-----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, Lis39Xcs8OuCWLi41tJLWEZTIYuxbN+SIQpzERA5/sspIi24j391ASX00hEkRMDT /byOMbxSySFps0aLxZg59Q== 0000950142-96-000641.txt : 19961120 0000950142-96-000641.hdr.sgml : 19961120 ACCESSION NUMBER: 0000950142-96-000641 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19961118 SROS: NASD GROUP MEMBERS: PAINE WEBBER CAPITAL INC GROUP MEMBERS: PAINEWEBBER CAPITAL INC. SUBJECT COMPANY: 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: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-44157 FILM NUMBER: 96668644 BUSINESS ADDRESS: STREET 1: 6422 HARNEY RD CITY: TAMPA STATE: FL ZIP: 33610 BUSINESS PHONE: 8136210276 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PAINE WEBBER CAPITAL INC CENTRAL INDEX KEY: 0000904835 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133261841 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127132716 MAIL ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D/A 1 SCHEDULE 13D AMENDMENT NO. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)* KASH N' KARRY FOOD STORES, INC. (Name of Issuer) Common Stock (Title of Class of Securities) 48577P106 (CUSIP Number) Dhananjay M. Pai, PaineWebber Capital Inc., 1285 Avenue of the Americas, New York, NY 10019 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications) October 31, 1996 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box . Check the following box if a fee is being paid with the statement . (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Page 1 of 33 Pages SCHEDULE 13D CUSIP No.48577P106 Page 2 of 33 Pages 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON PaineWebber Capital Inc. IRS #13-3261841 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP{*}(A) [ ] (B) [ ] 3 SEC USE ONLY 4 SOURCE OF FUNDS{*} WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware 7 SOLE VOTING POWER 553,601 NUMBER OF shares of SHARES Common Stock BENEFICIALLY (See Item 5) OWNED BY EACH REPORTING PERSON WITH 8 SHARED VOTING POWER - 0 - (See Item 5) 9 SOLE DISPOSITIVE POWER 553,601 shares of Common Stock 10 SHARED DISPOSITIVE POWER - 0 - 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 553,601 shares of Common Stock 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES{*} [ ] 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 11.8% 14 TYPE OF REPORTING PERSON{*} Co Page 3 of 33 Pages Amendment No. 1 to Schedule 13D Name of Issuer: Kash N' Karry Food Stores, Inc. Name of Reporting Person: PaineWebber Capital Inc. This Amendment No. 1 amends the Schedule 13D (the "Statement") of the Reporting Person, dated April 11, 1996 (March 29, 1996 being the date of the event which required the filing thereof), to the extent set forth herein. Item 4.PURPOSE OF TRANSACTION The first paragraph of Item 4 of the Statement is amended and restated in its entirety as follows: "PWC acquired the Shares on March 29, 1996, as part of its investment program. Pursuant to an Agreement and Plan of Merger, dated as of October 31, 1996 (the "Merger Agreement"), by and among Food Lion, Inc., a North Carolina corporation (the "Parent"), KK Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent (the "Sub"), and the Issuer, the Issuer has agreed that the Sub will be merged into the Issuer, with the result that the Issuer will become a wholly-owned subsidiary of Parent (the "Merger"). In the Merger, each issued and outstanding share of Common Stock will be converted into the right to receive $26 in cash. In connection therewith, on October 31, 1996, PWC entered into a Stockholders Agreement (the "Stockholders Agreement") (a copy of which is attached to this Statement as an exhibit and the provisions of which are incorporated by reference into this Statement) with the Sub, the Parent, the Issuer, BankAmerica Capital Corporation, Citicorp North America, Inc., Landmark Equity Partners III, L.P., Landmark Equity Partners IV, L.P., Prudential Insurance Company of America, UBS Capital LLC, American Express Financial Corporation, The Prudential Insurance Company of America, Pruco Life Insurance and Wells, Fargo Company. As further described in Item 6 of this Statement, pursuant to the Stockholders Agreement, PWC has, among other things, (i) agreed to vote in favor of the Merger, (ii) except as agreed to by Parent, agreed to vote against any other extraordinary corporate transactions involving the Issuer and against any of the matters described in clause (iii) of the second paragraph of Item 6 of this Statement, (iii) granted to the Sub a voting proxy with respect to the matters described in the foregoing clauses (i) and (ii) and certain related matters described in Item 6 of this Statement, (iv) granted an irrevocable option to the Sub to purchase the Shares and (v) agreed, to the extent described in Item 6 of this Statement, not to transfer the Shares. The purpose of the transactions contemplated by the Stockholders Agreement is to facilitate the consummation of the Merger. It is the understanding of PWC that, upon the consummation of the Merger, the Common Stock will become eligible for termination of registration under Section 12(g)(4) of the Exchange Act." Page 4 of 33 Pages Item 5. INTEREST IN THE SECURITIES OF THE ISSUER The second paragraph of Item 5 of the Statement is hereby amended and restated as follows: "PWC beneficially owns 553,601 shares of Common Stock representing approximately 11.8% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of October 31, 1996, as represented by the Issuer in the Merger Agreement). Subject to the rights of the Sub pursuant to the proxy, as described in Item 6 of this Statement, PWC has the sole power to vote the Shares. PWC has the sole power to dispose of the Shares." Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The first paragraph of Item 6 of the Statement is amended and restated in its entirety as set forth in the first paragraph below, and the following additional paragraphs are added to Item 6 of the Statement: "Except as described in the following six paragraphs and elsewhere in this Statement, to the best knowledge of the Reporting Person, there exist no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 and between such persons and any person with respect to securities of the Issuer including but not limited to transfer or voting of any securities of the Issuer, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, diversion of profits or loss, or the giving or withholding of proxies. Pursuant to the Stockholders Agreement, PWC has agreed, together with the other stockholders of the Company that are party to the Stockholders Agreement (PWC and such stockholders are referred to collectively as the "Stockholders"), that during the period commencing on the date of the Stockholders Agreement and continuing until the first to occur of the effective time of the Merger or termination of the Stockholders Agreement, at any meeting of holders of Common Stock, or in connection with any written consent of holders of Common Stock, each of PWC and the other Stockholders will vote (or cause to be voted) the number of shares of Common Stock owned by it: (i) in favor of the Merger and execution and delivery by the Issuer of the Merger Agreement and the Stockholders Agreement; (ii) against any action, any failure to act or agreement that would result in a breach in any respect of any covenant or representation or warranty or any other obligation or agreement of the Issuer under the Merger Agreement or the Stockholders Agreement (before giving effect to any materiality or similar qualification contained therein); and (iii) except as otherwise agreed to in writing in advance by the Parent, against the following actions (other than the Merger and the transactions