As filed with the Securities and Exchange Commission on February 28, 1996.
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DAIRY MART CONVENIENCE STORES, INC.
AND OTHER REGISTRANTS
(See table of Other Registrants Below)
(Exact name of registrant as specified in charter)
DELAWARE 04-2497894
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE VISION DRIVE
ENFIELD, CONNECTICUT 06082
(860) 741-4444
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ROBERT B. STEIN, JR., CHIEF EXECUTIVE OFFICER, COPY TO: STANFORD N. GOLDMAN, JR., ESQUIRE
PRESIDENT AND CHAIRMAN OF THE BOARD MINTZ, LEVIN, COHN, FERRIS,
DAIRY MART CONVENIENCE STORES, INC. GLOVSKY AND POPEO, P.C.
ONE VISION DRIVE ONE FINANCIAL CENTER
ENFIELD, CONNECTICUT 06082 BOSTON, MA 02111
(860) 741-4501 (617) 348-1708
(Name, address, including zip code, and telephone
number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS
SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "1933 Act") check the following box. [X]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
1(a)(1) of this Form, check the following box. [_]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the 1933 Act, please check the following
box and list the 1933 Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the 1933 Act, check the following box and list the 1933 Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
TITLE OF EACH PROPOSED PROPOSED
CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) FEE
- --------------------------------------------------------------------------------------------------------------------------
10 1/4% Senior Subordinated Note Due 2004, Series B $ 13,500,000 100% $ 13,500,000 $ 4,655.00
- --------------------------------------------------------------------------------------------------------------------------
Guarantees of 10 1/4% Senior Subordinated Notes Due
2004, Series B...................................... (2) (2) (2) (2)
==========================================================================================================================
(1) Estimated solely for the purpose of calculating the Registration Fee.
(2) No additional consideration for the Guarantees will be paid by the
purchasers of the Series B Notes. Pursuant to Rule 457(n) under the 1933
Act, no separate fee is payable for the Guarantees.
____________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE 1933 ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
OTHER REGISTRANTS
EXACT NAME OF STATE OF I.R.S.
REGISTRANT AS OTHER JURISDICTION EMPLOYER
SPECIFIED IN ITS OF INCORPORATION IDENTIFICATION
CHARTER OR ORGANIZATION NUMBER
Dairy Mart East, Inc. Rhode Island 04-2741427
Dairy Mart Farms, Inc. Connecticut 06-0937127
Dairy Mart, Inc. Massachusetts 04-2235065
CONNA Corporation Kentucky 61-0960167
The Lawson Company Delaware 36-2998715
D.M. Insurance Limited Bermuda 98-0122232
LMC, Inc. Ohio 34-1225236
SNG of Southern Minnesota, Inc. Ohio 31-0744171
The Lawson Milk Company Ohio 34-0352180
Golden Stores, Inc. Ohio 34-1256236
Lakeside Wholesale, Inc. Ohio 34-1338109
Quick Shops, Inc. Ohio 34-1126799
Open Pantry Properties, Inc. Ohio 34-0898645
Remote Services, Inc. Kentucky 61-0667027
Convenient Industries of America, Inc. Kentucky 61-0567766
Oscar Ewing, Inc. Kentucky 61-0187240
Convenient Gasoline, Inc. New York 61-0667027
Jackson County Grocery Co., Inc. Indiana 35-1460917
Greenwell Grocery Co., Inc. Indiana 61-0999843
CIA Food Marts, Inc. New York 62-0941344
Food Merchandisers, Incorporated North Carolina 56-0889198
Dairy Mart Convenience Stores of Ohio, Inc. Ohio 34-1606435
DAIRY MART CONVENIENCE STORES, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-2
Form S-2 Item and Caption Location in Prospectus
------------------------- ----------------------
1. Forepart of the Registration
Statement and Outside Front Cover Outside Front Cover Page
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......... Inside Front and Outside Back Cover
Pages; Available Information;
Documents Incorporated by Reference
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Risk Factors; The Company; Ratio of
Charges Earnings to Fixed Changes
4. Use of Proceeds.................... Not Applicable
5. Determination of Offering Price.... Not Applicable
6. Dilution........................... Not Applicable
7. Selling Security Holders........... Selling Noteholders
8. Plan of Distribution............... Plan of Distribution
9. Description of Securities to be
Registered......................... Description of the Series B Notes
10. Interests of Named Experts and
Counsel............................ Certain Legal Matters; Experts
11. Information with Respect to the
Registrant......................... Documents Incorporated by Reference
12. Incorporation of Certain
Information by Reference........... Documents Incorporated by Reference
13. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities......... Not Applicable
PROSPECTUS
DAIRY MART CONVENIENCE STORES, INC.
