weeks 22 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended July 30, January 1, July 31, August 1, 1995 1995 1994 1993 ---------- ---------- ---------- ------------ Sales $599,320 $426,681 $1,065,165 $1,086,125 Cost of sales 471,401 340,802 845,597 856,156 ---------- ---------- ---------- ---------- Gross profit 127,919 85,879 219,568 229,969 Selling, general and administrative expenses 90,482 68,819 176,945 175,177 Depreciation and amortization 14,802 10,234 24,112 23,455 Store closing and other costs -- -- 11,016 -- ---------- ---------- ---------- ---------- Operating income 22,635 6,826 7,495 31,337 Interest expense 15,810 13,719 45,390 43,257 Income (loss) before ---------- ---------- ---------- ---------- reorganization items, income taxes, extra- ordinary item, and change in accounting principle 6,825 (6,893) (37,895) (11,920) Reorganization items -- (4,869) -- -- Income (loss) before ---------- ---------- ---------- ---------- income taxes, extraordinary item and change in accounting principle 6,825 (11,762) (37,895) (11,920) Provision for income taxes (3,682) -- -- -- Income (loss) before ---------- ---------- ---------- ---------- extraordinary item and change in accounting principle 3,143 (11,762) (37,895) (11,920) Extraordinary item- gain on debt discharge -- 70,166 -- -- Cumulative effect of change in accounting principle - post- retirement medical benefits -- (2,000) -- -- ---------- ---------- ---------- ---------- Net income (loss) $ 3,143 $ 56,404 $ (37,895)$ (11,920) ========== ========== ========== ========== Net income per common share (A)(B) $ 0.67 ========== (A) Based on a weighted average number of shares of common stock of 4,649,943 outstanding. (B) Net income per common share is not meaningful prior to January 1, 1995 due to the significant change in the capital structure in connection with the Restructuring. See accompanying notes to financial statements. 28 KASH N' KARRY FOOD STORES, INC. STATEMENT OF STOCKHOLDERS' EQUITY Fiscal Years Ended July 30, 1995, July 31, 1994, and August 1, 1993 (Dollar Amounts In Thousands) Capital in Excess Retained Common of Par Earnings Treasury Stock Value (Deficit) Stock Total ------ --------- ----------- -------- --------- PREDECESSOR COMPANY: Balance at August 2, 1992 $ 28 $ 77,691 $ (88,925) $(33) $(11,239) (2,819,866 shares outstanding) 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) (2,819,589 shares outstanding) Loss for period -- -- (37,895) -- (37,895) ----- ---------- ---------- ----- --------- Balance at July 31, 1994 28 77,695 (138,740) (37) (61,054) (2,819,589 shares outstanding) Income for period -- -- 56,404 -- 56,404 Extinguishment of preferred stock in connection with bankruptcy -- 4,650 -- -- 4,650 Extinguishment of stockholders' equity in connection with bankruptcy (28) (82,345) 82,336 37 -- ----- ---------- ---------- ----- --------- Balance at January 1, 1995 $ -- $ -- $ -- $ -- $ -- ===== ========== ========== ===== ========= REORGANIZED COMPANY: Issuance of 4,649,943 shares of common stock $ 46 $ 46,449 $ -- $ -- $ 46,495 at reorganization value Income for period -- -- 3,143 -- 3,143 ----- ---------- ---------- ----- --------- Balance at July 30, 1995 $ 46 $ 46,449 $ 3,143 $ -- $ 49,638 (4,649,943 shares ===== ========== ========== ===== ========= outstanding) See accompanying notes to financial statements. 29 KASH N' KARRY FOOD STORES, INC. STATEMENTS OF CASH FLOWS (In Thousands) Reorganized Predecessor Company Company ---------- ---------------------------------- 30 Weeks 22 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended July 30, January 1, July 31, August 1, 1995 1995 1994 1993 --------- --------- --------- --------- Net cash flows from operating activities: Net income (loss) $ 3,143 $ 56,404 $ (37,895) $ (11,920) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization, excluding deferred financing costs 14,802 10,234 24,112 23,455 Store closing and other costs -- -- 11,016 -- Amortization of deferred financing costs 809 1,152 2,950 2,850 Provision for income taxes 3,682 -- -- -- Reorganization items -- 4,869 -- -- Change in accounting principle -- 2,000 -- -- Gain on debt discharge -- (70,166) -- -- (Increase) decrease in assets: Accounts receivable (743) 2,322 2,804 (3,778) Inventories 273 (5,917) 19,291 (4,159) Prepaid expenses and other assets (1,241) (194) (278) (5,426) Increase (decrease) in liabilities: Accounts payable 2,522 1,800 (7,653) 3,722 Accrued expenses and other liabilities 5,359 9,083 (1,565) (3,684) --------- --------- --------- --------- Net cash provided by operating activities 28,606 11,587 12,782 1,060 --------- --------- --------- --------- Cash provided (used) by investing activities: Additions to property and equipment (5,582) (665) (10,942) (13,103) Leased asset additions -- -- (4,529) (24,600) Sale of property and equipment -- -- 504 91 --------- --------- --------- --------- Net cash used by investing activities (5,582) (665) (14,967) (37,612) --------- --------- --------- --------- See accompanying notes to financial statements. 30 KASH N' KARRY FOOD STORES, INC. STATEMENTS OF CASH FLOWS (CONTINUED) (In Thousands) Reorganized Predecessor Company Company ---------- ---------------------------------- 30 Weeks 22 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended July 30, January 1, July 31, August 1, 1995 1995 1994 1993 --------- --------- --------- --------- Cash provided (used) by financing activities: Borrowings under term and revolving loan facilities 9,992 50,800 17,700 38,100 Additions to obligations under capital leases and notes payable -- -- 5,230 14,867 Sale of Common Stock -- 10,000 -- -- Repayments of term and revolving loan facilities (26,349) (60,928) (5,488) (12,881) Repayments of other long-term liabilities (2,588) (7,363) (9,212) (4,415) Financing costs (265) (9,294) (1,338) (1,453) --------- --------- --------- --------- Net cash provided (used) by financing activities (19,210) (16,785) 6,892 34,218 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 3,814 (5,863) 4,707 (2,334) Cash and cash equivalents at beginning of period 989 6,852 2,145 4,479 --------- --------- --------- --------- Cash and cash equivalents at the end of period $ 4,803 $ 989 $ 6,852 $ 2,145 ========= ========= ========= ========= See accompanying notes to financial statements. 31 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (1) Reorganization and Basis of Reporting. During the 1995 fiscal year, the Company completed a comprehensive financial restructuring pursuant to a "prepackaged" plan of reorganization (the "Restructuring") pursuant to Chapter 11 of the U.S. Bankruptcy Code. The Company filed its prepackaged plan with the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on November 9, 1994 (the "Petition Date"). 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 Restructuring 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 provisions of the Restructuring, on the Effective Date: (i) Each $1 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 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 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 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 (vi) all of the existing preferred stock, common stock, and options and warrants to purchase common stock of the Company was extinguished. 32 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) Given the automatic stay provisions of the bankruptcy filing, certain portions of these debt obligations were classified as long-term on the July 31, 1994 balance sheet. The financial statements as of and for the period ended July 30, 1995 reflect the Company's emergence from Chapter 11 and were prepared according to the principles of fresh start reporting contained in American Institute of Certified Public Accountants' Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (the "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 reporting, the Company's financial statements as of and for the period ended July 30, 1995 are not comparable to the Company's financial statements of prior periods. Therefore, financial statements for the "Reorganized Company" have been separately identified from those of the "Predecessor Company." The total reorganization value assigned to the Company's assets was estimated based on a ten-year projection of cash flow before debt service requirements discounted back to present value using a discount rate of 13.3% (representing the estimated weighted cost of capital), as well as by analyzing market cash flow multiples and applying a cash flow multiple of six to the Company's adjusted 12-month trailing cash flows. After extensive negotiations between independent investment banking firms representing the Company and an ad hoc committee of bondholders, the reorganization value was agreed to by the parties and confirmed by the Bankruptcy Court. The excess of the reorganization value over the value of the identifiable assets is reported as "Reorganization Value in Excess of Amount 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 balance sheet as of January 1, 1995 was as follows: 33 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (In Thousands) 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 4,360 -- (1,498) 2,862 --------- ---------- --------- -------- Total assets $392,143 $ (15,633) $ 4,982 $381,492 ========= ========== ========= ======== Current liabilities, excluding current portion of long- term debt $ 82,983 $ (12,617) $ 6,779 $ 77,145 Long-term debt, including current obligations 366,231 (119,486) (3,959) 242,786 Other long-term liabilities 6,226 -- 8,840 15,066 Redeemable preferred stock 4,650 (4,650) -- -- Common stock 28 18 -- 46 Treasury stock (37) 37 -- -- Capital in excess of par value 77,695 (31,246) -- 46,449 Accumulated deficit (145,633) 152,311 (6,678) -- --------- ---------- --------- -------- Total liabilities and stockholders' equity $392,143 $ (15,633) $ 4,982 $381,492 ========= ========== ========= ======== (A) To record the transactions applicable to the Restructuring as outlined in footnote 1 and eliminate the deficit in accumulated deficit. (B) To record the adjustments to state assets and liabilities at fair value, and to record the cumulative effect of $2,000 of adopting SFAS No. 106 as of the Effective Date in accordance with SOP 90-7. 34 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. 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. Prior to 1995, the Company classified capital expenditures to be refinanced within one year as prepaid expenses and other current assets. These amounts are classified as property and equipment at July 30, 1995. At July 31, 1994, prepaid expenses and other current assets included $9,987 of expenditures for construction in progress expected to be financed within one year. 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 $70, $477 and $804 for the fiscal years ended July 30, 1995, July 31, 1994 and August 1, 1993, respectively. The approximate annual rates used to compute depreciation and amortization are: Reorganized Predecessor Company Company ----------- ----------- Buildings and improvements 3% 5% Fixtures and equipment 10% 10% Transportation equipment 12% 25% Leasehold improvements -- 8% Maintenance and repairs are charged to expense as incurred. The Company capitalizes expenditures for renewals and betterments. Favorable Lease Interests. Prior to January 1, 1995, favorable lease interests represented 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 were being amortized on the straight-line method over the average life of the favorable leases. On January 1, 1995, the Company's favorable lease interests were adjusted to reflect the present value of the excess of current market rental rates over rents that existed under the operating leases of store properties at that date. Favorable lease interests are amortized on the straight-line method over the average life of the favorable leases, which is approximately twenty 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. 35 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) Reorganization Value in Excess of Amount Allocable to Identifiable Assets. As discussed in footnote 1, under the principles of fresh-start reporting, the Company allocated total reorganization value to identifiable tangible and intangible assets on the basis of their estimated fair values. The remaining amount is classified as reorganization value in excess of amount allocable to identifiable assets and is being amortized over twenty years. Excess of Cost Over Net Assets Acquired. Prior to January 1, 1995, excess of cost over net assets acquired represented the excess of amounts paid over the fair value of net assets acquired, and was being amortized over forty years. The unamortized balance of $95,560 was written off in connection with the Restructuring. Advertising Costs. Advertising costs are expensed as incurred. 