contemplated by Merger Agreement): (A) any extraordinary corporate transactions, such as a merger, consolidation or other business combination involving the Issuer or its Page 5 of 33 Pages subsidiaries; (B) a sale, lease or transfer of a material amount of assets of the Issuer or its subsidiaries, or reorganization, recapitalization, dissolution or liquidation of the Issuer or its subsidiaries; (C)(1) any change in the majority of the persons that constitute the board of directors of the Issuer; (2) any change in the present capitalization of the Issuer or any amendment of the Issuer's Certificate of Incorporation or bylaws; (3) any other material change in the Issuer's corporate structure or business; or (4) any other action involving the Issuer or its subsidiaries which is intended, or could reasonably be expected, to impede, interfere with, delay, postpone or materially adversely affect the Merger and the transactions contemplated by the Stockholders Agreement and Merger Agreement. PWC and the other Stockholders further agreed that they would not enter into any agreement or understanding with any person or entity the effect of which would be to violate the foregoing. PWC and the other Stockholders granted to the Sub an irrevocable proxy (the "Proxy") with respect to the foregoing matters. Pursuant to the Stockholders Agreement, PWC and the other Stockholders granted to the Sub an irrevocable option (the "Option") to purchase the shares of Common Stock owned by it at a price per share equal to $26 or such higher price as is paid by the Sub for shares of Common Stock in a tender offer, the Merger or otherwise (other than pursuant to payments made with respect to the exercise of certain appraisal rights and other than in the settlement or other resolution of litigation). The Option will become exercisable, in whole but not in part, when all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, required for the purchase of such shares upon such exercise shall have expired or have been waived, unless there shall then be in effect any preliminary or final injunction or other order issued by any court or governmental, administrative or regulatory agency or authority prohibiting the exercise of the Option pursuant to the Stockholders Agreement, and the Option shall remain exercisable, in whole but not in part, until termination of the Stockholders Agreement in accordance with the terms thereof. Pursuant to the Stockholders Agreement, until the earlier of the effective time of the Merger or termination of the Stockholders Agreement in accordance with its terms, PWC and the other Stockholders agreed not, in its capacity as such, directly or indirectly, to solicit (including by way of furnishing information) or respond to any inquiries or the making of any proposal by any person or entity, or enter into any negotiations, agreements, or understanding with any person (other than Parent, Sub or a person designated by the Parent) with respect to the Issuer, or with respect to any transactions (other than the transactions contemplated between the Issuer, the Parent, the Sub and the Stockholders pursuant to the Stockholders Agreement) involving the Issuer or any of its subsidiaries with respect to: (i) any merger, consolidation, share exchange, recapitalization, business combination, or other similar transactions; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more of the assets of the Issuer and its subsidiaries taken as a whole in a single transaction or series of transactions; (iii) any tender offer or exchange offer for or other purchase of 10% or more of the outstanding shares of capital stock of the Issuer or the filing of a registration Page 6 of 33 Pages statement under the Securities Act of 1933 in connection therewith; or (iv) any public announcement of a proposal, plan or intention to do any of the foregoing. Pursuant to the Stockholders Agreement, PWC and the Other Stockholders agreed that, beginning on the date of Stockholders Agreement and ending on the earlier of the effective time of the Merger or termination of the Stockholders Agreement, except as required to comply with the provisions of the Stockholders Agreement or the Proxy, it will not (i) directly or indirectly, offer for sale, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all shares of Common Stock owned by such Stockholder or any interest therein, (ii) grant any proxies or powers of attorneys, deposit any such shares into a voting trust or enter into a voting agreement with respect to any such shares; or (iii) take any action that would make any representation or warranty of such Stockholder contained in the Stockholders Agreement untrue or incorrect or have the effect of preventing or disabling such Stockholder from performing such Stockholder's obligations under the Stockholders Agreement or the Proxy. Notwithstanding the foregoing, any Stockholder may sell such Stockholder's shares of Common Stock in a privately-negotiated transaction to any person who, as a condition to such purchase, (i) becomes a party to the Stockholders Agreement with the same effect as though an original signatory thereto and (ii) delivers to the Parent a proxy with respect to such shares identical to the Proxy. Pursuant to the Stockholders Agreement, PWC and the other Stockholders agreed to validly tender (and not withdraw) pursuant to and in accordance with the terms of any tender offer for the Common Stock made by the Parent (provided such offer is commenced and not amended in a manner adverse to such Stockholder) not later than the tenth business day after commencement of such offer pursuant to the Merger Agreement and Rule 14d-2 under the Exchange Act, the shares of Common Stock owned by it. The Stockholders Agreement may be terminated, and the transactions contemplated thereby may be abandoned, by any Stockholder at any time prior to the exercise of the Option granted with respect to such Stockholder's shares of Common Stock: (i) at any time after the Merger Agreement is terminated in accordance with its terms by the Issuer due the material breach of any representation, warranty, covenant or agreement on the part of the Parent or Sub set forth in the Merger Agreement or (ii) at any time after the earlier of (x) 5:00 p.m. Eastern Time on the date which is five business days after the date of termination of the Merger Agreement for any reason not specified in the foregoing clause (i) and (y) 5:00 p.m. Eastern Time on March 7, 1997." The following is added as the final paragraph to Item 6 of the Statement: "Pursuant to an agreement, dated June 5, 1996 ("Engagement Letter"), between PaineWebber Incorporated, an affiliate of PWC, and the Issuer, PaineWebber Page 7 of 33 Pages Incorporated rendered an opinion to the Issuer on October 31, 1996, that the consideration to be received in the Merger is fair, from a financial point of view, to the Issuer. PaineWebber Incorporated was paid a fee of $250,000 by the Issuer for rendering such opinion." Item 7. MATERIAL TO BE FILED AS EXHIBITS The following exhibits to this amendment are added as exhibits to the Statement. 