$13,500,000 PRINCIPAL AMOUNT
10 1/4 SENIOR SUBORDINATED NOTES DUE 2004, SERIES B
______________
The $13,500,000 aggregate principal amount of 10 1/4% Senior Subordinated
Notes due 2004, Series B (the "Series B Notes") of Dairy Mart Convenience
Stores, Inc., a Delaware corporation (the "Company" or "Dairy Mart"), offered
hereby are being sold by the selling noteholders identified herein (the "Selling
Noteholders"). The Series B Notes bear interest at the rate of 10 1/4% per
annum, payable semi-annually on March 15 and September 15 of each year,
commencing March 15, 1996. The Series B Notes, along with the Company's
$75,000,000 principal amount 10 1/4% Senior Subordinated Notes due 2004, Series
A (the "Series A Notes," and together with the Series B Notes, sometimes
collectively the "Notes"), are redeemable at the option of the Company, in whole
or in part, at any time on or after March 15, 1999 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, the Company, at its option, may, until March 3, 1997,
use the Net Proceeds received by the Company from a Public Equity Offering to
redeem up to $20,000,000 aggregate principal amount of the Notes, allocated
between the Series A Notes and the Series B Notes on a pro rata basis in respect
of the aggregate outstanding principal amount of each such series, at 110% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption. Upon a Change of Control of the Company, each holder of
Notes will have the right to require the Company to repurchase all or any part
of such holder's Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
The Series B Notes, along with the Series A Notes, are subordinated to all
Senior Indebtedness of the Company. At February 3, 1996, the outstanding amount
of Senior Indebtedness was approximately $7.2 million. The Notes are
unconditionally guaranteed (the "Guarantee") by substantially all of the
subsidiaries of the Company (the "Guarantors"), and the Guarantee of a Guarantor
will be subordinated to all senior indebtedness of such Guarantor. The Company
may not incur any indebtedness that is senior to the Notes and subordinated to
Senior Indebtedness, and no Guarantor may incur any indebtedness that is senior
to its Guarantee and subordinated to senior indebtedness of such Guarantor. See
"Description of the Series B Notes."
Offers and sales of the Series B Notes by the Selling Noteholders may be
made on one or more exchanges, in the over-the-counter market, or otherwise, at
prices and on terms then prevailing, or at prices related to the then-current
market price, or in negotiated transactions, or by underwriters pursuant to an
underwriting agreement in customary form, or in a combination of any such
methods of sale. The Selling Noteholders may also sell such securities in
accordance with Rule 144 under the Securities Act of 1933, as amended (the "1933
Act"). The Selling Noteholders are identified and certain information with
respect to them is provided under the caption "Selling Noteholders" herein, to
which reference is made. The expenses of the registration of the Series B Notes
offered hereby, including fees of counsel for the Company, and one counsel for
the Selling Noteholders, will be paid by the Company. The following expenses
will be borne by the Selling Noteholders: underwriting discounts and selling
commissions, if any, and the fee of additional legal counsel, if any, for the
Selling Noteholders. The filing by the Company of this Prospectus in accordance
with the requirements of Form S-2 is not an admission that any person whose
shares are included herein is an "affiliate" of the Company.
The Selling Noteholders have advised the Company that they have not engaged
any person as an underwriter or selling agent for any of such shares, but they
may in the future elect to do so, and they will be responsible for paying such a
person or persons customary compensation for so acting. The Selling Noteholders
and any broker executing selling orders on behalf of any Selling Noteholders may
be deemed to be "underwriters" within the meaning of the 1933 Act, in which
event commissions received by any such broker may be deemed to be underwriting
commissions under the 1933 Act. The Company will not receive any of the proceeds
from the sale of the securities offered hereby. The Series B Notes are not
listed, nor does the Company intend to list them, on Nasdaq or any national
securities exchange.
____________________
THE SERIES B NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" ON PAGE 3 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION, OR ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is ____________, 1996
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH SECURITIES MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS" WITHIN
THE MEANING OF REGULATION D UNDER THE 1933 ACT, (2) BANKS, SAVINGS AND LOAN
ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT SHARING
TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR
OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO
THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN
REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN
$14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3) ANY CORPORATION, PARTNERSHIP
OR ORGANIZATION (OTHER THAN A CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED
FOR THE SOLE PURPOSE OF PURCHASING THE SECURITIES OFFERED HEREBY) WHO PURCHASES
AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE SECURITIES OFFERED HEREBY, (4) ANY
NATURAL PERSON WHO (A) HAS INCOME OF $65,000 AND A NET WORTH OF $250,000, OR (B)
HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES), OR (5) ANY "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
UNDER RULE 144A OF THE 1933 ACT.
AVAILABLE INFORMATION
The Company is subject to certain informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024 of the
Commission's office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC
20549, and at its regional offices located at 7 World Trade Center, Suite 1300,
New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661. Copies of such reports, proxy statements and other
information can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549 at prescribed
rates. Additional updating information with respect to the securities covered
herein may be provided in the future to purchasers by means of appendices to
this Prospectus.
The Company has filed with the Commission in Washington, DC a registration
statement (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the 1933 Act with respect to the securities
offered or to be offered hereby. This Prospectus does not contain all of the
information included in the Registration Statement, certain items of which are
omitted in accordance with the rules and regulations of the Commission. For
further information about the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits thereto.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any document incorporated herein by reference, excluding exhibits. Requests
should be made to Dairy Mart Convenience Stores, Inc., One Vision Drive,
Enfield, Connecticut 06082, telephone (860) 741-4444, Attention: Investor
Relations.
While the Series B Notes are outstanding, upon written request, the Company
will furnish holders of the Series B Notes with annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited interim consolidated financial information.