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. Prior to January 1, 1995, the Company was in a loss position for income tax purposes, and, consequently, no income taxes were provided. The Company adopted Statement of Financial Accounting Standards No. 109 as of August 2, 1993. Under SFAS 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based upon differences between the financial statement and income tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 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. 36 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) 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 30, 1995 or July 31, 1994. Cash interest paid (excluding financing costs) was $12,198, $41,545 and $41,675 for the fiscal years ended July 30, 1995, July 31, 1994 and August 1, 1993, respectively. (3) Property and Equipment. Property and equipment is summarized as follows: Reorganized Predecessor Company Company --------- --------- July 30, July 31, 1995 1994 --------- --------- Land $ 13,504 $ 19,543 Buildings and improvements 55,896 63,517 Fixtures and equipment 66,631 100,717 Transportation equipment 902 2,593 Leasehold improvements -- 28,402 Construction in progress 6,193 4,115 --------- --------- 143,126 218,887 Less accumulated depreciation (8,869) (70,196) --------- --------- 134,257 148,691 Property under capital leases (less accumulated amortization of $1,723 and $11,154) 5,710 11,800 --------- --------- $139,967 $160,491 ========= ========= (4) Accrued Expenses. Accrued expenses consist of the following: Reorganized Predecessor Company Company --------- --------- July 30, July 31, 1995 1994 --------- --------- Accrued payroll and benefits $ 9,217 $ 5,579 Accrued interest 10,673 15,849 Taxes, other than income 5,789 6,056 Accrued insurance reserves 6,064 4,886 Other accrued expenses 12,756 6,564 --------- --------- $ 44,499 $ 38,934 ========= ========= 37 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: Reorganized Predecessor Company Company --------- --------- July 30, July 31, 1995 1994 --------- --------- New term loan and revolving credit facilities (A) $ 33,143 $ -- 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, bearing interest at rates from 7.5% to 10.35%, in equal monthly installments of $355, with maturities from 1999 through 2003 (D) 33,108 34,368 Capital lease obligations and other 13,328 26,124 --------- --------- Long-term debt including current portion 223,694 360,121 Less current portion (E) (5,563) (42,740) --------- --------- Long-term debt $218,131 $317,381 ========= ========= Carrying value is considered a reasonable estimate of the fair value of the Company's financial instruments. (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 July 30, 1995, the Company's New Credit Agreement provides for borrowings of up to $15,750 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 July 30, 1995, the Company had $17,393 in borrowings under the working capital line, and had $12,770 of letters of credit issued against the revolving credit facility. Amounts outstanding under the term facility bear interest (11.5% at July 30, 1995) equal to the prime rate (as defined) plus 250 basis points. Amounts outstanding under the revolving credit facility bear interest (10.0% at July 30, 1995) equal to the prime rate plus 100 basis points. 38 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (B) The New Senior Floating Rate Notes mature on February 1, 2003, and bear interest (7.31% at July 30, 1995) payable August 1, 1995, and semiannually thereafter, at a rate equal to six-month LIBOR (as defined in the New Senior Floating Rate Note Indenture) plus 200 basis points. The New Senior Floating Rate Notes are redeemable in whole or in part, at the option of the Company, on not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple thereof, at 100% of the principal amount and unpaid interest, if any, to the redemption date. Through August 1, 1995, all interest on the New Senior Floating Rate Notes may, at the option of the Company, be paid by issuing in lieu of cash additional New Senior Floating Rate Notes in an aggregate principal amount equal to the amount of interest due. The Old Senior Floating Rate Notes bore interest (5.88% at July 31, 1994) payable semiannually, at a rate equal to six-month LIBOR plus 250 basis points. (C) The New Senior Fixed Rate Notes mature on February 1, 2003, and bear interest at 11.5% per annum, payable semiannually. The New Senior Fixed Rate Notes are redeemable in whole or in part, at the option of the Company, on not less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple thereof, at 100% of the principal amount and unpaid interest, if any, to the redemption date. Through February 1, 1996, all interest on the New Senior Fixed Rate Notes may, at the option of the Company, be paid by issuing in lieu of cash additional New Senior Fixed Rate Notes in an aggregate principal amount equal to the amount of interest due. The Old Senior Fixed Rate Notes bore interest, payable semiannually, at an annual rate of 12.375%. (D) 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 bank debt. Final payments of $12,529 and $13,895 are due October 1999 and November 1999, respectively, on these mortgages. (E) The Company has prepaid the term loan through July 28, 1997. Therefore, there is no current portion of the term loan. (F) Approximate principal payments for the next five fiscal years are: Year Term Senior Capital Ending Loans Notes Mortgages Leases Other Total ------ ------- ------ --------- ------- ----- ------- 1996 $ -- $ -- $ 960 $3,654 $ 949 $ 5,563 1997 -- -- 1,057 2,100 752 3,909 1998 15,750 -- 1,163 645 640 18,198 1999 -- -- 1,282 203 540 2,025 2000 -- -- 27,058 140 521 27,719 39 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) The New 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 New Senior Floating Rate Notes, the New Senior Fixed Rate Notes, and certain other of the Company's indebtedness also contain incurrence covenants that are less restrictive than the covenants under the New Credit Agreement. At July 30, 1995, the Company was in compliance with all covenants. (6) 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"). In April 1995, the Company declared, pursuant to its rights plan, a dividend of one preferred share purchase right ("Right") for each outstanding share of Common Stock. Each Right initially entitled the holder thereof to purchase from the Company one one-hundredth of a share of Series A Preferred for a purchase price of $76 per one one-hundredth of a preferred share, subject to certain adjustments. As a result of the 3-for- 2 stock split discussed below, the number of one one-hundredths of a preferred share issuable upon exercise of each Right was adjusted from one to 0.6667. The Rights are not currently exercisable, and would become exercisable only if a person or group of persons (an "Acquiring Person") acquires 25% or more of the Common Stock (29% or more in the case of Leonard Green & Associates, L.P., formerly known as Leonard Green & Partners, L.P. ("LGA") or any other person or entity which at any time purchases all of the shares owned by LGA), or certain actions are taken in respect of any such acquisition. In the event any person or group becomes an Acquiring Person, each holder of a Right would thereafter have the right to receive upon exercise thereof 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, each Right 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. The Rights, which expire on April 13, 2000, are redeemable by the Company for a price of $.01 per Right. The payment of cash dividends and the repurchase or redemption of capital stock by the Company is restricted by the terms of the New Credit Agreement and the indentures relating to the Company's New Senior Fixed Rate Notes and New Senior Floating Rate Notes. 40 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) On June 14, 1995 the Company declared a 3-for-2 stock split effected in the form of a stock dividend on its Common Stock, paid on July 17, 1995 to stockholders of record on June 26, 1995. All of the share and per share data in the accompanying financial statements have been adjusted to reflect the stock split. (7) Reorganization Items. Reorganization items included in the accompanying statements of operations consist of the following items: Adjustments to fair value $ 5,551 Provision for store closing costs (2,500) Provision for severance benefits (3,220) Provision for other restructuring activities (3,180) Professional fees (1,520) -------- $(4,869) ======== In the Company's previous interim reporting, reorganization items included a gain on extinguishment of preferred stock of $4,650. This amount has been reclassified as of January 1, 1995 as a direct credit to capital in excess of par value and resulted in a reduction of $4,650 in net income for the 22 weeks ended January 1, 1995. (8) Stock Option Plans. Certain key employees, including all executive officers, were 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 "Old Option Plans"). Options granted under the 1988 Option Plan had 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 had 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. As discussed in footnote 1, in connection with the Restructuring, all of the outstanding options under the Old Option Plans were extinguished on December 29, 1994, and the Old Option Plans were effectively terminated as of that date. In March 1995, the Company adopted the 1995 Key Employee Stock Option Plan (the "New Option Plan"), which authorizes the issuance to eligible participants of options to purchase up to 355,419 shares of Common Stock of the Company. 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 (as defined in the New Option Plan), the options become 41 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) 100% vested. The 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 options lapse, and all vested 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 options expire immediately. Also in March 1995, the Company adopted the 1995 Non-Employee Director Stock Option Plan (the "Director Plan"). Options to purchase 27,000 shares at $10.00 per share, vesting on July 30, 1995 and options to purchase 27,000 shares at $13.33 per share, vesting on July 28, 1996, were granted under the Director Plan. At the same time, the Company granted to Green Equity Investors, L.P. ("GEI") (in lieu of granting options under the Director Plan to the representatives of GEI serving as Directors) options to purchase 9,000 shares at $10.00 per share, vesting on July 30, 1995 and options to purchase 9,000 shares at $13.33 per share, vesting on July 28, 1996 (such grants to GEI, together with the Director Plan and the New Option Plan, the "1995 Option Plans"). All options granted to GEI and to the non-employee Directors expire on March 8, 2005 or earlier upon the occurrence of certain events. A summary of changes in the 1995 Option Plans for the fiscal year ended July 30, 1995 is presented below: Stock options outstanding at beginning of year -- Granted 351,250 Exercised -- Forfeited 30,464 Outstanding at end of year 320,786 Exercisable at end of year 64,157 Average option price per share $ 11.70 Reserved for future grant 34,633 (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 30, 1995, are: 42 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 -------------- --------- -------- 1996 $ 23,179 $ 4,114 1997 22,150 2,429 1998 21,369 706 1999 21,597 223 2000 21,472 140 Thereafter 229,418 -- -------- -------- Total minimum lease payments $339,185 $ 7,612 ======== Less portion representing interest ( 870) Present value of net minimum lease payments at -------- July 30, 1995 $ 6,742 ======== Total rent expense was $25,738, $26,883, and $25,921 for the fiscal years ended July 30, 1995, July 31, 1994 and August 1, 1993, respectively. Included in total rent expense are percentage rents totaling $295, $241 and $446 for 1995, 1994 and 1993, respectively. (10) Income Taxes. Income taxes are provided based on the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The components of the provision for income taxes for the 30 weeks ended July 30, 1995 are as follows: Current Federal $ 0 State 0 ------- Total current 0 ------- Deferred Federal $ 3,142 State 540 ------- Total deferred 3,682 ------- Total tax provision $ 3,682 ======= 43 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) Deferred tax assets are comprised of the following: Reorganized Company Predecessor Company ----------- --------------------- July 30, January 1, July 31, 1995 1995 1994 ----------- --------- -------- Deferred tax assets: Net operating loss $18,600 $18,700 $35,000 Charitable contribution carryforward 3,200 3,100 3,200 Insurance and other reserves 9,000 8,800 8,100 General business carryforward 1,400 1,400 1,600 Other, net 1,200 1,500 2,700 ------- ------- ------- Total gross deferred tax assets 33,400 33,500 50,600 Less valuation allowance 32,200 33,500 50,600 ------- ------- ------- Net deferred tax assets $ 1,200 $ -- $ -- ======= ======= ======= The valuation allowance as of July 30, 1995 has been determined to be $32,200, resulting in a change in the valuation allowance in the amount of $18,400 from July 31, 1994. Such change resulted in an increase in net deferred tax assets (and a