1. Stockholders Agreement 2. Engagement Letter Page 8 of 33 Pages SIGNATURE After reasonable inquiry into the best of its knowledge and belief, the undersigned certifies that the information set forth in this Amendment No.1 is true, complete and correct. Date: November 11, 1996 PAINEWEBBER CAPITAL INC. By:______________________________ Title: EX-1 2 EXHIBIT 1 STOCKHOLDERS AGREEMENT Page 9 of 33 Pages TENDER OPTION STOCKHOLDERS AGREEMENT Page 10 of 33 Pages STOCKHOLDERS AGREEMENT AGREEMENT dated October 31, 1996, among FOOD LION, INC., a corporation organized under the laws of North Carolina ("Parent"), KK ACQUISITION CORP., a Delaware corporation and an indirect wholly owned subsidiary of Parent ("Sub"), KASH N' KARRY FOOD STORES, INC., a Delaware corporation (the "Company"), and the other parties signatory hereto (individually a "Stockholder" and collectively, the "Stockholders"). WITNESSETH: WHEREAS, concurrently herewith, Parent, Sub and the Company, are entering into an Agreement and Plan of Merger (as such agreement may hereafter be amended from time to time, the "Merger Agreement"), pursuant to which Sub will be merged with and into the Company (the "Merger"); and WHEREAS, as an inducement and a condition to entering into the Merger Agreement, Parent has required that the Company and Stockholders agree, and the Company and Stockholders have agreed, to enter into this Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual premises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS. For purposes of this Agreement: 1.1 "Company Common Stock" shall mean at any time the Common Stock, $.01 par value, of the Company. 1.2 "Person" shall mean an individual, corporation, partnership, joint venture, association, trust, unincorporated organization, limited liability company or other entity. 1.3 Capitalized terms used and not defined herein have the respective meanings ascribed to them in the Merger Agreement. 2. PROVISIONS CONCERNING COMPANY COMMON STOCK. Each Stockholder hereby agrees that, during the period commencing on the date hereof and continuing until the first to occur of the Effective Time or termination of this Agreement, at any meeting of the holders of Company Common Stock, however called, or in connection with any written consent of the holders of Company Common Stock, such Stockholder shall vote (or cause to be voted) the number of shares of Company Common Stock (collectively with the associated Company Rights, the "Shares") set forth opposite such Stockholder's name on Schedule 1 hereto (collectively with the associated Company Rights, the "Existing Shares") and any Shares acquired by such Stockholder after the date hereof (collectively with the Existing Shares, the "Option Shares"): (i) in favor of the Page 11 of 33 Pages Merger, the execution and delivery by the Company of the Merger Agreement and the approval of the terms thereof and each of the other actions contemplated by the Merger Agreement and this Agreement and any actions required in furtherance thereof and hereof; (ii) against any action, any failure to act, or agreement that would result in a breach in any respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or this Agreement (before giving effect to any materiality or similar qualifications contained therein); and (iii) except as otherwise agreed to in writing in advance by Parent, against the following actions (other than the Merger and the transactions contemplated by the Merger Agreement): (A) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or its Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of the Company or its Subsidiaries, or a reorganization, recapitalization, dissolution or liquidation of the Company or its Subsidiaries; (C) (1) any change in a majority of the persons who constitute the board of directors of the Company; (2) any change in the present capitalization of the Company or any amendment of the Company's Certificate of Incorporation or Bylaws; (3) any other material change in the Company's corporate structure or business; or (4) any other action involving the Company or its Subsidiaries which is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, or materially adversely affect the Merger and the transactions contemplated by this Agreement and the Merger Agreement. Each Stockholder agrees that it shall not enter into any agreement or understanding with any person or entity the effect of which would be to violate the provisions and agreements contained in this Section 2. 3. PURCHASE RIGHT. 3.1 OPTION SHARES. In order to induce Parent and Sub to enter into the Merger Agreement, each Stockholder hereby grants to Sub an irrevocable option (the "Stock Option") to purchase the Option Shares at a cash purchase price per share equal to $26.00 or such higher price as is paid by Sub for Shares in the Offer, the Merger or otherwise (other than pursuant to Section 3.01(d) of the Merger Agreement and other than in the settlement or other resolution of litigation) (the "Purchase Price"). The Stock Options shall become exercisable, in whole but not in part as to all then outstanding Stock Options, when all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), required for the purchase of the Option Shares upon such exercise shall have expired or been waived, unless there shall then be in effect any preliminary or final injunction or other order issued by any court or governmental, administrative or regulatory agency or authority prohibiting the exercise of the Stock Option pursuant to this Agreement, and shall remain exercisable, in whole but not in part as to all then outstanding Stock Options, until termination of this Agreement in accordance with Section 8.15 hereof. In the event that Sub wishes to exercise the Stock Options, Sub shall send a written notice (the "Notice") to the Stockholders identifying the place for the closing of such purchase (the "Closing") at least three (3) but not more than five (5) business days prior to the Closing. Page 12 of 33 Pages 3.2 PAYMENT OF PURCHASE PRICE. The payment of the Purchase Price shall be made by wire transfer in immediately available funds on the date of Closing; PROVIDED, HOWEVER, that, in the event the Purchase Price is increased pursuant to Section 3.1 to more than $26.00 per Share, the amount of such increase per Share shall be paid to each Stockholder in immediately available funds within one business day after the Effective Time. 4. OTHER COVENANTS, REPRESENTATIONS AND WARRANTIES. Each Stockholder hereby represents and warrants to Parent with respect to such Stockholder as follows: 4.1 OWNERSHIP OF SHARES. Stockholder is the record or beneficial owner of the number of Shares set forth opposite such Stockholder's name on Schedule I hereto. On the date hereof, the Existing Shares set forth opposite such Stockholder's name on Schedule I hereto constitute all of the Shares owned of record by such Stockholder. Stockholder has sole voting power and sole power to issue instructions with respect to the matters set forth in this Agreement and the Proxy (as defined below), sole power of disposition, sole power of conversion, sole power to demand appraisal rights and sole power to agree to all of the matters set forth in this Agreement and Proxy, in each case with respect to all of the Existing Shares set forth opposite Stockholder's name on Schedule I hereto, with no limitations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement and the Proxy. Following the date hereof, Stockholder will cooperate with Parent and use its reasonable best efforts as soon as possible to become the record owner of any Shares referred to on Schedule I hereto as to which Stockholder is the beneficial owner and to cause certificates representing the Shares to be affixed with a legend reasonably satisfactory to Parent referencing this Agreement and the Stockholder's obligations hereunder. 