2
RISK FACTORS
An investment in the shares being offered by this Prospectus involves a
high degree of risk. In addition to the other information contained in this
Prospectus or incorporated herein by reference, prospective investors should
carefully consider the following risk factors before purchasing the shares
offered hereby. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to, the
Risk Factors discussed below.
LEVERAGE; DEBT SERVICE
At February 3, 1996, the Company had consolidated long-term indebtedness of
approximately $99.7 million. As of October 28, 1995, the Company had
consolidated long-term indebtedness of approximately $87.9 million and a ratio
of consolidated indebtedness to total stockholders' equity of 3.7 to 1. This
substantial degree of leverage may have adverse consequences on the Company
including: (i) impairment of the Company's ability to obtain additional
financing in the future for working capital, capital expenditures or other
purposes; (ii) required use of a substantial portion of the Company's cash flow
from operations to make interest and principal payments; (iii) an adverse effect
on the Company's ability to compete with other businesses that may be less
leveraged; and (iv) the Company's increased vulnerability in the event of a
downturn in its businesses.
The Credit Agreement will mature on May 31, 1996 and contains numerous
financial and operating covenants and requires periodic repayments of amounts
borrowed thereunder. As of February 3, 1996, the Company had no outstanding
revolving credit loans and outstanding letters of credit in the amount of $13.8
million. There can be no assurance that the Company will be able to obtain new
financing on satisfactory terms or maintain compliance with the financial
covenants that are contained in the Credit Agreement or any new credit facility.
Failure to meet such financial tests or other covenants would result in a
default thereunder. The Company expects to obtain a new credit facility and
generate sufficient cash flow from operations to meet all of its principal and
interest obligations on its and its subsidiaries' indebtedness, including
indebtedness under the Notes, the Credit Agreement and any new credit agreement.
However, the Company's ability to satisfy principal and interest obligations
under its credit facility will depend upon dividends and other intercompany
transfers from its subsidiaries, and will be subject to the successful
implementation of the Company's business strategy and financial, business and
other factors affecting the business and operations of the Company and its
subsidiaries, including factors beyond their control, such as prevailing
economic conditions.
NET LOSSES
The Company has incurred substantial net losses in two of its last three
fiscal years. For the fiscal years ended January 25, 1995 and January 30, 1993,
the Company experienced net losses of $11,150,000 and $6,850,000, respectively,
primarily reflecting nonrecurring charges incurred during such fiscal periods.
In fiscal 1994, the Company had net income of $866,000. The Company expects to
incur a substantial net loss for the fiscal year ended February 3, 1996, also
reflecting nonrecurring charges incurred during fiscal 1996. There can be no
assurance that the Company will not experience annual net losses in the future.
SUBORDINATION; ENFORCEABILITY OF GUARANTEES
As the Series B Notes are subordinated in right of payment to the prior
payment in full of all Senior Indebtedness, payment of the principal of,
premium, if any, and interest on the Series B Notes will be subordinated, to the
extent and in the manner set forth in the Indenture, to the prior payment in
full of all Senior Indebtedness, including any interest accruing on such Senior
Indebtedness subsequent to the commencement of a bankruptcy, insolvency or
similar proceeding. See "Description of the Notes - Subordination." As of
February 3, 1996, the aggregate amount of Senior Indebtedness outstanding was
approximately $7.2 million. The holders of Senior Indebtedness under the Credit
Agreement have been granted security interests in and liens upon (i) all of the
issued
3
and outstanding shares of capital stock, and (ii) all of the assets of
substantially all of the subsidiaries of the Company, each of which is a
Guarantor.
All payments pursuant to the Guarantees are subordinated in right of
payment to the prior payment in full of all Guarantor Senior Indebtedness
(including the guarantees by the Guarantors of the obligations of the Company
under the Credit Agreement) to the same extent and manner that all payments
pursuant to the Series B Notes are subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of the Company. As of February 3,
1996, the aggregate amount of Guarantor Senior Indebtedness was approximately
$8.0 million. See "Description of the Series B Notes - Subordination -
Guarantees." The Guarantees may be limited or eliminated entirely if creditors
seek to have the Guarantees declared invalid and unenforceable and the payments
thereunder declared voidable. These creditors could attempt to assert, among
other things, that the Guarantees constitute a fraudulent conveyance under state
law and/or the federal Bankruptcy Code. In the event that the Guarantees are not
enforceable, the holders of the Series B Notes and the Series A Notes would have
no right to participate as creditors in the assets of the Guarantors upon their
liquidation or reorganization, except to the extent that the Company may itself
be a creditor with recognized claims against the Guarantors. In addition,
holders of certain outstanding Guarantor Senior Indebtedness and certain other
creditors have been granted security interests in and liens upon certain
equipment, real property and fixtures of subsidiaries of the Company, including
certain Guarantors. In addition, the Company's ability to effect any required
repurchases of Notes upon the occurrence of a Change of Control or with Excess
Proceeds (as defined) from certain asset dispositions may be limited by the
terms and conditions of instruments governing Senior Indebtedness and by the
subordination provisions of the Indenture.