corresponding decrease in "Reorganization Value in Excess of Amount Allocable to Identifiable Assets") of $1,200, with the balance of the change attributable to the elimination of certain tax assets and corresponding allowance amounts due to change in ownership requirements of Section 382 of the Internal Revenue Code (the "IRC"). The provision for income taxes differs from the amount computed by applying the U.S. federal income tax rate (34%) because of the effects of the following items: Tax at U.S. federal income tax rate $2,320 34.0% State income taxes, net of federal tax benefit 248 3.6% Amortization of goodwill 1,114 16.3% ------ ----- Provision for income taxes $3,682 53.9% ====== ===== The Company reported pretax losses for the 22 weeks ended January 1, 1995 and for its 1994 and 1993 fiscal years and, consequently, no income tax expense was reported. There was no income tax expense attributable to the extraordinary gain on debt discharge recognized during the 22-week period ended January 1, 1995 due to certain provisions of the IRC involving exchange of stock for debt. 44 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) As of July 30, 1995, the Company had net operating loss carryforwards for tax purposes of approximately $50,000. Due to certain change of ownership requirements of Section 382 of the IRC, utilization of the Company's operating losses is expected to be limited to approximately $3,300 per year. If the full amount of that limitation in not used in any year, the amount not used increases the allowable limit in the subsequent year. Loss carryforwards will expire during the years 2004 through 2010. If the Company's net operating loss carryforwards and other fresh start deferred tax asset balances are realized, the tax benefits will reduce "Reorganization Value in Excess of Amount Allocable to Identifiable Assets." The existing valuation allowance, if realized, would reduce this reorganization value. The recognized deferred tax assets are attributable to temporary differences originating in the short period ending July 30, 1995. The Company also has general business credit carryforwards of approximately $1,400, which expire between the years 2004 and 2010. These credits are also subject to the Section 382 annual limitation. Due to the ordering rules of IRC Section 382 with respect to net operating losses and business credits, a valuation allowance has been recognized against the entire amount of the general business credit carryover. (11) Supplementary Statements of Operations Information. Supplementary Statements of Operations information is as follows: Reorganized Predecessor Company Company ---------- ----------------------------------- 30 Weeks 22 Weeks 52 Weeks 52 Weeks Ended Ended Ended Ended July 30, January 1, July 31, August 1, 1995 1995 1994 1993 ---------- ---------- ---------- ---------- Amortization of: Lease interests $ 1,152 $ 639 $ 6,037 $ 2,576 Deferred financing costs 809 1,152 2,950 2,850 Goodwill 6,627 1,198 2,831 2,832 --------- --------- --------- --------- Total amortization of intangible assets $ 8,588 $ 2,989 $ 11,818 $ 8,258 ========= ========= ========= ========= Advertising costs $ 4,896 $ 4,970 $ 14,099 $ 13,530 ========= ========= ========= ========= 45 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) (12) Employee Benefit Plans. Kash n' Karry Retirement Estates ("KKRE"), a trusteed defined contribution retirement plan, was authorized by the Company's Board of Directors in 1988. KKRE is a tax savings/profit sharing plan maintained primarily for the purpose of providing retirement income for eligible employees of the Company. KKRE is qualified under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986. Generally, all employees who have attained the age of 21 years and complete one year of participation service (as defined under KKRE) are eligible to participate in KKRE. Participants may, subject to certain federal limitations, elect to defer an amount not to exceed 15% of their base compensation and have such amount contributed to KKRE. The Company may match all or a portion of the participant's deferred compensation, but the amount of the matching contribution may not exceed 3% of such participant's compensation. Additional non-matching contributions may be made to KKRE by the Company in such amount as determined by the Company's Board of Directors based on the Company's operating performance. Funds that participants elect to defer are invested, at the participant's option, into various investment accounts. The vested percentage of the amounts allocated to a participant's account will be payable to the participant upon such participant's death, disability, retirement, or other separation of service from the Company. The Company's contributions to KKRE were $505, $573 and $573 for the fiscal years ended July 30, 1995, July 31, 1994 and August 1, 1993, 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, seventeen 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 1995, 1994 and 1993 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 $84, $135 and $149 for the fiscal years ended July 30, 1995, July 31, 1994 and August 1, 1993, respectively. 46 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) 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 July 30, 1995: Accumulated postretirement Benefit obligation: Retirees $1,908 Fully eligible active plan participants 85 ------ Accrued postretirement benefit obligation $1,993 ====== The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.0%. (13) Commitments and Contingencies. The Company had letters of credit outstanding totaling $12,770 and $16,358 at July 30, 1995 and July 31, 1994, respectively, which amounts have been reflected as reductions of the available revolving loan facility as of those dates. These letters of credit primarily guarantee various insurance and financing activities. (14) Related Party Transactions. During the 1994 and 1993 fiscal years, as consideration for the provision of financial advisory services, the Company agreed to pay an annual fee of $554, plus related out-of-pocket expenses, to Leonard Green & Associates, L.P. ("LGA"), and an annual fee of $232, 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 LGA or GGvA, but reimbursed them for out-of-pocket expenses billed to the Company. Pursuant to the provisions of the Restructuring, on December 29, 1994 the Company entered into a Management Services Agreement with LGA, pursuant to which LGA agreed to provide management, consulting, financial planning and financial advisory services for a two year term, in consideration for an annual fee of $200. LGA is not required to spend a fixed number of hours of service to the Company pursuant to the Management Services Agreement. The amount of the annual fee payable to LGA was determined in the course of negotiations among LGA, the Company and an unofficial bondholders committee during the Restructuring. The Company 47 KASH N' KARRY FOOD STORES, INC. NOTES TO FINANCIAL STATEMENTS (Dollar Amounts In Thousands, Except Per Share Amounts) believes that the fee is not in excess of the fee that would be charged by an unrelated third party in an arms-length transaction for similar services. Total amounts paid to LGA and GGvA were $117, $143, and $598 for the fiscal years ended July 30, 1995, July 31, 1994 and August 1, 1993, respectively. LGA 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 Restructuring, and which owned approximately 27.7% of the Company's outstanding New Common Stock as of July 30, 1995. 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 Restructuring. One director of the Company is the controlling shareholder of a general partner of LGA, and another director of the Company is a general partner of LGA. 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On February 17, 1995, KPMG Peat Marwick LLP ("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 was not qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG's report on the 1994 financial statements of the Company contained a separate paragraph stating that "Kash n' Karry Food Stores, Inc. has suffered recurring losses from operations and has a net capital deficiency. As discussed in note 1 to the financial statements, Kash n' Karry Food Stores, Inc. filed a pre- packaged petition under Chapter 11 of the United States Bankruptcy Code on November 9, 1994 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." 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 ended July 30, 1995. The Company did not consult with Coopers & Lybrand, L.L.P. regarding accounting advice prior to its engagement. 49 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Except for the following discussion of compliance with Section 16(a) of the Exchange Act, and the discussion of Executive Officers set forth in Part I hereof, the disclosures required by Item 10 are incorporated herein by reference to the Company's definitive proxy statement to be filed not more than 120 days after the fiscal year ended July 30, 1995. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The Company's common stock first became registered under Section 12(g) of the Securities Exchange Act of 1934 in December 1994, and its confirmed Plan of Reorganization was consummated on December 29, 1994. Pursuant to the confirmed Plan of Reorganization, on December 29, 1994, the Board of Directors of the Company was reconstituted, the then outstanding common stock was cancelled, and new common stock was issued to the former holders of the Company's $105.0 million 14% Subordinated Debentures due 2001 and to Green Equity Investors, L.P. The then officers and directors of the Company, Green Equity Investors, L.P. and PaineWebber Incorporated each filed a Form 3 during the fiscal year ended July 30, 1995, but after the due date thereof. To the knowledge of the Company, The Prudential Insurance Company of America and IDS Extra Income Fund, Inc. each beneficially own 10% or more of the Company's common stock, but did not file a Form 3 during the fiscal year ended July 30, 1995. Except as set forth above, the Company is not aware of any failure by any person who, at any time during the fiscal year ended July 30, 1995, was a director or officer of the Company, or the beneficial owner of 10% or more of its common stock, to file on a timely basis reports required by Section 16(a) of the Exchange Act during such fiscal year. ITEM 11. EXECUTIVE COMPENSATION. The disclosures required by Item 11 are incorporated herein by reference to the Company's definitive proxy statement to be filed not more than 120 days after the fiscal year ended July 30, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The disclosures required by Item 12 are incorporated herein by reference to the Company's definitive proxy statement to be filed not more than 120 days after the fiscal year ended July 30, 1995. 50 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The disclosures required by Item 13 are incorporated herein by reference to the Company's definitive proxy statement to be filed not more than 120 days after the fiscal year ended July 30, 1995. PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: Page No. -------- (1) Financial Statements: Independent Auditors' Reports. . . . . . . . . . . . . . . . . . . 24 Balance Sheets as of July 30, 1995 and July 31, 1994 . . . . . . . 26 Statements of Operations for the 30 weeks ended July 30, 1995, the 22 weeks ended January 1, 1995, and the fiscal years ended July 31, 1994 and August 1, 1993. . . . . . . . . . . . . . . . . . . . . . . . 28 Statement of Stockholders' Equity for the fiscal years ended July 30, 1995, July 31, 1994, and August 1, 1993. . . . . . . . . . . . . . . . . . . . . . 29 Statements of Cash Flows for the 30 weeks ended July 30, 1995, the 22 weeks ended January 1, 1995, and the fiscal years ended July 31, 1994 and August 1, 1993. . . . . . . . . . . . . . . . . . . . . . . . 30 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . 32 (2) Financial Statement Schedules: None (3) Exhibits: The following exhibits are filed as part of this report. Certain of such exhibits, which have heretofore been filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934 and which are designated in prior filings as noted below, are hereby incorporated by reference and made a part hereof: 51 Exhibit No. Description - ------- ------------------------------------------------------ 2 First Amended Plan of Reorganization filed by the Company with the United States Bankruptcy Court of the District of Delaware on November 9, 1994, as amended by notices of technical modifications thereto filed on November 9, 1994, and December 12, 1994 (previously filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the period ended October 30, 1994, which exhibit is hereby incorporated by reference). 3(i)(a) Restated Certificate of Incorporation filed with the Delaware Secretary of State on December 29, 1994 (previously filed as Exhibit 3(i) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(i)(b) Certificate of Designations of Series A Junior Participating Preferred Stock filed with the Secretary of State of the State of Delaware on April 26, 1995 (previously filed as Exhibit 3(i)(b) to the Company's Registration Statement on Form S-1, Registration No. 33- 58999, which exhibit is hereby incorporated by reference). 