4.2 POWER; BINDING AGREEMENT. Stockholder has the legal capacity, power and authority to enter into and perform all of Stockholder's obligations under this Agreement and the Proxy. The execution, delivery and performance of this Agreement and the Proxy have been duly authorized by such Stockholder and do not and will not violate any other agreement to which Stockholder is a party including, without limitation, any voting agreement, stockholders agreement or voting trust. This Agreement and the Proxy have been duly and validly executed and delivered by Stockholder and constitute valid and binding agreements of such Stockholder, enforceable against such Stockholder in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which Stockholder is trustee whose consent is required for the execution and delivery of this Agreement, the Proxy or the consummation by the Stockholder of the transactions contemplated hereby and thereby. Page 13 of 33 Pages 4.3 NO CONFLICTS. Except for filings under the HSR Act, the Exchange Act and any applicable state antitrust laws (i) no filing with, and no permit, authorization, consent or approval of, any state or federal public body or authority or any other person is necessary for the execution of this Agreement and the Proxy by Stockholder and the consummation by Stockholder of the transactions contemplated hereby and thereby and (ii) none of the execution and delivery of this Agreement and the Proxy by Stockholder, the consummation by such Stockholder of the transactions contemplated hereby and thereby or compliance by Stockholder with any of the provisions hereof or thereof shall (A) conflict with or result in any breach of any applicable organizational documents applicable to Stockholder, (B) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any third party right of termination, cancellation, material modification or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to which Stockholder is a party or by which such Stockholder or any of such Stockholder's properties or assets may be bound, or (C) violate any order, writ, injunction, decree, judgment, order, statute, rule or regulation applicable to Stockholder or any of Stockholder's properties or assets. 4.4 NO ENCUMBRANCES. Except pursuant to this Agreement and the Proxy, Stockholder's Shares and the certificates representing such Shares are now, and at all times during the term hereof will be, held by such Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all Liens, hypothecations, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder. The transfer by Stockholder of its Shares to Sub in the Offer or otherwise hereunder shall pass to and unconditionally vest in Sub good and valid title to the number of Shares to be transferred by Stockholder thereunder or hereunder, free and clear of all claims, Liens, restrictions, security interests, pledges, hypothecations, limitations and encumbrances whatsoever. 4.5 NO SOLICITATION. Until the earlier of the Effective Time or termination of this Agreement in accordance with its terms, Stockholder shall not, in its capacity as such, directly or indirectly, solicit (including by way of furnishing information) or respond to any inquires or the making of any proposal by any person or entity, or enter into any negotiations, agreements or understandings with any Person (other than Parent, Sub or a person designated by Parent) with respect to the Company that constitutes an Alternative Proposal. If Stockholder receives any such inquiry or proposal, then Stockholder shall promptly inform Parent of the existence thereof. 4.6 RESTRICTION ON TRANSFER, PROXIES AND NON- INTERFERENCE. Beginning on the date hereof and ending on the earlier of the Effective Time or termination of this Agreement, except as required to comply with the provisions of this Agreement or the Proxy, the Stockholder shall not (i) directly or indirectly, offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to or Page 14 of 33 Pages consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, any or all of such Stockholder's Shares or any interest therein; (ii) grant any proxies or powers of attorney, deposit any Shares into a voting trust or enter into a voting agreement with respect to any shares; or (iii) take any action that would make any representation or warranty of such Stockholder contained herein untrue or incorrect or have the effect of preventing or disabling Stockholder from performing Stockholder's obligations under this Agreement or the Proxy. Notwithstanding the foregoing, any Stockholder may sell such Stockholder's Shares in a privately-negotiated transaction to any person who, as a condition to such purchase, (i) becomes a party to this Agreement with the same effect as though an original signatory hereto by a written instrument in form and substance satisfactory to Parent and (ii) delivers to Parent a Proxy (as defined in Section 8.18) with respect to such Shares. 4.7 WAIVER OF APPRAISAL RIGHTS. Stockholder hereby waives any rights of appraisal or rights to dissent from the Merger that Stockholder may have. 4.8 RELIANCE BY PARENT. Stockholder understands and acknowledges that Parent is entering into, and causing Sub to enter into, the Merger Agreement in reliance upon Stockholder's execution and delivery of this Agreement and the Proxy. 4.9 FURTHER ASSURANCES. From time to time, at any other party's request and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further lawful action as may be reasonably necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Proxy. 4.10 NO FINDER'S FEES. Other than existing financial advisory and investment banking arrangements and agreements entered into by the Company, no broker, investment banker, financial adviser or other person is entitled to any broker's, finder's, financial adviser's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of such Stockholder. 5. TENDER OF SHARES. 5.1 TENDER REQUIREMENT. Each Stockholder hereby agrees to validly tender (and not to withdraw) pursuant to and in accordance with the terms of the Offer (provided that the Offer is commenced and not amended in a manner adverse to Stockholder), not later than the tenth business day after commencement of the Offer pursuant to Section 10.1 of the Merger Agreement and Rule 14d-2 under the Exchange Act, the Option Shares owned by it. Each Stockholder hereby acknowledges and agrees that the obligation of Parent or Sub to accept for payment and pay for Company Common Stock in the offer, including the Shares, is subject to the terms and conditions Page 15 of 33 Pages of the Offer. Each Stockholder shall be entitled to receive the highest price paid by Sub pursuant to the Offer, the Merger or otherwise (other than pursuant to Section 3.01(d) of the Merger Agreement and other than in the settlement or other resolution of litigation). 5.2 PERMISSION TO DISCLOSE. Each Stockholder hereby agrees to permit Parent and Sub to publish and disclose in any documents filed with any Governmental or Regulatory Authority in connection with the Merger, including, if Company Stockholders' Approval is required under applicable law, the Proxy Statement (including all documents and schedules filed with the SEC), its identity and ownership of Company Common Stock and the nature of its commitments, arrangements and understandings under this Agreement. 6. STOP TRANSFER; CHANGES IN SHARES. Each Stockholder agrees with, and covenants to, Parent that beginning on the date hereof and ending on the date of termination of the Agreement, such Stockholder shall not request that the Company, and the Company hereby agrees with, and covenants to, Parent that beginning on the date hereof and ending on the date of termination of this Agreement it will not, register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing any of such Stockholder's Shares, unless such transfer is made in compliance with this Agreement. In the event of a dividend or distribution, or any change in the Company Common Stock by reason of any dividend, split-up, recapitalization, combination, exchange of shares or the like, the term "Shares" shall be deemed to refer to and include the Shares as well as all such dividends and distributions and any Shares into which or for which any or all of the Shares may be changed or exchanged and the Purchase Price shall be appropriately adjusted. 