MANAGEMENT CONTROL OF THE COMPANY
DM Associates Limited Partnership ("DM Associates") owns 1,858,743 shares
of the Company's Class B Common Stock. Five of the Company's seven directors are
currently elected by the holders of the Company's Class B Common Stock. The
remaining two directors are elected by the holders of the Company's Class A
Common Stock. The Company's management, through its control of the general
partner of DM Associates, is entitled to vote not less than 40.9% of the
Company's Class B Common Stock. Such 40.9% of the Company's Class B Common Stock
constitutes 37.1% of the total voting power of both classes of Common Stock. In
addition, a Change of Control will result (i) if DM Associates continues to hold
all of its shares after September 13, 1997, or (ii) if the limited partners of
DM Associates exercise their right to require either a sale or distribution to
such limited partners of the Company's Common Stock owned by DM Associates if
certain conditions are not satisfied, which right is exercisable after September
12, 1997. Further, the limited partnership agreement also requires that the
general partner of DM Associates consult with a certain limited partner of DM
Associates before voting any shares at a meeting of the Company's shareholders
or exercising any consensual rights of such shares. If such general partner
votes or exercises consensual rights of such shares in a manner in which such
limited partner does not agree, the limited partner may dissolve DM Associates.
If a Change of Control were to occur, the Company may be unable to redeem the
Notes or to pay principal and interest due under the Notes.
ENVIRONMENTAL COMPLIANCE
The Company incurs ongoing costs to comply with federal, state and local
environmental laws and regulations, particularly the comprehensive regulatory
programs governing underground storage tanks ("USTs") used in the Company's
gasoline operations. In addition, in the ordinary course of business, the
Company periodically detects releases of gasoline or other regulated substances
from USTs it owns or operates. In the past three fiscal years ended January 28,
1995, the Company recorded expenses which averaged approximately $1.2 million
annually, net of reimbursements from state trust fund programs, for assessment
and remediation activities in connection with releases into the environment of
regulated substances from USTs at the Company's current or former gasoline
facilities. The Company accrues its estimates of all costs to be incurred for
assessment and
4
remediation for releases at the time they become known. These accruals are
adjusted if and when new information becomes known. Due to the nature of such
releases, the actual costs incurred may vary from these estimates, and the
ongoing costs of assessment and remediation activities may vary significantly
from year to year.
In addition, federal and state regulatory programs mandate that all
existing USTs be upgraded or replaced by December 22, 1998 to meet certain
environmental protection requirements. The Company presently estimates that in
addition to the Company's assessment and remediation costs discussed above, it
will make aggregate capital expenditures ranging from approximately $10.0
million to $12.0 million over the next three fiscal years to comply with
upgrading and other UST regulatory requirements. The actual costs incurred may
vary substantially from these estimates.
STORE EXPANSION
A major component in the Company's growth strategy is to continue to build
new stores and increase its level of gasoline sales. The opening of new stores
will be dependent upon a number of factors, including general economic
conditions, anticipated competition in the Company's markets, the availability
of desirable locations, the ability to negotiate and enter into lease,
development or acquisition agreements on acceptable terms and the availability
of financing. The Company's experience has been that new stores contribute
positively to operating income after their first year of operation. There can be
no assurance that the Company will be able to open, operate or acquire new
stores on a timely or profitable basis in accordance with the Company's current
plans.
COMPETITION
The convenience store and retail gasoline industries are highly
competitive. The number and type of competitors vary by location. The Company
presently competes with other convenience stores, large integrated gasoline
service station operators, super market chains, neighborhood grocery stores,
independent gasoline service stations, fast food operations and other similar
retail outlets, some of which are well-recognized national or regional retail
chains. Some of the Company's competitors have greater financial resources than
the Company. Key competitive factors include, among others, location, ease of
access, store management, product selection, pricing, hours of operation, store
safety, cleanliness, product promotions and marketing.
Gasoline sales are very competitive. The Company competes with both
independent and national brand gasoline stations. Gasoline profit margins have a
significant impact on the Company's earnings. These profit margins are often
influenced by factors beyond the Company's control, such as volatility in the
wholesale gasoline market, and are continually influenced by competition in each
local market area.
EFFECT OF WEATHER ON BUSINESS
The Company believes that weather conditions have a significant effect on
its sales, as convenience store customers are more likely to go to stores to
purchase convenience goods and services, particularly higher profit margin items
such as fast food items, fountain drinks and other beverages, when weather
conditions are favorable. Accordingly, the Company's stores generally experience
significantly higher revenues and profit margins during the warmer weather
months, which fall within the Company's second and third fiscal quarters. If
weather conditions are not favorable in the second and third fiscal quarters,
the Company's performance may be adversely affected.
5
GOVERNMENT REGULATION AND POTENTIAL LEGISLATION
The Company is subject to numerous federal, state and local laws,
regulations and ordinances. In addition, various federal, state and local
legislative and regulatory proposals are made from time to time to, among other
things, increase the minimum wage payable to employees, and increase taxes on,
and regulation of, the retail sale of certain products, such as tobacco products
and alcoholic beverages. Changes to such laws, regulations or ordinances may
adversely affect the Company's performance by increasing the Company's costs or
affecting its sales of certain products.
NO PRIOR MARKET FOR THE SERIES B NOTES
The Company does not intend to apply for the listing of the Series B Notes
on any securities exchange or on the National Association of Securities Dealers
Automated Quotation System and it is not anticipated that an active trading
market will develop for the Series B Notes. Accordingly, the purchasers of the
Series B Notes may not be readily able to liquidate their investments. If a
public trading market develops for the Series B Notes, future trading prices of
such securities will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on these and other factors, including the
financial condition of the Company, the Series B Notes may trade at a discount
from their principal amount.