3(ii)(a) Bylaws adopted October 12, 1988 (previously filed as Exhibit 3(ii)(a) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(ii)(b) First Amendment to Bylaws adopted July 30, 1991 (previously filed as Exhibit 3(ii)(b) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(ii)(c) Second Amendment to Bylaws adopted December 29, 1994 (previously filed as Exhibit 3(ii)(c) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 3(ii)(d) Third Amendment to Bylaws adopted April 13, 1995 (previously filed as Exhibit 3(ii)(d) to the Company's Quarterly Report on Form 10-Q for the period ended April 30, 1995, which exhibit is hereby incorporated by reference). 52 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(a) Rights Agreement dated as of April 13, 1995 between the Company and Shawmut Bank Connecticut, N.A., as Rights Agent (previously filed as Exhibit 1 to the Company's Current Report on Form 8-K dated April 13, 1995, which exhibit is hereby incorporated by reference). 4.3(b) First Amendment to Rights Agreement dated as of June 13, 1995 (previously filed as Exhibit 4.3(b) to the Company's Quarterly Report on Form 10-Q for the period ended April 30, 1995, which exhibit is hereby incorporated by reference). 4.4 Specimen form of Common Stock certificate (previously filed as Exhibit 4.4 to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 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 53 period ended October 29, 1989, which exhibit is hereby incorporated by reference). 10.4 Trademark License Agreement dated as of October 12, 1988 between the Company and Lucky Stores, Inc. (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1, Registration No. 33-25621, which exhibit is hereby incorporated by reference). 10.5(a) Services Agreement dated as of March 1, 1995 between the Company and GSI Outsourcing Corporation (previously filed as Exhibit 10.5(a) to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.5(b) First Amendment to Services Agreement between the Company and GSI Outsourcing Corporation (previously filed as Exhibit 10.5(b) to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.5(c) Guaranty of Payment, Nondisturbance and Attornment Agreement dated as of June 1995 among the Company, GSI Outsourcing Corporation and IBM Credit Corporation (filed herewith). 10.5(d) Addendum to Services Agreement between the Company and GSI Outsourcing Corporation dated as of July 1995 (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 (previously filed as Exhibit 10.7(a) to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.7(b) Form of Non-Qualified Stock Option Agreement entered into between the Company and certain directors, as optionees, pursuant to the 1995 Non-Employee Director Stock Option Plan (previously filed as Exhibit 10.7(b) to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.8 Non-Qualified Stock Option Agreement dated as of January 17, 1995, between the Company and Green Equity Investors, L.P. (previously filed as Exhibit 10.8 to the Company's Registration Statement on Form S-1, Registration No. 33- 54 58999, which exhibit is hereby incorporated by reference). 10.9 Management Services Agreement dated as of December 29, 1994, by and between the Company and Leonard Green & Partners (previously filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 1995, which exhibit is hereby incorporated by reference). 10.10 Employment Agreement dated as of January 24, 1995, between the Company and Ronald Johnson (previously filed as Exhibit 10.10 to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.11 Employment Agreement dated as of March 6, 1995, between the Company and Gary M. Shell (previously filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.12 Employment Agreement dated as of March 16, 1995, between the Company and Clifford C. Smith, Jr. (previously filed as Exhibit 10.12 to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.13 Employment Agreement dated as of July 8, 1995, between the Company and BJ Mehaffey (filed herewith). 10.14 Incentive Compensation Plan adopted on October 26, 1994 (previously filed as Exhibit 10.13 to the Company's Registration Statement on Form S-1, Registration No. 33- 58999, which exhibit is hereby incorporated by reference). 10.15 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). 10.16(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). 55 10.16(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). 10.16(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). 10.16(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). 10.17(a) 1995 Key Employee Stock Option Plan (previously filed as Exhibit 10.16(a) to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.17(b) Non-Qualified Stock Option Agreement dated March 9, 1995 between the Company and Ronald E. Johnson (previously filed as Exhibit 10.16(b) to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.17(c) Form of Non-Qualified Stock Option Agreement entered into between the Company and certain key employees, as optionees, pursuant to the 1995 Key Employee Stock Option Plan (previously filed as Exhibit 10.16(b) to the Company's Registration Statement on Form S-1, Registration No. 33-58999, which exhibit is hereby incorporated by reference). 10.18 Employment and Consulting Agreement dated July 1, 1994 between the Company and Anthony R. Petrillo (filed herewith). 10.19 Form of Bonus Deferred Compensation Agreement dated as of July 28, 1995 between the Company and certain key employees (filed herewith). 11 Statement re computation of per share earnings (filed herewith). 56 16 Letter re change in certifying accountant (previously filed as Exhibit 16 to the Company's Current Report on Form 8-K dated February 17, 1995, which exhibit is hereby incorporated by reference). 21 Subsidiaries of the Company (filed herewith). 27 Financial Data Schedule (filed herewith). (b) Reports on Form 8-K: None 57 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, State of Florida, on October 27, 1995. KASH N' KARRY FOOD STORES, INC. By: /s/ Ronald E. Johnson ------------------------------ Ronald E. Johnson Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated. Signature/Capacity Date - ----------------------------------- ----------------- /s/ Ronald E. Johnson - ------------------------------ October 20, 1995 RONALD E. JOHNSON Chairman of the Board, President and Chief Executive Officer (principal executive officer) /s/ Raymond P. Springer - ------------------------------ October 20, 1995 RAYMOND P. SPRINGER Senior Vice President, Chief Financial Officer (principal financial officer) /s/ Richard D. Coleman - ------------------------------ October 20, 1995 RICHARD D. COLEMAN Vice President, Controller (principal accounting officer) /s/ Everett L. Buckardt - ------------------------------ October 20, 1995 EVERETT L. BUCKARDT Director /s/ John G. Danhakl - ------------------------------ October 22, 1995 JOHN G. DANHAKL Director /s/ John J. Delucca - ------------------------------ October 20, 1995 JOHN J. DELUCCA Director /s/ Jennifer Holden Dunbar - ------------------------------ October 25, 1995 JENNIFER HOLDEN DUNBAR Director /s/ Ben Evans - ------------------------------ October 20, 1995 BEN EVANS Director /s/ Thomas W. Harberts - ------------------------------ October 25, 1995 THOMAS W. HARBERTS Director /s/ Robert Spiegel - ------------------------------ October 24, 1995 ROBERT SPIEGEL Director /s/ Peter Zurkow - ------------------------------ October 23, 1995 PETER ZURKOW Director Supplemental information to be furnished with reports filed pursuant to Section 15(d) of the Act by registrants which have not registered securities pursuant to Section 12 of the Act: Not applicable EX-10.5(C) 2 TLMA No. FMC0211 GUARANTY OF PAYMENT, NONDISTURBANCE AND ATTORNMENT AGREEMENT This Guaranty of Payment, Nondisturbance and Attornment Agreement, dated as of June ___, 1995 ("the Agreement"), is between and among IBM Credit Corporation ("Lessor"), GSI Outsourcing Corporation ("Lessee"), and Kash n' Karry Food Stores, Inc. ("Guarantor"). Lessor, Lessee and Guarantor may sometimes be referred to in this Agreement collectively as the Parties. 1. In consideration of and to induce Lessor to enter into, and act as lessor under, the Term Lease Master Agreement referenced above, as now in effect, including any Supplements thereto (the "TLMA"), and to extend credit to Lessee, and subject to the conditions set forth below, the undersigned Guarantor, who will directly and indirectly benefit from the TLMA and such credit arrangement and from the credit extended as a result of this Guaranty, for itself, its successors and assigns, agrees as follows: 1.1 Guarantor hereby guarantees the full, prompt, and complete payment of all sums, obligations, liabilities and indebtedness not to exceed in principal amount Seven Million Dollars ($7,000,000.00) for the Point of Sale equipment to be acquired by Lessee and used in Guarantor's stores, as described on Exhibit A to this Agreement (the "Guaranteed Obligations"), that are, as of the date of this Agreement, due from Lessee under the TLMA. 1.2 This Guaranty is a continuing and irrevocable guaranty and shall (i) remain in full force and effect until the payment in full of the Guaranteed Obligations and (ii) be binding upon the Guarantor, its successors and assigns. 1.3 Subject to the consent of Guarantor, which consent may not be unreasonably withheld, Lessor may renew, compromise or extend the Guaranteed Obligations without waiving, limiting or otherwise affecting Guarantor's liability hereunder and Guarantor expressly waives and releases any defenses or claims it may have arising from or on account of any such renewal, compromise or extension. 1.4 This Guaranty shall survive any and all bankruptcy or insolvency proceedings of Guarantor. 1.5 Lessor shall not be obligated to elect remedies first which are available to Lessor in the TLMA and may secure payment first from Guarantor, provided Lessor performs its obligations under this Agreement. 2. In consideration of and to induce Guarantor to enter into, and act as Guarantor hereunder, and pursuant to Lessee's obligations under Section 18.12 of the Services Agreement between Lessee and Guarantor dated March 1, 1995, as amended (the "Services Agreement"), the undersigned Lessor and Lessee agree as follows: 2.1 Notwithstanding any provision in the TLMA to the contrary, and prior to the exercise of Lessor's rights and remedies under the TLMA, Lessor shall provide to Guarantor written notice of the occurrence of any nonpayment by Lessee, or any other event which, with the giving of notice or the passage of time, would become an event of default by Lessee under the TLMA. 2.2 If, within 15 days after receipt of such written notice, Lessee or Guarantor cures any such event or Guarantor assumes the obligations of Lessee under the TLMA, Lessor agrees not to declare the occurrence of an event of default under the TLMA, or to exercise any of its remedies under the TLMA by reason of the occurrence of such event. 2.3 If Guarantor cures any nonpayment or other event on behalf of Lessee, and, in any event, upon the termination of the Services Agreement, and in the event Lessee shall assign under the Services Agreement to Guarantor all of Lessee's rights, title, and interest in the TLMA, including the exclusive use, possession and quiet enjoyment of the equipment, software, service agreements and property subject to the TLMA, Guarantor shall assume all of the obligations of Lessee under the TLMA. 2.4 Lessor hereby consents to any such assignment and assumption of the TLMA by Guarantor, and agrees that, upon the execution and delivery by Guarantor of an assumption instrument, and for so long thereafter as no event of default shall have occurred and be continuing under the TLMA, Lessor agrees not to disturb Guarantor's use, possession or quiet enjoyment of the equipment, software, service agreements and other property subject to the TLMA. 2.5 Lessor and Lessee agree that upon Guarantor making any payment with respect to Guaranteed Obligations, the Guarantor shall be subrogated to the rights of Lessor against the Lessee with respect to such payment. 2.6 The obligations of Guarantor to Lessee under the Services Agreement will be reduced dollar for dollar for any sums actually paid to Lessor with respect to the Guaranteed Obligations, and for any other obligations of Lessee under the TLMA expressly assumed by Guarantor pursuant to this Agreement. 3. If any Party undergoes any change in its ownership or organizational structure or otherwise assigns, transfers or delegates its obligations to any assignee or transferee resulting 2 from the operation of any assignment or transfer permitted pursuant to the TLMA, this Guaranty shall continue to extend to all sums due from or for the account of Lessee or the new or substituted legal entity. 