7. CONDUCT AS A DIRECTOR. Notwithstanding anything in this Agreement to the contrary, the covenants and agreements set forth herein shall not prevent any of the Stockholders' designees serving on the Company's Board of Directors from taking any action, subject to the applicable provisions of the Merger Agreement, while acting in such designee's capacity as a director of the Company; PROVIDED, THAT, such action shall not in any manner affect Stockholder's obligations under this Agreement or the Proxy. 8. MISCELLANEOUS. 8.1 ENTIRE AGREEMENT. This Agreement, the Proxy and the Merger Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, among any of the parties with respect to the subject matter hereof. 8.2 CERTAIN EVENTS. Each Stockholder agrees that this Agreement and the Proxy and the obligations hereunder and thereunder shall attach to such Stockholder's Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or Page 16 of 33 Pages otherwise, including, without limitation, such Stockholder's heirs, guardians, administrators or successors. Notwithstanding any transfer of Shares, the transferor shall remain liable for the performance of all obligations of the transferor under this Agreement. 8.3 ASSIGNMENT. This Agreement shall not be assigned without the prior written consent of the other parties hereto and no rights, or any direct or indirect interest herein, shall be transferable hereunder without the prior written consent of the other parties hereto; PROVIDED, THAT, Parent and Sub may assign or transfer their rights hereunder to any wholly-owned subsidiary of Parent, which assignment shall not relieve Parent or Sub of any of their respective obligations hereunder. 8.4 AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the parties to be bound thereby. 8.5 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly received if so given) by hand delivery, telegram, telex or telecopy, or by mail (registered or certified mail, postage prepaid, return receipt requested) or by any courier services, such as Federal Express, providing proof of delivery. All communications hereunder shall be delivered to the respective parties at the following addresses: If to Stockholders:At the addresses set forth on Schedule 1 hereto with a copy to: Milbank, Tweed, Hadley & McCloy 1 Chase Manhattan Plaza New York, New York 10005 Attention: Lawrence Lederman Telephone: (212) 530-5000 Telecopy: (212) 530-5219 If to Parent or Sub: Food Lion, Inc. 2110 Executive Drive Salisbury, North Carolina 28145 Attention: R. William McCanless Telephone: (704) 633-8250 Telecopy: (704) 639-1353 Page 17 of 33 Pages with a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1333 New Hampshire Avenue, N.W. Suite 400 Washington, D.C. 20036 Attention: Russell W. Parks, Jr., P.C. Telephone: (202) 887-4092 Telecopy: (202) 887-4288 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. 8.6 SEVERABILITY. Whenever possible, each provision or portion of any provision of this Agreement and the Proxy will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement or the Proxy is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement and the Proxy will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. 8.7 SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement or the Proxy will cause the other parties to sustain damages for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved parties shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which they may be entitled, at law or in equity. 8.8 REMEDIES CUMULATIVE. All rights, powers and remedies provided under this Agreement or the Proxy or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. 8.9 NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or the Proxy or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder or thereunder, and any custom or practice of the parties at variance with the terms hereof or thereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. Page 18 of 33 Pages 8.10 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any person or entity who or which is not a party hereto. 8.11 GOVERNING LAW. This Agreement and the Proxy shall be governed and construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof. 8.12 JURISDICTION. Each party hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the District of Delaware or any court of the State of Delaware located in the City of Wilmington in any action, suit or proceeding arising in connection with this Agreement or the Proxy, and agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non conveniens or any other objection to venue therein); PROVIDED, HOWEVER, that such consent to jurisdiction is solely for the purpose referred to in this Section 8.12 and shall not be deemed to be a general submission to the jurisdiction of said Courts or in the State of Delaware other than for such purposes. 8.13 DESCRIPTIVE HEADINGS. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 8.14 COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same Agreement. Notwithstanding the foregoing, this Agreement shall not be effective as to any Stockholder until executed by all Stockholders. 8.15 TERMINATION. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, by any Stockholder at any time prior to the exercise of the Stock Option as to such Stockholder's Option Shares (such date being referred to herein as the "Termination Date"): 8.15.1 At any time after the Merger Agreement is terminated in accordance with its terms by the Company due to the material breach of any representation, warranty, covenant or agreement on the part of Parent or Sub set forth in the Merger Agreement; or 8.15.2 At any time after the earlier of (x) 5:00 p.m. Eastern Time on the date which is five (5) business days after the date of termination of the Merger Agreement for any reason not specified in Section 8.15.1 above and (y) 5:00 p.m. Eastern Time on March 7, 1997. 8.16 OBLIGATION TO EFFECT MERGER. If the Closing occurs and the Merger Agreement is terminated other than due to a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in the Merger Page 19 of 33 Pages Agreement or the failure to satisfy any of the conditions set forth in Article VIII or Section 10.2 of the Merger Agreement, then Parent and Sub shall use commercially reasonable efforts to effect the Merger at a price per Share equal to the Merger Price as soon as reasonably practicable. 8.17 CERTIFICATION. Each Stockholder hereby agrees that its Option Shares, whether now owned or hereafter acquired, shall be certificated by the Company, and that the Company shall place the following legend on any certificate representing its Option Shares: Transfer and Voting of the Securities represented by this Certificate are subject to restrictions set forth in a Stockholders Agreement dated October 31, 1996, a copy of which may be obtained from the Company at its principal executive offices. 