LITIGATION
The Company is currently involved in a derivative lawsuit in which the
plaintiff alleges, among other things, that in connection with the Nirenberg
Transaction the Board of Directors violated their fiduciary duty to the Company
and its stockholders, violated provisions of Delaware corporate law and wasted
corporate assets. The Plaintiff's seek, among other things, a declaration that
the current structure of the general partner of DM Associates is invalid and
that certain voting rights with respect to the Class B Common Stock held by DM
Associates should be vested in the Company. Although the Company is contesting
these claims, if the Company became a general partner of DM Associates, a Change
of Control of the Company could result. In addition, if the plaintiff pursues
this claim, management of the Company could be forced to commit time and
resources to the defense of this action. There can be no assurance that this
claim will not have a material adverse effect on the Company's business,
operating results and financial condition.
THE COMPANY
Dairy Mart was founded in 1957 and operates one of the nation's largest
convenience store chains. As of the fiscal year ended January 28, 1995, the
Company operated or franchised approximately 960 stores under the "Dairy Mart"
name in 11 states located in the Northeast, Midwest and Southeast, of which 406
stores sold gasoline and 317 stores were franchised.
Dairy Mart stores offer a wide range of products and services which cater
to the convenience needs of its customers, including milk, ice cream, groceries,
beverages, snack foods, candy, deli products, publications, health and beauty
aids, tobacco products, lottery tickets and money orders. The stores are
typically located in densely populated, suburban areas on sites which are easily
accessible to customers and provide ample parking. Dairy Mart stores are
generally free standing structures which are well-lit and are designed to
encourage customers to purchase high profit margin products, such as deli items,
coffee, fountain drinks and other fast food items.
The Company is incorporated in Delaware and maintains its principal
executive offices at One Vision Drive, Enfield, Connecticut 06082. The Company's
telephone number is (860) 741-4444.
6
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for the
periods indicated.
THIRTY-NINE WEEKS
FISCAL YEAR ENDED ENDED
---------------------------------------------- -----------------------
FEB. 2, FEB. 1, JAN. 30, JAN. 29, JAN. 28, OCT. 29, OCT. 28,
1991 1992 1993 1994 1995 1994 1995
------- ------- -------- ------- -------- -------- --------
Ratio of earnings
to fixed charges(1) 1.51x 1.51x (2) 1.24x (2) (3) 1.24x
___________________________________
(1) For the purpose of determining the ratio of earnings to fixed charges: (i)
earnings consist of income (loss) before income taxes plus fixed charges,
excluding capitalized interest; and (ii) fixed charges consist of interest
expense, capitalized interest and the portion of rental expense that
management deems to be representative of the interest factor.
(2) The Company's earnings were inadequate to cover fixed charges by $5,051,000
and $17,394,000 for the fiscal years ended January 30, 1993 and January 28,
1995, respectively.
(3) The Company's earnings were inadequate to cover fixed charges by $5,269,000
for the three fiscal quarters ended October 29, 1994.
SELLING NOTEHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Series B Notes as of February 22, 1996 by each Selling
Noteholder. None of the Selling Noteholders has had a material relationship with
the Company within the past three years other than as a result of the ownership
of the Notes and the Class A Common Stock Purchase Warrants (the "Warrants)
issued in connection with the Notes and the Nirenberg Transaction.
PERCENT OF
PRINCIPAL AMOUNT SERIES B NOTES
NOTEHOLDER OF SERIES B NOTES OUTSTANDING (1)
- ---------- ----------------- ---------------
IDS Extra Income Fund, Inc. $ 2,000,000 14.8%
SunAmerican Life Insurance Company 3,000,000 22.2
Triumph Connecticut Limited Partnership 8,500,000 63.0
Total $13,500,000 100%
The Selling Noteholders may offer all or part of the Series B Notes that
they hold pursuant to the offering contemplated by this Prospectus. Therefore,
no estimate can be given as to the amount of Series B Notes that will be held by
the Selling Noteholders upon completion of such offering.
___________________________________
(1) Percent of class rounded to nearest one-tenth of one percent.
7
PLAN OF DISTRIBUTION
The Series B Notes offered hereby may be offered and sold from time to time
by the Selling Noteholders, or by pledgees, donees, transferees or other
successors in interest. Such offers and sales may be made from time to time on
one or more exchanges or in the over-the-counter market, or otherwise, at prices
and on terms then prevailing or at prices related to the then-current market
price, or in negotiated transactions. The Series B Notes may be sold by one or
more of the following: (a) a block trade in which the broker or dealer so
engaged will attempt to sell such securities as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account; (c) an exchange distribution in accordance with the rules of
such exchange; (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (e) privately negotiated transactions; and (f) a
combination of any such methods of sale. In effecting sales, brokers or dealers
engaged by the Selling Noteholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from
Selling Noteholders or from the purchasers in amounts to be negotiated
immediately prior to the sale. The Selling Noteholders may also sell such
securities in accordance with Rule 144 under the 1933 Act.
The Company has agreed to use its best efforts to maintain the
effectiveness of the registration of the Series B Notes being offered hereunder
for a period of at least three years or such shorter period which will terminate
when all of the Series B Notes offered hereby have been sold hereunder.