4. This Agreement has been duly authorized, executed and delivered by the Parties and constitutes a legal, valid and binding obligation of each Party, enforceable in accordance with its terms. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of any party to this Agreement pursuant to any contract, indenture, mortgage, loan agreement, note, lease, or other instrument to which Lessor, Lessee or Guarantor is a party or by which any one of them may be bound, or to which any of the property or assets of any party is subject, nor will such action result in any violation of the provisions of the certificate or articles of incorporation or organizing documents or by-laws of any party, or any applicable law, administrative regulation or administrative or court decree known to it after reasonable investigation. 5. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS. THE EXCLUSIVE AND SOLE VENUE FOR ANY LEGAL ACTION ARISING OUT OF THIS AGREEMENT SHALL BE HILLSBOROUGH COUNTY, FLORIDA. 6. This Agreement constitutes the entire agreement between the Parties with respect to the subject matter hereof. IN WITNESS WHEREOF, this agreement has been signed by an authorized officer of the parties. LESSOR: IBM Credit Corporation By: /s/ Daniel H. Ransdell -------------------------------- Name: Daniel H. Ransdell Title: Director, Customer Financing Marketing, Southern Area 7 Address: 4111 Northside Parkway Lakeside - L08J16 Atlanta, GA 30327 Telephone: 404-238-6901 Date: July 12, 1995 3 LESSEE: GSI Outsourcing Corporation By: /s/ Philippe Guionnet -------------------------------- Name: Philippe Guionnet Title: Vice President Address: 6401 Harney Road Tampa, FL 33610 Telephone: 813-621-0402 Date: June 29, 1995 GUARANTOR: Kash n' Karry Food Stores, Inc. By: /s/ R. P. Springer -------------------------------- Name: Raymond P. Springer Title: S. V. P.\Administration-CFO Address: 6422 Harney Road Tampa, FL 33610 Telephone: 813-621-0200 Date: June 28, 1995 4 Appendix A to Guaranty of Payment, Nondisturbance and Attornment Agreement. Device Configurations for Installation Management Services PC Workstation - 9577 ANG Personal Computer 8504-021 Display 2380-002 Printer IBM Keyboard (1) Token-Ring 16/4 Adapt (1) POS Expansion Adapt (2) MPCA (1) Comm. Adapt Cable (1) TR Adapt. Cable PC Workstation - 9556 DBA Personal Computer 8504-021 Display 2380-002 Printer IBM Keyboard (1) Token-Ring 16/4 Adapt (1) POS Expansion Adapt (1) TR Adapt. Cable 4693-3S1 Point of Sale Terminal (Lane Master) 4693-3S1 0149 Token-Ring Adapt 16/4 MBpS 3315 Retail POS Keyboard 3326 Distributed Keyboard Cable 3330 Keybutton Kit Retail Format 3345 Distributed Cable Assembly 3348 40 Character VFD Post Extension 3360 Cash Drawer Asmno Till 3365 Distributed Cash Drawer Cable 3390 Token-Ring Cable 3501 40 Character Vac Fluo Disp II 3879 Fixed Till 4635 Battery, Standard Duration 4654 4MB Memory (Plant Only) 4800 Model 4 Printer 4922 Model 4 Printer Distrib Cable 4923 Model 4 Printer Ribbon/Paper 9200 Plug, Non Operating Loc 9204 Lock 9206 Lock 9300 Flat Top for Distrib Sys 9316 Token Ring Speed 16MBP 9450 Keyboard Legend Sheet (English) 9510 Line Cord 4.3M Non-Lock 9534 Software Usage 4690 OS 9605 Non POS Display 1 4693-3S1 Point of Sale Terminal (Area Master) 4693-3S1 0149 Token-Ring Adapt 16/4 MBpS 3315 Retail POS Keyboard 3325 Integrated Keyboard Cable 3330 Keybutton Kit Retail Format 3344 Integrated Cable Assembly 3348 40 Character VFD Post Extension 3360 Cash Drawer Asmno Till 3364 Integrated Cash Drawer Cable 3390 Token-Ring Cable 3502 2 Sided Vac Fluo Disp II 3879 Fixed Till 4635 Battery, Standard Duration 4654 4MB Memory (Plant only) 4800 Model 4 Printer 4920 Model 4 Printer Integrated Cable 4923 Model 4 Printer Ribbon/Paper 9200 Plug, Non Operating Loc 9204 Lock 9206 Lock 9305 System Unit IO Integrated Kit 9316 Token Ring Speed 16MBP 9450 Keyboard Legend Sheet (English) 9510 Line Cord 4.3M Non-Lock 9534 Software Usage 4690 OS 9605 Non POS Display 4693-2S2 Point of Sale Terminal (Lane Slave) 4693-2S2 3315 Retail POS Keyboard 3326 Distributed Keyboard Cable 3330 Keybutton Kit Retail Format 3345 Distributed Cable Assembly 3348 40 Character VFD Post Extension 3360 Cash Drawer Asmno Till 3365 Distributed Cash Drawer Cable 3501 40 Char Vac Fluo Disp II 3879 Fixed Till 4034 Mod 2X2 Base Unit Cable 4M 4800 Model 4 Printer 4922 Model 4 Printer Distributed Cable 4923 Model 4 Printer Ribbon/Paper 9200 Plug, Non Operating Loc 9204 Lock 9206 Lock 9300 Flat Top for Distributed System 9450 Keyboard Legend Sheet (Sheet) 9510 Line Cord 4.3M Non-Lock 9534 Software Usage 4690 OS 4693-2S2 Point of Sale Terminal (Area Slave) 2 4693-2S2 3315 Retail POS Keyboard 3325 Integrated Keyboard Cable 3330 Keybutton Kit Retail Format 3344 Integrated Cable Assembly 3348 40 Character VFD Post Extension 3360 Cash Drawer Asmno Till 3364 Integrated Cash Drawer Cable 3502 2 Sided Vac Fluo Disp II 3879 Fixed Till 4034 Mod 2X2 Base Unit Cable 4M 4800 Model 4 Printer 4920 Model 4 Printer Integrated Cable 4923 Model 4 Printer Ribbon/Paper 9200 Plug, Non Operating Loc 9204 Lock 9206 Lock 9305 System Unit IO Integr Kit 9450 Keyboard Legend Sheet (English) 9510 Line Cord 4.3M Non-Lock 9534 Software Usage 4690 OS Software Datachecker Store Conversion (73 Stores) IBM 4680-4690 Supermarket Application V2.0 IBM 4690 Operating System IBM 4690 Remote Operator Upgrade Store (26 Stores) IBM 4680-4690 Supermarket Application V2.0 IBM 4690 Operating System Upgrade IBM 4690 Remote Operator 3 EX-10.5(D) 3 ADDENDUM TO SERVICES AGREEMENT This is an Addendum 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"). The purpose of this Addendum is to set forth certain modifications to the Services Agreement pertaining to the Procurement and Billing System Project (Merchandising Systems) as set forth in Schedule K-3 attached to the Services Agreement. 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. Additional Charges Related to Procurement and Billing System Project (Merchandise System). In addition to the other charges set forth in Article 6 of the Services Agreement, Kash n' Karry agrees to pay GSI the following amounts for the Warehouse module, software maintenance and support services related to the implementation of the Worldwide Chain Stores System: (a) $220,000 due as follows: $70,000 on July 15, 1995 as an advance payment and $150,000 on January 1, 1996; (b) maintenance charge of $18,000 on January 1, 1996 and $18,000 on the first day of each subsequent year during which the Worldwide Chain Store System is installed; and (c) annual support services charge of $70,000 due in equal monthly installments beginning January 1, 1996 and continuing in subsequent years for each month during which the Worldwide Chain Store System is installed. Overall WCS installation (Purchasing and Billing) is to be completed in January, 1996. 2. Incorporation. This Addendum is hereby incorporated into and made a part of the Services Agreement as if fully set forth therein as provided by sections 18.4 and 18.20 of the Services Agreement. In the event of any conflict between the provisions of the Services Agreement and the provisions of this Addendum, the provisions of this Addendum shall govern. IN WITNESS WHEREOF, the parties have hereunto executed this Addendum by and through their duly authorized officers this ____ day of July, 1995. KASH N' KARRY FOOD STORES, INC. GSI OUTSOURCING CORPORATION BY: /s/ R. P. Springer BY: /s/ Philippe Guionnet ----------------------- ------------------------ Name: Raymond P. Springer Name: Philippe Guionnet Title: Sr. Vice President/ Title: Vice President Administration 2 AMENDMENT SCHEDULE K-6 WAREHOUSE SYSTEM GSI has committed to provide a Warehousing System which: - Will be acquired from Worldwide Chain Systems (WCSS). - Will be implemented by the end of the 4th calendar quarter of 1995. - Will include WCSS Warehouse System. - 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 DB2, and includes a Kash n' Karry commitment to a complete "freeze" on all modifications to the existing Kash n' Karry Warehousing 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 Warehousing 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 A GSI INVOICE - BUILD-UP FROM BASE CHARGE 11-Aug-95 DOLLARS ROUNDED OOO NOTES CY 1995 CY 1996 CY 1997 CY 1998 - ------------------- ----- ------- ------- ------- ------- CORE OR BASE CHARGE 8,030 8,726 8,795 8,248 MAINT CHARGE WAREHOUSING DUE JAN 1 EACH YEAR 0 18 18 18 WAREHOUSE SUPPORT SERVICES 70 70 70 WAREHOUSE ONE TIME CHARGE 70 150 0 0 ADJUSTED GSI BILL 8,100 8,964 8,883 8,336 - ------------------ FISCAL YEAR TOTALS 8,216 8,604 8,917 8,564 CY 1999 CY 2000 CY 2001 CY 2002 CY 2003 CY 2004 10 Years - ------- ------- ------- ------- ------- ------- -------- 7,950 7,453 7,256 7,058 6,861 6,466 76,843 18 18 18 18 18 18 162 70 70 70 70 70 70 630 0 0 0 0 0 0 0 8,038 7,541 7,344 7,146 6,949 6,554 77,635 8,162 7,748 7,426 7,229 7,031 6,719 78,616 EX-10.13 4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of July 8, 1995, between KASH N' KARRY FOOD STORES, INC., a Delaware corporation (the "Company"), and BJ Mehaffey (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 - Operations 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 - Operations. 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 July 8, 1995, (the "Commencement Date") and shall continue until (but not including) January 24, 1998 (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 Fifteen Thousand Dollars ($115,000), 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 (a) bonus plan, generally referred to as the Incentive Compensation Plan, and (b) management stock option plan (the "Stock Option Plan"), both as in effect on the Commencement Date. Subject to approval by the Company's Board of Directors and at a strike price to be determined by the Board, 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 less than Fifty Percent (50%), and that the Employee's base salary 4 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 retirement (Kash n' Karry Retirement Estates), deferred compensation (Key Employee Savings Plan), medical, hospital, dental and life insurance coverage and benefits, vacations, car allowance, and other perquisites, as are available to the Company's most senior executive officers on the Commencement Date, or benefits that are substantially comparable. The Company will pay the Employee's reimbursable relocation expenses pursuant to the Company's Relocation Policy, a copy of which is attached to this Agreement as Exhibit "A", and, in addition, the Company will pay: (a) all reasonable expenses incurred in connection with selling the Employee's current residence; (b) $5000 to cover incidental expenses connected with the Employee's new residence; (c) the Employee's temporary housing expenses for up to 90 days from the Commencement Date (the "transition period"), (d) additional tax withholding on Employee's wages for amounts reimbursed that are not deductible under the Internal Revenue Code; (e) for two trips per month for either the Employee or his spouse during the transition period; (f) two additional trips for house hunting; and (g) the travel costs of the Employee's children to visit Tampa on one occasion. 5 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. 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 6 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 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. 7 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. 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 9 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 be and remain the sole property of the Company. The Employee shall not be allowed to remove any of the above listed materials from the Company's premises for other than a business purpose, unless specifically authorized in writing by 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 10 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 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. 11 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; (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 Employee's death. 12 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 (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 13 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; 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 14 (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 or for the benefit of the Employee by or on behalf of such Third Party in respect thereof ("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 or for the benefit of 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. 15 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 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. 