8.18 IRREVOCABLE PROXY. Each Stockholder acknowledges that, concurrently with the execution of this Agreement, it has executed and delivered to Parent an Irrevocable Proxy, the form of which is attached hereto as Exhibit A hereto (the "Proxy"). Page 20 of 33 Pages IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. FOOD LION, INC. KK ACQUISITION CORP. KASH N' KARRY FOOD STORES, INC. By: By: By: Name: Name: Name: Title: Title: Title: STOCKHOLDERS BANKAMERICA CAPITAL CITICORP NORTH AMERICA, LANDMARK EQUITY PARTNERS, CORPORATION INC. III, L.P. By: By: By: Name: Name: Name: Title: Title: Title: LANDMARK EQUITY PRUDENTIAL INSURANCE PAINEWEBBER CAPITAL INC. PARTNERS, IV, L.P. COMPANY OF AMERICA By: By: By: Name: Name: Name: Title: Title: Title: UBS CAPITAL LLC HIGH YIELD PORTFOLIO IDS BOND FUND, INC. By: By: By: Name: Name: Name: Title: Title: Title: IDS LIFE ADVANTAGE FUND THE PRUDENTIAL INSURANCE PRUCO LIFE INSURANCE COMPANY COMPANY OF AMERICA By: By: By: Name: Name: Name: Title: Title: Title: WELLS, FARGO & COMPANY By: Name: Title: Page 21 of 33 Pages SCHEDULE 1 TO STOCKHOLDERS AGREEMENT Name and Address Number of Shares Owned of Stockholder BankAmerica Capital Corporation 129,988 231 South LaSalle Street Chicago, IL 60697 Citicorp North America, Inc. 145,076 399 Park Avenue New York, NY 10043 Landmark Equity Partners III, L.P. 174,091 760 Hopmeadow Street P.O. Box 188 Simsbury, CT 06070 Landmark Equity Partners IV, L.P. 9,285 760 Hopmeadow Street P.O. Box 188 Simsbury, CT 06070 The Prudential Insurance Company 585,904 of America Two Gateway Center Floor 7 100 Mullberry Street Newark, NJ 07102 Prudential Property & Casualty 27,855 Company c/o The Prudential Insurance Company of America Two Gateway Center Floor 7 100 Mullberry Street Newark, NJ 07102 Pruco Life Insurance Company of 14,869 Arizona c/o The Prudential Insurance Company of America Two Gateway Center Floor 7 100 Mullberry Street Newark, NJ 07102 Page 22 of 33 Pages PaineWebber Capital Inc. 533,601 1285 Avenue of the Americas 14th Floor New York, NY 10019 UBS Capital LLC 145,076 299 Park Avenue New York, NY 10171 High Yield Portfolio 822,430 c/o American Express Financial Corporation 3000 IDS Tower 10 Minneapolis, MN 55440-0010 IDS Bond Fund, Inc. 149,570 c/o American Express Financial Corporation 3000 IDS Tower 10 Minneapolis, MN 55440-0010 IDS Life Advantage Fund 20,000 c/o American Express Financial Corporation 3000 IDS Tower 10 Minneapolis, MN 55440-0010 The Prudential Insurance Company 220,515 of America c/o Prudential Capital Group - Corporates Four Embarcadero Center Suite 2700 San Francisco, CA 94111 Pruco Life Insurance Company 11,606 c/o Prudential Capital Group - Corporates Four Embarcadero Center Suite 2700 San Francisco, CA 94111 Page 23 of 33 Pages Wells, Fargo & Company 145,076 MAC 0195-171 444 Market Street 17th Floor San Francisco, CA 94111 Page 24 of 33 Pages EXHIBIT A to Stockholders Agreement IRREVOCABLE PROXY The undersigned stockholder of Kash n' Karry Food Stores, Inc., a Delaware corporation (the "Company"), hereby irrevocably (to the fullest extent provided by law, but subject to automatic termination and revocation as provided below) appoints KK Acquisition Corp., a Delaware corporation (the "Sub"), the attorney and proxy of the undersigned, with full power of substitution and resubstitution, to the full extent of the undersigned's rights with respect to the shares of capital stock of the Company owned beneficially or of record by the undersigned, which shares are listed on the final page of this Proxy, and any and all other shares or securities of the Company issued or issuable with respect thereof or otherwise acquired by stockholder on or after the date hereof, until the termination date specified in the Stockholders Agreement referred to below (the "Shares"). Upon the execution hereof, all prior proxies given by the undersigned with respect to the Shares are hereby revoked and no subsequent proxies will be given as to the matters covered hereby prior to the date of termination of the Stockholders Agreement (the "Termination Date"). This proxy is irrevocable (to the fullest extent provided by law, but subject to automatic termination and revocation as provided below), coupled with an interest, and is granted in connection with the Stockholders Agreement, dated as of October 31, 1996, among the Company, Food Lion, Inc., a North Carolina corporation ("Parent"), Sub and the Stockholders party thereto, including the undersigned stockholder (the "Stockholders Agreement," capitalized terms not otherwise defined herein being used herein as therein defined), and is granted in consideration of the Company entering into the Merger Agreement referred to therein. The attorney and proxy named above will be empowered at any time prior to the Termination Date to exercise all voting and other rights with respect to the Shares (including, without limitation, the power to execute and deliver written consents with respect to the Shares) of the undersigned at every annual, special or adjourned meeting of shareholders of the Company and in every written consent in lieu of such a meeting, or otherwise: (i) in favor of the Merger, the execution and delivery by the Company of the Merger Agreement and the approval of the terms thereof and the Stockholders Agreement and each of the other actions contemplated by the Merger Agreement and the Stockholders Agreement and any actions required in furtherance thereof; (ii) against any action, any failure to act, or agreement, that would result in a breach in any respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or the Stockholders Agreement (before giving effect to any materiality or similar qualifications contained therein); and (iii) against the following actions (other than the Merger and the transactions contemplated by the Merger Agreement): (A) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or its Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of the Company or its Subsidiaries, or Page 25 of 33 Pages a reorganization, recapitalization, dissolution or liquidation of the Company or its Subsidiaries; (C) (1) any change in a majority of the persons who constitute the board of directors of the Company; (2) any change in the present capitalization of the Company or any amendment of the Company's Certificate of Incorporation or Bylaws; (3) any other material change in the Company's corporate structure or business; or (4) any other action involving the Company or its Subsidiaries which is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, or materially adversely affect the Merger and the transactions contemplated by this Agreement and the Merger Agreement. The attorney and proxy named above may only exercise this proxy to vote the Shares subject hereto in accordance with the preceding paragraph, and may not exercise this proxy in respect of any other matter. The undersigned shareholder may vote the Shares (or grant one or more proxies to vote the Shares) on all other matters. Any obligation of the undersigned hereunder shall be binding upon the successors and assigns of the undersigned. This proxy is irrevocable, but shall automatically terminate and be revoked and be of no further force and effect on and after the Termination Date. Dated: October 31, 1996 STOCKHOLDER By: Name: Title: Shares Owned: EX-2 3 EXHIBIT 2 ENGAGEMENT LETTER Page 26 of 33 Pages September 8, 1995 PaineWebber Incorporated 1285 Avenue of the Americas New York, NY 10019 Gentlemen: In connection with the engagement of PaineWebber Incorporated ("PaineWebber") to advise and assist the undersigned (referred to herein as "we," "our" or "us") with the matters set forth in the Agreement dated September 8, 1995 between us and PaineWebber, we hereby agree to indemnify and hold harmless PaineWebber, its affiliated companies, and each of PaineWebber's and such affiliated companies' respective officers, directors, agents, employees and controlling persons (within the meaning of each of Section 20 of the Securities Exchange Act of 1934 and Section 15 of the Securities Act of 1933) (each of the foregoing, including PaineWebber, being hereinafter referred to as an "Indemnified Person") to the fullest extent permitted by law from and against any and all losses, claims, damages, expenses (including reasonable fees, disbursements, and other charges of counsel), actions (including actions brought by us or our equity holders or derivative actions brought by any person