The Selling Noteholders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of the 1933 Act. There can be no
assurance that the Selling Noteholders will sell any or all of the Series B
Notes offered hereunder.
All proceeds from any such sales will be the property of the Selling
Noteholders, who will bear the expense of underwriting discounts and selling
commissions, if any.
DESCRIPTION OF THE SERIES B NOTES
The Series B Notes were issued under the Amended and Restated Indenture,
dated as of December 1, 1995 (the "Indenture"), among the Company, each of the
Guarantors and First Bank National Trustee, as trustee (the "Trustee"), a copy
of the form of which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The Series A Notes were also issued and are
subject to the Indenture. The following summary, which describes certain
provisions of the Indenture and the Series B Notes, does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Trust Indenture Act of 1939, as amended (the "TIA"), and all of the
provisions of the Indenture and the Notes, including the definitions therein of
terms not defined in this Prospectus and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture.
Certain capitalized terms used below and in the Indenture are defined under
"Certain Definitions" below, unless otherwise noted. References below to
Sections refer to Sections of the Indenture.
The Series B Notes, along with the Series A Notes, are general unsecured
senior subordinated obligations of the Company, subordinate in right of payment
to all Senior Indebtedness of the Company, senior in right of payment to all
Subordinated Indebtedness of the Company and pari passu in right of payment to
all senior subordinated indebtedness of the Company. As described below under
"Guarantees," the Series B Notes are guaranteed, on a senior subordinated basis,
by each of the Guarantors. The Guarantee of each Guarantor is general unsecured
senior subordinated obligations of such respective Guarantor, subordinate in
right of payment to all Guarantor Senior Indebtedness of such Guarantor, senior
in right of payment to all Guarantor Subordinated Indebtedness of such Guarantor
and pari passu in right of payment to all senior subordinated indebtedness of
such Guarantor.
8
GENERAL
The Series B Notes are limited in aggregate principal amount of $13,500,000
and will mature on March 15, 2004. The Series B Notes bear interest at the rate
per annum stated on the cover page hereof from December 1, 1995, payable semi-
annually in arrears on March 15 and September 15 of each year, commencing March
15, 1996, to the persons who are registered holders thereof at the close of
business on the March 1 or September 1 immediately preceding such interest
payment date.
Interest on the Series B Notes is computed on the basis of a 360-day year
of twelve 30-day months. Principal of, premium, if any, and interest on the
Series B Notes is payable at the office of the Trustee, but, at the option of
the Company, interest may be paid by check mailed to the registered holders at
their registered addresses. The Notes are transferable and exchangeable at the
office of the Trustee and are issued in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple thereof.
REDEMPTION
Optional Redemption. Except as provided in the next succeeding paragraph in
connection with a Public Equity Offering, the Series B Notes and the Series A
Notes may not be redeemed at the option of the Company prior to March 15, 1999.
On or after such date, the Series B Notes, along with the Series A Notes, may be
redeemed at the option of the Company, in whole, or from time to time in part,
at the following redemption prices (expressed in percentages of the principal
amount), plus accrued interest to the date of redemption, if redeemed during the
twelve-month period beginning March 15 of the years indicated below. (Section
4.1)
YEAR PERCENTAGE
---- ----------
1999.................. 104.750
2000.................. 103.125
2001.................. 101.500
2002 and thereafter 100.000
In addition to the optional redemption of the Series B Notes and the Series
A Notes in accordance with the provisions of the preceding paragraph, up to $20
million aggregate principal amount of the Series B Notes, along with the Series
A Notes, allocated between the Series A and Series B Notes on a pro rata basis
in respect of the aggregate outstanding principal amount of each such series,
are redeemable, at the option of the Company in whole or in part, with the Net
Proceeds of a Public Equity Offering, at a redemption price equal to 110% of the
principal amount of the Notes to be redeemed, plus accrued and unpaid interest
to the date of redemption; provided, however, that no such optional redemption
may be effected on or after March 3, 1997. (Section 4.2) The Credit Agreement
restricts the Company's ability to redeem the Notes as described above.