16 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 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 17 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 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 18 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: If to the Company: Attention: Raymond P. Springer, Senior Vice President, Administration Kash n' Karry Food Stores, Inc. 6422 Harney Road Tampa, Florida 33610 Telephone: 813-621-0274 Telecopier: (813) 626-9550 With a copy to: Robert S. Bolt, Esq. Barnett, Bolt, Kirkwood & Long 601 Bayshore Boulevard Suite 700 Tampa, Florida 33606 Telephone: 813-253-2020 Telecopier: (813) 251-6711 If to the Employee: BJ Mehaffey 15002 Hickory Grove Place Midlothian, Virginia 23112 Telephone: 804-240-6301 19 With a copy to: Don Ford, Esq. 2727 Buford Rd. Richmond, VA 23235 Telephone: 804-320-2061 Facsimile: 804-323-0719 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. 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 20 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. 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. 21 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 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. 22 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 Julie Hicks By: /s/ Ronald E. Johnson - ---------------------- ------------------------------- Name: Ronald E. Johnson Robert S. Bolt Title: Chairman, President & CEO - ---------------------- As to the Company Robert S. Bolt /s/ BJ Mehaffey - ---------------------- ------------------------------- BJ Mehaffey R.P. Springer - ---------------------- As to the Employee 23 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 BJ MEHAFFEY Alachua Charlotte Citrus Hardee Hernando Highlands Hillsborough Lee Manatee Marion Osceola Pasco Pinellas Polk Sarasota Volusia EX-10.18 5 [KASH N' KARRY FOOD STORES, INC. LETTERHEAD] September 1, 1994 Mr. Anthony R. Petrillo Acting Chief Executive Officer and Chairman of the Board Kash n' Karry Food Stores, Inc. 6422 Harney Road Tampa, Florida 33610 Re: Employment and consulting agreement between Kash n' Karry Food Stores, Inc., and Anthony R. Petrillo Dear Mr. Petrillo: This letter agreement will memorialize all of the material terms of your employment and consulting agreement with Kash n' Karry Food Stores, Inc. (the "Company"), and hereby supersedes all prior agreements and understandings between you and the Company: 1. Beginning on August 1, 1994, and continuing thereafter until January 29, 1995 (the "Initial Term"), the Company employs you to work full-time as its acting Chairman of the Board and Chief Executive Officer for a cash compensation of $13,462 for each calendar week actually worked, subject to withholding for applicable payroll taxes. During the Initial Term, the principal place of your employment for not less than three full days each week will be Tampa, Florida; provided, however, that if you are absent from work for not more than 1 week due to your illness or incapacity or the illness or death of an immediate family member, then you will be deemed not to have breached this obligation. 2. Beginning on January 30, 1995, and continuing thereafter until July 31, 1995 (the "Second Term"), the Company engages you to work as an independent consultant for $200 per hour of service actually rendered in response to requests from the Board of Directors of the Company; provided, however, that the Company guarantees that it will engage you to work not less than 500 hours during the Second Term. Mr. Anthony R. Petrillo September 1, 1994 Page 2 3. During the Initial Term and the Second Term, you agree to perform diligently and in good faith such duties and services for the Company as may be directed to you from time to time by the Board of Directors, and you will not, without first disclosing the matter and obtaining the prior written consent of the Board of Directors, directly or indirectly render services for compensation to any other person. 4. Beginning on August 1, 1995, and continuing until July 31, 1997 (the "Third Term"), the Company engages you to work as an independent consultant for $25,000 for each 3-month period of services rendered, payable in arrears. During the Third Term, you will use your best efforts to complete the work requested of you by the Board; provided, however, that in performing such services you will not be required to devote more than 48 hours of service in any one calendar month, and if you actually work more than 125 hours during any 3-month period during the Third Term you will additionally be compensated at the rate of $200 per hour of service actually worked in excess of 125. 5. Beginning on August 1, 1994, and continuing until July 31, 1996, the Company will pay you, for as long as you are actually working or serving in the foregoing capacities, a monthly Ohio home office subsidy of $1,250 per month. Also, the Company will reimburse you for your reasonable out-of-pocket business expenses directly related to your performance of services on behalf of the Company pursuant to this agreement. 6. The Company may, at its election, terminate this agreement and your employment by the Company if you are unable or unwilling to perform the duties reasonably requested of you under this agreement, if you commit an act of fraud, misappropriation or a felony, or if you engage in willful misconduct that has a materially adverse effect on the Company. If this agreement is terminated for any reason, you are entitled to the compensation provided herein, prorated to the date of termination. 7. You agree to maintain the confidentiality of all trade secrets, financial information, marketing strategies and other proprietary information concerning the Company. Upon termination of your employment, you agree to return to the Company all documents, including computer records, containing the foregoing confidential information, which, at all times and whether used on or off the Company's premises, remain the exclusive property of the Company. You also agree that during the term of this agreement, and for six months following its termination or expiration for any reason, you will not, directly or indirectly, be employed by or render services to any person that competes with the Company within Mr. Anthony R. Petrillo September 1, 1994 Page 3 the counties of Florida in which the Company does business during the course of your employment under this agreement. The provisions of this paragraph 7 shall survive any termination or expiration of this agreement. 8. This agreement shall be governed by the laws of Florida, and each party consents and agrees that Hillsborough County, Florida shall be the exclusive, proper and convenient venue for any legal proceeding arising out of this agreement. 9. The Company's obligations under this agreement are contingent upon the approval of this agreement by the Company's Board of Directors. If you agree to the foregoing terms, please signify your agreement by signing the enclosed duplicate original letter agreement in the space provided below, and returning it to me in the enclosed, postage pre-paid envelope. Very truly yours, /s/ Raymond P. Springer --------------------------- Raymond P. Springer Executive Vice President - Administration RPS/jh cc: Mr. Leonard Green ACKNOWLEDGEMENT The undersigned hereby agrees to be employed by the Company upon the terms and conditions set forth above. Date: September 7, 1994. /s/ Anthony R. Petrillo ------------------------------------- ANTHONY R. PETRILLO EX-10.19 6 BONUS DEFERRAL COMPENSATION AGREEMENT This Bonus Deferral Compensation Agreement (the "Agreement") is entered into this ____ day of July, 1995, by and between KASH N' KARRY FOOD STORES, INC., a Delaware corporation (the "Company"), and the person executing this Agreement as key employee (the "Key Employee"). To induce the Key Employee to remain in the employ of the Company, and in consideration of their mutual covenants, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Key Employee agree as follows: 1. Definitions. As used in this Agreement and unless the context otherwise plainly requires, the terms defined in this paragraph shall have the meanings ascribed to them and shall include the plural as well as the singular number. 1.1 "Account" means the separate memorandum account maintained by the Company in the name of the Key Employee, which records the aggregate amount of the Key Employee's Elective Bonus Deferral Compensation, and the aggregate amount of the Income allocable to such amount. 1.2 "Agreement" means this Bonus Deferral Compensation Agreement, as originally executed and as from time to time amended or supplemented. 1.3 "Beneficiary" means the Person or Persons designated by the Key Employee in Schedule A to this Agreement to receive the Benefit, if any, payable by reason of the Key Employee's death. The Key Employee may change the designated Beneficiary at any time and from time to time, without the consent of any previous Beneficiary, by executing a new Schedule A and delivering it to the Plan Administrator prior to the Key Employee's death. The last Beneficiary designated by the Key Employee in a Schedule A duly executed by the Key Employee and timely delivered to the Plan Administrator shall receive the Benefit. If no Beneficiary is properly designated by the Key Employee in accordance with the provisions of this subparagraph 1.3, then the Key Employee's estate shall be deemed the Beneficiary. 1.4 "Benefit" means the amounts set forth in the Account, which shall be paid to the Key Employee by the Company upon the occurrence of a Distribution Event; provided, however, if the triggering Distribution Event is an Unforeseeable Emergency, then the amount of the Benefit that shall be paid to the Key Employee shall be limited to the amount of the Unforeseeable Emergency (as determined in accordance with subparagraph 1.23 of this Agreement). 1.5 "Bonus Compensation" means the total amount, if any, as determined by the Company's Board of Directors after the end of the applicable fiscal year of the Company to be payable by the Company to the Key Employee as a bonus. The Board of Directors has the sole discretion, but no obligation, to award any bonus subject to this Agreement and the Key Employee has no right to receive any such award. 1.6 "Company" means Kash n' Karry Food Stores, Inc., a Delaware corporation. 1.7 "Deferral Percentage" means the percentage (which percentage must be an integer) of the Excess Bonus Compensation that the Key Employee elects to defer for a particular Plan Year in accordance with the terms of this Agreement. 1.8 "Disability" means the Key Employee's inability to engage in any substantially gainful activity by reason of any medically determinable physical or mental impairment that can be expected to last for a continuous period of not less than twelve (12) months. The determination of whether the Key Employee is Disabled shall be made by a licensed medical doctor selected by the Key Employee; provided, however, if the Company disagrees with such determination, then the Company shall select a doctor and the mutual agreement of the two doctors so selected shall be conclusive and bind all affected persons; provided, further, if the two doctors so selected shall be unable to mutually agree as to whether the Key Employee is Disabled, then those two doctors shall mutually select a third doctor and the determination of such third doctor shall be conclusive and bind all affected persons. Each doctor so selected shall determine whether the Key Employee is Disabled within thirty (30) days from the date such doctor is selected. 1.9 "Disabled" means, when referring to the Key Employee, the Disability of the Key Employee as determined in accordance with this Agreement. 1.10 "Distribution Event" means the first to occur of any of the following events: (a) the date of the Key Employee's Termination of Employment with the Company for any reason, including, but not limited to, the Key Employee's death, Disability, retirement, or voluntary or involuntary termination of employment, with or without cause; (b) the date the Plan is terminated under subparagraph 6.1 of this Agreement; or (c) the date that an Unforeseeable Emergency occurs with respect to the Key Employee. 2 1.11 "Election Form" means that written form (attached hereto as Schedule A), pursuant to which the Key Employee will select the minimum Bonus Compensation amount, the Deferral Percentage, and the maximum Elective Bonus Deferral Compensation amount. 1.12 "Elective Bonus Deferral Compensation" means the amount of Excess Bonus Compensation that the Key Employee elects to defer for any particular Plan Year under the terms of this Agreement, as determined in accordance with the Key Employee's Election Form, and shall equal the product of the Key Employee's Excess Bonus Compensation for such Plan Year multiplied by the Deferral Percentage in effect for such Plan Year as selected by the Key Employee on a signed and delivered Election Form, but subject to the maximum Elective Bonus Deferral Compensation amount selected by the Key Employee for such Plan Year set forth in the Election Form. 1.13 "Excess Bonus Compensation" means the amount of the Bonus Compensation for the applicable Plan Year in excess of that certain amount of the Bonus Compensation that the Key Employee elects to have paid to such Key Employee, which election shall be made on the Election Form. 1.14 "Income" means the interest rate, as set forth on Schedule B, attached hereto and incorporated herein by this reference, and as amended from time to time in accordance with the provisions of paragraph 4 of this Agreement, that will be credited by the Company to: (a) the Key Employee's Account on the last day of each week (or such other period as determined in accordance with the Company's normal payroll and accounting practices) upon (i) the then aggregate amount of the Key Employee's Elective Bonus Deferral Compensation; and (ii) the then aggregate amount of the Income previously allocated to the Account; and (b) the amount of the Key Employee's Account to the extent required under subparagraph 5.1 of this Agreement. 