claiming through us or in our name), proceedings, arbitrations or investigations (whether formal or informal), or threats thereof (all of the foregoing being hereinafter referred to as "Liabilities"), based upon, relating to or arising out of such engagement or any Indemnified Person's role therein: PROVIDED, HOWEVER, that we shall not be liable under this paragraph: (a) for any amount paid in settlement of claims without our consent, unless our consent is unreasonably withheld, or (b) to the extent that it is finally judicially determined, or expressly stated in an arbitration award, that such Liabilities resulted primarily from the willful misconduct or gross negligence of the Indemnified Person seeking indemnification. If multiple claims are brought against any Indemnified Person in an arbitration and at least one such claim is based on, relates to or arises out of the engagement of PaineWebber by us or any Indemnified Person's role therein, we agree that any award resulting therefrom shall be deemed conclusively to be based on, relate to or arise out of the engagement of PaineWebber by us or any Indemnified Person's role therein, except to the extent that such award expressly states that the award, or any portion thereof, is based solely upon, relates to or arises out of other matters for which indemnification is not available hereunder. In connection with our obligation to indemnify for expenses as set forth above, we further agree to reimburse each Indemnified Person for all such expenses (including reasonable fees, disbursements or other charges of counsel) as they are incurred by such Indemnified Person; PROVIDED, HOWEVER, that if an Indemnified Person is reimbursed hereunder for any expenses, the amount so paid shall be refunded if and to the extent it is finally judicially determined, or expressly stated in an arbitration award, that the Liabilities in question resulted primarily from the willful misconduct or gross negligence of such Indemnified Person. We hereby also agree that neither PaineWebber nor any other Indemnified Person shall Page 27 of 33 Pages have any liability to us (or anyone claiming through us or in our name) in connection with PaineWebber's engagement by us except to the extent that such Indemnified Person has engaged in willful misconduct or been grossly negligent. Promptly after PaineWebber receives notice of the commencement of any action or other proceeding in respect of which indemnification or reimbursement may be sought hereunder, PaineWebber will notify us thereof; but the omission so to notify us shall not relieve us from any obligation hereunder unless, and only to the extent that, such omission results in our forfeiture of substantive rights or defenses. If any such action or other proceeding shall be brought against any Indemnified Person, we shall, upon written notice given reasonably promptly following your notice to us of such action or proceeding, be entitled to assume the defense thereof at our expense with counsel chosen by us and reasonably satisfactory to such Indemnified Person; PROVIDED, HOWEVER, that any Indemnified Person may at its own expense retain separate counsel to participate in such defense. Notwithstanding the foregoing, such Indemnified Person shall have the right to employ separate counsel at our expense and to control its own defense of such action or proceeding if, in the reasonable opinion of counsel to such Indemnified Person, a difference of position or potential difference of position exists between us and such Indemnified Person that would, in the opinion of counsel to the Indemnified Person, make representation of both the Indemnified Person and us inappropriate or inadvisable under generally accepted standards of professional conduct; PROVIDED, HOWEVER, that in no event shall we be required to pay fees and expenses under this indemnity for more than one firm of attorneys (in addition to local counsel) in any jurisdiction in any one legal action or group of related legal actions. We agree that we will not, without the prior written consent of PaineWebber, which consent will not be unreasonably withheld, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by PaineWebber's engagement (whether or not any Indemnified Person is a party thereto) unless such settlement, compromise or consent includes an unconditional release of PaineWebber and each other Indemnified Person from all liability arising or that may arise out of such claim, action or proceeding. If the indemnification of an Indemnified Person provided for hereunder is finally judicially determined by a court of competent jurisdiction to be unenforceable, then we agree, in lieu of indemnifying such Indemnified Person, to contribute to the amount paid or payable by such Indemnified Person as a result of such Liabilities in such proportion as is appropriate to reflect the relative benefits received, or sought to be received, by us on the one hand and by PaineWebber on the other from the transactions in connection with which PaineWebber has been engaged. If the allocation provided in the preceding sentence is not permitted by applicable law, then we agree to contribute to the amount paid or payable by such Indemnified Person as a result of such Liabilities in such proportion as is appropriate to reflect not only the relative benefits referred to in such preceding sentence but also the relative fault of us and of such Indemnified Person. Notwithstanding the foregoing, in no event shall the aggregate amount required to be contributed by all Indemnified Persons taking into account our contributions as described Page 28 of 33 Pages above exceed the amount of fees actually received by PaineWebber pursuant to such engagement. The relative benefits received or sought to be received by us on the one hand and by PaineWebber on the other shall be deemed to be in the same proportion as (a) the total value of the transactions with respect to which PaineWebber has been engaged bears to (b) the fees paid or payable to PaineWebber with respect to such engagement. The rights accorded to Indemnified Persons hereunder shall be in addition to any rights that any Indemnified Person may have at common law, by separate agreement or otherwise. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. WE HEREBY CONSENT, SOLELY FOR THE PURPOSE OF ALLOWING AN INDEMNIFIED PERSON TO ENFORCE ITS RIGHTS HEREUNDER, TO PERSONAL JURISDICTION AND SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM FOR WHICH INDEMNIFICATION MAY BE SOUGHT HEREUNDER IS BROUGHT AGAINST PAINEWEBBER OR ANY OTHER INDEMNIFIED PERSON. We and PaineWebber also hereby irrevocably waive any right we and PaineWebber may have to a trial by jury in respect of any claim based upon or arising out of this agreement. This agreement may not be amended or otherwise modified except by an instrument signed by both PaineWebber and us. If any provision hereof shall be determined to be invalid or unenforceable in any respect, such determination shall not affect such provision in any other respect or any other provision of this agreement, which shall remain in full force and effect. If there is more than one indemnitor hereunder, each indemnifying person Page 29 of 33 Pages agrees that its liabilities hereunder shall be joint and several. Each Indemnified Person is an intended beneficiary hereunder. The foregoing indemnification agreement shall remain in effect indefinitely, notwithstanding any termination of PaineWebber's engagement. Very truly yours, KASH N' KARRY FOOD STORES, INC. By:________________________________ Name: Title: Acknowledged and Agreed to: PAINEWEBBER INCORPORATED By:________________________________ Name: Title: Page 30 of 33 Pages June 5, 1996 PAINEWEBBER