CHANGE OF CONTROL
At such time as any of the following events has occurred, each of which is
deemed to be a "Change of Control" under the Indenture, each holder of the
Series B Notes and Series A Notes will have the right to require the Company to
repurchase all or any part of such holder's Notes at a repurchase price equal to
101% of the principal amount thereof plus accrued interest to the date of
repurchase: (i) any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the 1934 Act), is or becomes the beneficial owner, directly or
indirectly, of more than 50% of the total voting power of the Voting Stock of
the Company; (ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved by
the Directors then still in office who either were Directors at the beginning of
such period or whose election or nomination for Director was previously so
approved)
9
cease for any reason to constitute a majority of the Board of Directors of the
Company then in office; (iii) the direct or indirect, sale, lease, exchange or
other transfer of all or substantially all of the assets of the Company to any
"person" (as such term is used in Section 13(d) or 14(d) of the 1934 Act),
provided that the foregoing shall not apply to the granting of Liens on such
assets to the extent permitted by the Indenture; (iv) any acceleration of any
Indebtedness under the Credit Agreement occurs as a result of a change in the
beneficial ownership of the Capital Stock of the Company; or (v) the Company
consolidates with or merges into another corporation or any Person consolidates
with or merges into the Company, in either event pursuant to a transaction in
which either (A) the outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property (other than any such
transaction where the outstanding Voting Stock of the Company is changed into or
exchanged for Voting Stock of the surviving corporation which is neither
redeemable stock nor Exchangeable Stock) or (B) the holders of a majority of the
voting power of the Voting Stock of the Company immediately prior to such
transaction own, directly or indirectly, less than a majority of the voting
power of the Voting Stock of the surviving corporation immediately after such
transaction; provided that, in respect of clause (i) of this paragraph, prior to
September 13, 1997, none of DM Associates, any of its general partners or any of
the general partners of such general partners shall be deemed to be a "group" or
"person" owning more than 50% of the total voting power of the Voting Stock of
the Company solely due to such entity's beneficial ownership, of the 1,858,743
shares of Class B Common Stock of the Company held by DM Associates. There is
little case law interpreting the phrase "all or substantially all" in the
context of an indenture. Because there is no precise established definition of
this phrase, the ability of a holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, exchange or other transfer
or all or substantially all of the Company's assets may be uncertain. (Section
4.8)
Within 30 days following any Change of Control, the Company will mail a
notice to each holder of Notes stating: (i) that a Change of Control has
occurred and that such holder has the right to require the Company to repurchase
all or any part of such holder's Notes at 101% of the aggregate principal amount
thereof plus accrued interest to the date of repurchase; (ii) the circumstances
and relevant facts known to the Company regarding such Change of Control
(including, to the extent applicable, information with respect to pro forma
historical income, cash flow and capitalization after giving effect to such
Change of Control); (iii) the date of repurchase (which will be no earlier than
30 days nor later than 60 days from the date such notice is mailed in the event
of a Change of Control); and (iv) the instructions, determined by the Company
consistent with the Indenture, that a holder must follow in order to have its
Notes repurchased. (Section 4.8(b))
The Company will comply with the requirements of Rule 14e-1 under the 1934
Act and any other securities laws and regulations thereunder which may then be
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. The Change of Control repurchase feature of the Notes may in
certain circumstances make more difficult or discourage a takeover of the
Company and, thus, the removal of incumbent management. (Section 5.23)
If a Change of Control were to occur, the Company's ability to pay cash to
the holders of Notes upon such repurchase may be limited by the Company's then
existing financial resources, and there can be no assurance that the Company
would have sufficient funds to pay the repurchase price for all Notes tendered
by the holders thereof. Failure of the Company to pay the repurchase price would
create an Event of Default (as defined below in "-Defaults") with respect to the
Notes. The Credit Agreement restricts the Company's ability to repurchase the
Notes following a Change of Control. (Section 4.8)
The provisions contained in the Indenture relative to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may only be waived or modified with the written consent of the holders
of at least a majority in principal amount of (i) the Series A Notes and (ii)
the Notes. (Section 10.2)
10
SELECTION AND NOTICE
In the event that less than all of the Series A Notes and Series B
Notes are to be redeemed at any time, selection of Notes for redemption will be
made by the Trustee on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided, however, that no Notes shall be
redeemed in part in amounts of less than $1,000. Notice of redemption shall be
mailed by first class mail by the Company or, at the request of the Company, the
Trustee at least 30 but not more than 60 days before the redemption date (which
may, in the case of a redemption in connection with a Public Equity Offering, be
adjusted to the extent necessary and appropriate under the circumstances and
based solely on the timing of the consummation of the Public Equity Offering) to
each holder of Notes to be redeemed at its registered address. If any Note is to
be redeemed in part, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
a principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption (unless the Company shall default in the payment of the
redemption price or accrued interest). (Sections 4.3 and 4.4)
SUBORDINATION
The Indebtedness evidenced by the Series B Notes and the Series A
Notes (including principal, premium, if any, and interest) is subordinated in
right of payment to the prior payment in full of all Senior Indebtedness.
(Section 11.1)
Upon any payment or distribution of assets or securities of the
Company in any dissolution, winding up, total or partial liquidation or
reorganization of the Company, payment of the principal of, premium, if any, and
interest on the Notes will be subordinated, to the extent and in the manner set
forth in the Indenture, to the prior payment in full of all Senior Indebtedness,
including any interest accruing on such Senior Indebtedness subsequent to the
commencement of a bankruptcy, insolvency or similar proceeding. Upon any default
by the Company in the payment of the principal of, premium, if any, or interest
on Senior Indebtedness, when the same becomes due, no payment may be made on or
in respect of the Notes until such default has been cured or waived. The
Indenture also provides that no payment may be made by the Company upon or in
respect of the Notes for the period specified below (the "Payment Blockage
Period") during the continuance of any non-payment event of default with respect
to Senior Indebtedness under the Credit Agreement ("Significant Senior
Indebtedness") pursuant to which the maturity thereof may be accelerated. The
Payment Blockage Period shall commence on the earlier of (i) receipt by the
Trustee of notice from the trustee or representative for the holders of any
Significant Senior Indebtedness (or the holders of at least a majority in
principal amount of such Significant Senior Indebtedness then outstanding) or
(ii) if such nonpayment event of default results from the acceleration of the
Notes, the date of such acceleration, and shall end 179 days thereafter (unless
such Payment Blockage period shall be earlier terminated). In no event will a
Payment Blockage Period extend beyond 179 days from the date the payment on the
Notes was due. Not more than on Payment Blockage Period with respect to the
Notes may be commenced during any period of 360 consecutive days. No event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Significant Senior Indebtedness
initiating such period shall be, or be made, the basis for the commencement of a
second Payment Blockage Period by the representative for or the holders of such
Significant Senior Indebtedness whether or not within a period of 360
consecutive days. (Section 11.2)
As a result of the subordination provisions described above, in the
event of insolvency of the Company, creditors of the Company who are not holders
of Senior Indebtedness may recover less ratably than holders of Senior
Indebtedness and may recover more ratably than holders of the Notes and the
Company may be unable to make all payments due under the Notes.