1.15 "Internal Revenue Code" means the Internal Revenue Code of 1986, as in effect on the date this Agreement is executed by the parties. 1.16 "Key Employee" means the individual who signs this Agreement, who is a highly compensated employee or a member of a select management group of the Company. 1.17 "Person" means one or more of the individuals or entities set forth in section 7701(a)(1) of the Internal Revenue Code. 3 1.18 "Plan" means this Bonus Deferral Compensation Agree- ment. 1.19 "Plan Administrator" means the Company, unless the Company designates a different person as Plan Administrator. 1.20 "Plan Year" means the 52/53 week fiscal year period ending on the Sunday nearest July 31 of each year. 1.21 "Subsidiary" means any corporation or other entity a majority or more of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company. 1.22 "Termination of Employment" means the cessation of the Key Employee's employment with the Company for any reason including, but not limited to, the Key Employee's death, Disability, retirement, or voluntary or involuntary termination of employment, with or without cause. Unless attributable to death or Disability, Termination of Employment shall be effective on the last day that the Key Employee performed any service for the Company and may be evidenced by written notice delivered in accordance with subparagraph 14.5 of this Agreement by either party to the other party. 1.23 "Unforeseeable Emergency" means an unanticipated emergency that is caused by an event beyond the control of the Key Employee or Beneficiary and that would result in severe financial hardship to such individual if early withdrawal were not permitted and that results from a sudden and unexpected illness or accident of the Key Employee or a dependent (as defined in section 152(a) of the Code) of the Key Employee, loss of the Key Employee's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Key Employee or the Beneficiary. The occurrence of an Unforeseeable Emergency shall be determined by the Company and the amount of any distribution by reason of the occurrence of an Unforeseeable Emergency shall be limited to the amount necessary to meet the emergency. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but in any case, payment may not be made to the extent such hardship is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Key Employee's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or (iii) by cessation of deferrals under the Plan. The term Unforeseeable Emergency does not include the need to send a Key Employee's child to college or the desire to purchase a home. 2. Employment. Unless otherwise agreed by the Company, the Key Employee agrees to devote his full time and attention to the business and affairs of the Company and to use his best efforts to provide satisfactory services to the Company. 4 3. Elective Deferral Compensation. 3.1 Election Procedure. Prior to the end of each Plan Year, and at least 30 days prior to the actual date of the ascertainment and grant of the Employee's Bonus Compensation (if any) for such Plan Year, the Key Employee may determine to elect to defer the receipt of any percentage of such Key Employee's Excess Bonus Compensation for the Plan Year, which will constitute the tentative Elective Bonus Deferral Compensation for such Plan Year, and such election shall be deemed effective as of the first day of such Plan Year; provided, however, the Elective Bonus Deferral Compensation amount for such Plan Year shall not exceed that certain maximum amount elected by the Key Employee on the Election Form, and the amount of the tentative Elective Bonus Deferral Compensation amount in excess of such maximum amount, if any, shall be paid to the Key Employee. The above provisions may be illustrated by the following example: Assume that the Key Employee's Bonus Compensation for the Plan Year is $25,000; the minimum Bonus Compensation selected to be paid to the Key Employee is $5,000; the Key Employee elects a Deferral Percentage of fifty percent (50%); and the maximum Elective Bonus Deferral Compensation amount selected by the Key Employee is $9,000. The first $5,000 of the Bonus Compensation shall be paid by the Company to the Key Employee. The remaining Bonus Compensation or $20,000 shall be the amount of the Excess Bonus Compensation for that Plan Year. 50% of the Excess Bonus Compensation of $20,000 equals $10,000. Thus, $10,000 is the amount of the tentative Elective Bonus Deferral Compensation amount. However, the Key Employee has elected that the maximum Elective Bonus Deferral Compensation amount shall be $9,000 for such Plan Year. Thus, of the $25,000 Bonus Compensation, $9,000 is the Elective Bonus Deferral Compensation amount, and the balance, or $16,000, is paid currently to the Key Employee. Each year the Key Employee may make the above described elections on a properly executed and delivered Election Form. An Election Form shall not be valid unless properly signed and dated by the Key Employee, witnessed, and delivered to the Plan Administrator prior to the end of the Plan Year. The elections made on the Election Form shall be irrevocable with respect to the Bonus Compensation for the Plan Year to which the election relates. If the Key Employee has not delivered a timely and properly executed Election Form to the Plan Administrator for any Plan Year, then the Key Employee shall be deemed not to have elected any Bonus Compensation for that Plan Year. 3.2 Allocation to Account. The amount of the Excess Bonus Compensation, if any, that the Key Employee elects to defer in accordance with subparagraph 3.1 of this Agreement shall be recorded in the Account corresponding to the date that the Company would otherwise have paid the Bonus Compensation to the Key 5 Employee in accordance with its normal payroll and accounting practices. Income shall accrue on any such allocation of the Elective Bonus Deferral Compensation commencing on the date that such allocation is allocated to the Account as described above. 4. Change in the Income Rate. Prior to the beginning of each Plan Year, the Board of Directors of the Company shall establish the Income rate that shall be effective and irrevocable for the immediately ensuing Plan Year, and shall be effective for each subsequent Plan Year, unless the Company's Board of Directors changes the Income rate; provided, however, any such change shall not be effective earlier than the Plan Year immediately following the Plan Year during which the change is adopted by the Company's Board of Directors; provided, further, notwithstanding the foregoing, the Company's Board of Directors may increase the Income rate at any time and such increase shall be effective as of the date that the increase is adopted by the Board of Directors. Notwithstanding any contrary provision of this Agreement, the amount of the Income rate shall not be less than eight percent (8%) interest per annum, and unless the Board of Directors of the Company shall specifically provide otherwise, the Income rate under this Plan shall be the same as the Income rate established by the Board of Directors under the Deferred Compensation Plan applicable to the Annual Compensation of Key Employees of the Company. Any decrease in the Income rate shall be communicated to the Key Employee not less than ten (10) days prior to the effective date of such change. 5. Benefit. 5.1 Eligibility for Benefit. Upon the occurrence of a Distribution Event, the Company shall pay to the Key Employee or the Key Employee's Beneficiary, as applicable, the Benefit. The amount of the Benefit shall be increased by its share of Income (allocated on a daily basis) for the period that commences on the date such Distribution Event occurs and terminates on the date that the Benefit (and this additional Income) is distributed to the Key Employee in accordance with subparagraph 5.2 of this Agreement. 5.2 Amount of Benefit. The Benefit, together with the additional Income, if any, accrued under subparagraph 5.1 of this Agreement, less all deductions required by law, shall be paid by the Company to the Key Employee or Beneficiary, as applicable, in a single lump sum payment not later than thirty (30) days after the date that the Distribution Event occurs, and payment shall, in the discretion of the Company, either be made to the Key Employee or Beneficiary, as applicable, by hand delivery at the office of the Company or delivery in accordance with the provisions of subparagraph 14.5 of this Agreement. 6 6. Termination or Amendment of Agreement. 6.1 Termination of Agreement. This Agreement shall terminate upon the date that any of the following events first occurs: (a) cessation of the Company's business; (b) approval by the Company's shareholders to dissolve or liquidate the Company; (c) the decision of the Company to demote the Key Employee to a position with the Company that results in the Key Employee no longer constituting a highly compensated employee or a member of a select management group of the Company; (d) upon the date that the Company breaches any obligation imposed on it under any other deferred compensation agreement that the Company may enter into from time to time, including, but not limited to, failing to pay all or any portion of any benefits required to be paid to any other employee of the Company under any such deferred compensation agreement, but only if such employee delivers written notice of such breach to the Company, the Company fails to cure such breach during the period that terminates ten (10) days after the date such notice is delivered to the Company, and a board of arbitration (which shall be selected and administered in accordance with a procedure substantially similar to the procedure described in subparagraph 11.4 of this Agreement) determines that the Company breached any such obligation. The board of arbitration shall be selected and make its determination within 30 days after the date that such employee delivers the written notice to the Company; or (e) the decision of the Company to terminate the Plan at any time, with or without cause. Notwithstanding the foregoing, this Agreement shall survive any termination until the Key Employee's entire Benefit, together with the additional Income, if any, accrued under subparagraph 5.1 of this Agreement, less all deductions required by law, is distributed to the Key Employee in accordance with the provisions of subparagraphs 5.1 and 5.2 of this Agreement. 6.2 Amendment of Agreement. Except as otherwise provided under this Agreement, the Company may amend or supplement this Agreement, including, but not limited to, increasing the amount of the Income rate, at any time and from time to time with or without the consent of the Key Employee. The Company shall deliver a copy of the amendment to the Key Employee. Provided, however, notwithstanding the foregoing, no amendment shall be effective to: (a) reduce the amount of, or alter the time, method, 7 or form of distributing, the Benefit payable pursuant to this Agreement determined as of the date immediately prior to the date of such amendment; (b) decrease the amount of the Income rate for a current Plan Year; or (c) decrease the amount of the Income rate below eight percent (8%) compounded quarterly. 7. Funding. The Plan shall be "unfunded" for purposes of federal income taxation and for purposes of the Employee Retirement Income Security Act of 1974, as amended, as that term is inter- preted, from time to time, for such purposes; provided, however, the Company may obtain life insurance, disability insurance, or both, to informally fund its obligations hereunder, and the Company shall be the owner and beneficiary of the policy or policies. The Key Employee shall submit to medical examinations, supply information, and execute documents as may be required by the insurance company or companies. Neither the Key Employee, nor the Plan, shall be deemed to have any right, title, or interest in or to any specific assets of the Company, including any insurance policies or the proceeds therefrom, and any such policies shall not in any way be considered to be security for the performance of the obligations under this Agreement. Nothing contained in this Agreement and no action taken pursuant to its provisions shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and the Key Employee or the Beneficiary. Any funds that may be invested to meet the provisions of this Agreement shall continue for all purposes to be a part of the general funds of the Company. To the extent any person acquires a right to receive payments from the Company under this Agreement, that right will be no more secure than the right of an general unsecured creditor of the Company. The Benefit payable under this Agreement constitutes a mere promise by the Company to make payments in the future. 