Board of Directors Kash n' Karry Food Stores, Inc. 6422 Harney Road Tampa, Florida 33610 Attention:Mr. Ronald E. Johnson Chairman, President and Chief Executive Officer Madame and Gentlemen: Kash n' Karry Food Stores, Inc. (the "Company") proposes to enter into an Agreement and Plan of Merger (the "Agreement") pursuant to which (i) a subsidiary ("Sub") of the acquiring company ("Parent") will make a tender offer (the "Offer") for all of the outstanding shares of common stock, par value $0.01, per share ("Common Stock") of the Company at a specified price net to the seller in cash (the "Consideration") and (ii) following completion of the Offer, each issued and outstanding share of Common Stock (other than (a) shares owned by the Company as treasury stock, (b) shares owned by Parent, Sub or any other wholly-owned subsidiary of Parent and (c) shares held by parties perfecting appraisal rights) will be converted in a merger (the "Merger") solely into the right to receive the Consideration. The Board of Directors of the Company has requested that PaineWebber Incorporated ("PaineWebber") render an opinion (the "Opinion") as to whether or not the Consideration to be received by the holders of the Common Stock in the Offer and the Merger, taken as a whole, is fair, from a financial point of view, to such shareholders. As compensation for PaineWebber's services in rendering the Opinion, the Company agrees to pay PaineWebber a fee of $250,000 payable in cash on the date PaineWebber delivers the Opinion. In the event that an update or revised Opinion is requested, the Company agrees to pay PaineWebber an additional fee to be mutually agreed upon payable in cash on such date PaineWebber delivers an updated or revised Opinion. In addition, the Company agrees to reimburse PaineWebber, upon request made from time to time, for all of its reasonable out-of-pocket expenses incurred in connection with this engagement, including the reasonable fees, disbursements and other charges of its legal counsel. The Company's obligations to pay PaineWebber's compensation (and reimburse PaineWebber for fees and expenses) as set forth herein shall be without regard to the conclusion set forth in the Opinion or whether PaineWebber determines that a favorable Opinion cannot be delivered. Page 31 of 33 Pages It is understood that the Opinion, if rendered, will be dated as of a date reasonably proximate to the date of the Schedule 14D-9 to be filed with the Securities and Exchange Commission (the "SEC") in connection with the Offer and any proxy statement or information statement required to be filed with the SEC in connection with the Merger. If the Opinion is included in such Schedule 14D-9, proxy statement or information statement, it will be reproduced therein in full, and any description of or reference to PaineWebber or summary of the Opinion will be in a form reasonably acceptable to PaineWebber and its counsel. Except as provided in this letter, the Opinion will not be reproduced, summarized, described or referred to or otherwise made public without PaineWebber's prior written consent. The Company will furnish PaineWebber (and will request that the Parent furnish PaineWebber) with such information as PaineWebber believes appropriate to its assignment (all such information so furnished being the "Information"). The Company recognizes and confirms that PaineWebber (a) will use and rely primarily on the Information and on information available from generally recognized public sources in rendering the Opinion and does not assume any responsibility to independently verify the same, (b) does not assume responsibility for the accuracy or completeness of the Information and such other information and (c) will not make an appraisal of any assets of the Parent or the Company. To the best of the Company's knowledge, the Information to be furnished by the Company, when delivered, will be true and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. The Company will promptly notify PaineWebber if it learns of any material inaccuracy or misstatement in, or material omission from, any Information theretofore delivered to PaineWebber. All such Information, whether oral or written, will be kept confidential in accordance with the terms of that certain letter agreement (the "Letter Agreement") dated September 8, 1995, by and between PaineWebber and the Company. It is understood that PaineWebber is being engaged hereunder solely to provide the services described above to the Board of Directors of the Company, and that PaineWebber is not acting as an agent of, and its engagement hereunder is not intended to confer rights on the equity holders of the Company or any other third party. In addition to the fees provided for above, the Company shall pay to PaineWebber PaineWebber's customary hourly fees for each hour that a PaineWebber employee shall be required to testify (or be available on site to testify) in any court proceedings, or in oral depositions in connection with any such proceedings, relating to or arising out of the Opinion or PaineWebber's engagement hereunder. Reference is made to the Letter Agreement and the related indemnification agreement (the "Indemnification Agreement") attached thereto and incorporated by reference therein. The Company agrees that the indemnification and other agreements set forth in the Indemnification Agreement shall apply in connection with PaineWebber's Page 32 of 33 Pages engagement hereunder, shall survive the termination, expiration or suppression of this letter agreement, and are incorporated by reference herein. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE. EACH OF THE COMPANY AND PAINEWEBBER AGREE THAT ANY ACTION OR PROCEEDING BASED HEREON, OR ARISING OUT OF PAINEWEBBER'S ENGAGEMENT HEREUNDER, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF DELAWARE OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE. THE COMPANY AND PAINEWEBBER EACH HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE FOR THE PURPOSE OF ANY SUCH ACTION OR PROCEEDING AS SET FORTH ABOVE AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH ACTION OR PROCEEDING. EACH OF THE COMPANY AND PAINEWEBBER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. The Company (for itself, anyone claiming through it or its name, and on behalf of its equity holders) and PaineWebber each hereby irrevocably waive any right they may have to a trial by jury in respect of any claim based upon or arising out of this letter agreement or the transactions contemplated hereby. This letter agreement may not be assigned by either party without the prior written consent of the other party. This letter agreement (including the Indemnification Agreement) embodies the entire agreement and understanding between the parties hereto relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter, other than the Letter Agreement. This letter agreement may not be amended or otherwise modified or waived except by an instrument in writing signed by both PaineWebber and the Company. If any provision of this letter agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect or any other provision of this letter agreement, which will remain in full force and effect. Page 33 of 33 Pages If the foregoing correctly sets forth our agreement, please so indicate by signing and returning to us the enclosed duplicate original copy of this letter agreement. Very truly yours, PAINEWEBBER INCORPORATED By _________________________________ David M. Reed, Jr. Managing Director Accepted and Agreed to as of the date first written above: Kash n' Karry Food Stores, Inc. By ____________________________________ Ronald E. Johnson Chairman, President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----