8. Non-Assignability. The Key Employee or Beneficiary shall not have any right to commute, encumber, transfer, convey, or dispose of the right to the Benefit payable under this Agreement. The Benefit and the right to it are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Key Employee or Beneficiary. Except to the extent contrary to applicable law, the Benefit under this Agreement is not transferable by operation of law if the Key Employee or Beneficiary becomes insolvent or bankrupt. Any attempt by the Key Employee or Beneficiary to commute, encumber, transfer, convey, or dispose of the right to the Benefit payable under this Agreement, shall be void and ineffectual. 9. Participation in Other Plans. Nothing contained in this Agreement shall be construed to alter, abridge, or affect the rights and privileges of the Key Employee to participate in and be covered by any employee plans that the Company now has or may here- after adopt. Any payment under this Plan shall be independent of, 8 and in addition to, those payable under any other plan or agreement that may be in effect with respect to the Key Employee. 10. Employment Rights. This Agreement shall not be deemed to constitute a contract of employment between the Company and the Key Employee and shall create no right of the Key Employee to continue in the Company's employ, nor shall this Agreement restrict the right of the Company to discharge the Key Employee or to terminate the Key Employee's employment. 11. Plan Administration. 11.1 Plan Administrator. This Agreement and the Plan shall be administered by the Plan Administrator. The Plan Administrator shall make all determinations as to the right of the Key Employee or the Beneficiary, as applicable, to receive the Benefit provided by this Agreement. 11.2 Claims Procedure. If a Benefit under this Agreement is not paid to the Key Employee or the Beneficiary, as applicable, and such person feels entitled to it, such person shall make a claim in writing to the Plan Administrator. If the claim is denied, in whole or in part, the Plan Administrator shall inform the claimant in writing within 45 days setting forth the reasons for denial in layman's terms, with specific reference to the provisions of this Agreement upon which the denial is based, and with a description of the review procedures set forth in subpara- graph 11.3. 11.3 Review Procedure. If a claim for the Benefit under this Agreement is denied, the claimant may, within 60 days after the denial, submit to the Plan Administrator, in writing, such information that will, in the claimant's opinion, support the claimant's right to the Benefit. If the Plan Administrator, after reviewing the information submitted by the claimant, determines that the claimant is not entitled to the Benefit claimed, the Plan Administrator shall afford the claimant or his representative a reasonable opportunity to appear personally before the Plan Administrator, to submit oral or written comments, and to review any documents pertinent to the Plan Administrator's decision. The Plan Administrator shall render its final decision, in writing, within 60 days after the appearance, with the specific reasons therefor. 11.4 Arbitration. If the Key Employee or Beneficiary, as applicable, disagrees with the Plan Administrator's final decision and such claimant delivers notice to the Company (in accordance with the provisions of subparagraph 14.5) within ten (10) days from the date of the Plan Administrator's final decision, then the determination of whether the claimant is entitled to the Benefit shall be submitted to binding arbitration. In that event, the determination shall be made by a board of arbitration to 9 consist of one representative selected by the claimant, one representative selected by the Company, and a third representative to be appointed by the two representatives so selected. The board of arbitration shall be bound by and adhere to the rules and regulations of the American Arbitration Association applying the laws of the State of Florida. The majority decision of the board of arbitration shall be binding and conclusive upon all affected parties. Except as otherwise provided under subparagraph 14.7 of this Agreement, the costs and expenses of the arbitration shall be borne equally by the claimant and the Company. 12. Expenses. All costs and expenses of administering the Plan shall be paid by the Company. 13. Account Statement. Within sixty (60) days after the termination of each Plan Year, the Company shall deliver to the Key Employee a statement that sets forth the amounts recorded in the Key Employee's Account. 14. Miscellaneous. 14.1 Binding Effect. This Agreement shall be binding on the legal representatives, successors, heirs, and assignees of the Company and the Key Employee. 14.2 Governing Law. This Agreement has been negotiated and prepared in the State of Florida, and the validity, construction, and enforcement of this Agreement shall be governed by, and construed in accordance with, the laws of Florida (excluding its choice of law provisions if such laws would result in the application of laws of a jurisdiction other than Florida). Each party consents and agrees that Tampa, Hillsborough County, Florida, shall be the proper, exclusive, and convenient venue for any legal proceeding in federal or state court relating to this Agreement, and each party to this Agreement waives any defense, whether asserted by motion or by pleading, that Tampa, Hillsborough County, Florida, is an improper or inconvenient venue. 14.3 Entire Agreement. This instrument contains the final, complete, and exclusive expression of the parties' under- standing and agreement concerning the transactions contemplated by this Agreement and supersedes any prior or contemporaneous agreement or representation, oral or written, by either of them. 14.4 Descriptive Headings. The titles preceding the text of the paragraphs and subparagraphs of this Agreement are inserted solely for convenience of reference and shall neither constitute a part of this Agreement nor affect its meaning, interpretation, or effect. 14.5 Notices. Any notice, communication, or payment of Benefit re 10 quired or permitted to be sent by either party under this Agreement shall be made in writing and shall be deemed delivered when presented by hand delivery or when deposited in a United States postal service office or letter box for mailing by first class mail or certified mail, return receipt requested (whether or not the return receipt is subsequently received), postage prepaid and addressed to the appropriate party as follows: If to the Company: Kash n' Karry Food Stores, Inc. P.O. Box 11675 Tampa, Florida 33680 If to the Key Employee: The address set forth in Schedule A or at such other addresses as either party may designate in writing to the other party. 14.6 Gender. Throughout this Agreement, except where the context otherwise requires, the masculine gender shall be deemed to include the feminine and the neuter and the singular number shall be deemed to include the plural and vice-versa. 14.7 Attorneys' Fees. If any suit or action shall be instituted to enforce or to interpret this Agreement, or to enforce any other claim or counterclaim arising out of the employment relationship between the parties, the prevailing party shall be entitled to recover from the non-prevailing party all costs, or arbitration fees, and reasonable attorneys' fees, expended as part of such suit, action, or appeal thereof. 15. Limited Withdrawal Right Subject to Substantial Limitation. Notwithstanding any contrary provision of this Agreement, prior to the occurrence of a Distribution Event the Key Employee shall have the right to make an election to receive a distribution equal to ninety percent (90%) of the Key Employee's Benefit. The election shall be effective, and the amount of such Benefit shall be determined, on the date that the election is received by the Plan Administrator (the "Withdrawal Election Date"). The other ten percent (10%) of the Key Employee's Benefit shall be forfeited and lost by the Key Employee. If the Key Employee elects to receive a distribution under this paragraph 15, then the Key Employee shall not be eligible to again participate in the Plan until the beginning of the first Plan Year that follows the one year anniversary of the Withdrawal Election Date. The Key Employee shall make an election to receive a distribution under this paragraph 15 by delivering a written statement signed and dated by the Key Employee to the Plan Administrator. The Company shall pay the ninety percent (90%) amount of the Key Employee's Benefit, less all deductions required by law, to the Key Employee 11 not more than ten (10) days after the Withdrawal Election Date by either hand delivery to the Key Employee at the Company's office or delivery in accordance with paragraph 14.5 of this Agreement. IN WITNESS WHEREOF, the Company and the Key Employee have executed this Agreement this ____ day of July, 1995. ATTEST: KASH N' KARRY FOOD STORES, INC. _________________________ By:___________________________ Secretary Its:_______________________ (Corporate Seal) "COMPANY" WITNESSES: _________________________ ______________________________ _________________________ "Key Employee" 12 SCHEDULE A Election and Beneficiary Designation Form 1. For the Plan Year terminating on July ___, 199___, I hereby make the following elections: (a) The minimum amount of the Bonus Compensation that shall be paid to me for the applicable Plan Year shall be $__________. The amount of Bonus Compensation for such Plan Year in excess of this minimum amount shall be the Excess Bonus Compensation for that Plan Year. (b) The Deferral Percentage for the applicable Plan Year that will be multiplied by the Excess Bonus Compensation amount to yield the tentative Elective Bonus Deferral Compensation amount for such Plan Year shall be ___ percent (__%). (c) Notwithstanding my selection in (b) above, the amount of the Elective Bonus Deferral Compensation amount for such Plan Year shall not exceed $___________. 2. I hereby designate ___________________________________ as my Beneficiary to receive the Benefit on the event of my death, and if ____________________________ is not then living, then I designate ______________________ to be my secondary Beneficiary. 3. My address and telephone number for purposes of giving notice under subparagraph 14.5 of the Agreement is: _________________________ Street or P.O. Address _________________________ City, State, and Zip Code _________________________ Telephone Number Dated this _____ day of July, 199___. WITNESSES: __________________________ _________________________ __________________________ "Key Employee" 13 SCHEDULE B 1. For the Plan Year commencing on the ___ day of July 1995, and each subsequent Plan Year (unless amended in accordance with paragraph 4 of the Agreement), the annual Income rate shall be 11%. I hereby certify that the percentage set forth above was duly adopted by the Company's Board of Directors. Kash n' Karry Food Stores, Inc. By:____________________________ Its: Secretary 14 EX-11 7 EXHIBIT 11 KASH N' KARRY FOOD STORES, INC. COMPUTATION OF EARNINGS PER COMMON SHARE PRIMARY FULLY DILUTED EARNINGS EARNINGS --------- ------------- Thirty Weeks Ended July 30, 1995: Net income (loss) $3,144,000 $3,144,000 =========== =========== Common shares outstanding at beginning of period 4,649,943 4,649,943 Stock option plans: Shares under option 198,811 198,811 at end of period Treasury shares which could be purchased (136,733) (91,957) ----------- ----------- Average number of shares outstanding 4,712,021 4,756,797 =========== =========== Earnings per share $ 0.67 $ 0.66 =========== =========== EX-21 8 EXHIBIT 21 KASH N' KARRY FOOD STORES, INC. SUBSIDIARIES SUBSIDIARY STATE OF ORGANIZATION - ------------------------------ --------------------- KNK 720 DELAWARE BUSINESS TRUST DELAWARE KNK 725 DELAWARE BUSINESS TRUST DELAWARE KNK 733 DELAWARE BUSINESS TRUST DELAWARE EX-27 9
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF KASH N' KARRY FOOD STORES, INC. AS OF AND FOR THE PERIOD ENDED JULY 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 US DOLLARS YEAR JUL-30-1995 JUL-30-1995 1 4,803 0 6,504 0 86,840 102,457 150,559 10,592 373,572 89,293 218,131 46 0 0 49,592 373,572 1,026,001 1,026,001 812,203 996,540 0 0 29,529 (68) (3,682) (3,750) 0 63,297 0 59,547 $ 0.67 $ 0.66 Before reorganization item, extraordinary item, and change in accounting principle. Includes reorganization items and change in accounting principle. Earnings per share is for the 30-week period ended July 30, 1995, the period subsequent to the Company's emergence from bankruptcy.
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