11
As of February 3, 1996, the aggregate amount of Senior Indebtedness
outstanding was $7.2 million. In the future, the Company may issue additional
Senior Indebtedness to refinance existing indebtedness or for other corporate
purposes. See "- Certain Covenants - Limitation on Additional Indebtedness and
New Operating Leases."
CERTAIN COVENANTS
Limitation on Additional Indebtedness and New Operating Leases. The
Company may not, and may not permit any of its Subsidiaries to, Incur, directly
or indirectly, any Indebtedness (including Acquired Indebtedness) or enter into
any New Operating Lease, unless the Consolidated Fixed Charge Coverage Ratio for
the Reference Period, determined on the date of issuance of such Indebtedness or
the date of execution of such New Operating Lease, as the case may be, and after
giving effect to: (i) Incurrence of such Indebtedness and (if applicable) the
application of the Net Proceeds thereof to refinance other Indebtedness as if
such Indebtedness was issued and the application of such Net Proceeds occurred
at the beginning of the Reference Period; (ii) Incurrence and retirement of any
other Indebtedness since the last day of the most recent fiscal quarter of the
Company contained in the Reference Period as if such Indebtedness was Incurred
or retired at the beginning of the Reference Period; and (iii) the execution of
such New Operating Lease and any other New Operating Leases executed since the
last day of the most recent fiscal quarter of the Company contained in the
Reference Period as if such New Operating Lease and any such other New Operating
Leases were executed at the beginning of the Reference Period (it being
understood that, for purposes of determining the Consolidated Fixed Charge
Coverage Ratio, New Operating Lease payments shall be included in Consolidated
Operating Lease Payments), is equal to or greater than the ratio of 2.0 to 1.0.
Notwithstanding the foregoing paragraph, the Company and the Subsidiaries may
Incur Permitted Indebtedness. (Section 5.6)
Limitation on Restricted Payments. The Company may not, and may not
permit any Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution in respect of the Company's or any
Subsidiary's Capital Stock or to the direct or indirect holders of the Company's
or any Subsidiary's Capital Stock (except dividends or distributions payable
solely in the Company's Non-Convertible Capital Stock or in options, warrants or
other rights to purchase the Company's Non-Convertible Capital Stock and except
dividends or distributions payable from a Subsidiary to the Company or a Wholly
Owned Subsidiary which is a Guarantor), (ii) purchase, redeem or otherwise
acquire or retire for value, any Capital Stock of the Company or any Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Indebtedness of the Company or any Indebtedness
of a Subsidiary (other than Guarantor Senior Indebtedness) or (iv) make any
Investment in any Subsidiary (except for prepayments of leases of
underperforming or nonutilized convenience stores in the ordinary course of
business), the Non-Recourse Subsidiary (except as permitted by clause (iii) of
"Limitations on Investments" below) or any other Affiliate of the Company (any
such dividend, limitation, purchase, redemption, repurchase, defeasance, other
acquisition, retirement of Investment being hereinafter referred to as a
"Restricted Payment"), unless: (A) no Default or Event of Default will have
occurred and be continuing at the time or as a consequence of such Restricted
Payment; (B) at the time of such Restricted Payment, the Company could incur an
additional $1.00 of Indebtedness (not including Permitted Indebtedness) under
the covenant described under "Limitation on Additional Indebtedness"; and (C)
such Restricted Payment, together with the aggregate of all other Restricted
Payments made since November 26, 1995, would not exceed the sum of: (x) 50% of
Consolidated Net Income (or if Consolidated Net Income is a deficit minus 100%
of such deficit) accrued on a cumulative basis from November 26, 1995 to the end
of the most recent fiscal quarter ending prior to the date of such proposed
Restricted Payment, calculated on a cumulative basis as if such period were a
single accounting period; (y) the aggregate Net Proceeds received by the Company
from any Person (other than a Subsidiary and the Non-Recourse Subsidiary)
subsequent to the Issue Date (1) as a result of the issuance of Capital Stock of
the Company (other than redeemable stock or Exchangeable Stock) or (2) as a
result of a capital contribution from its shareholders, but, with respect to any
proceeds received by the Company from an employee stock ownership plan that
Incurs any Indebtedness, only to the extent that any such proceeds are equal to
any increase in the Consolidated Net Worth of the Company
12
resulting from principal repayments made by such employee stock ownership plan
with respect to the Indebtedness Incurred by it to finance the purchase of such
Capital Stock; and (z) the amount by which Indebtedness of the Company is
reduced on the Company's balance sheet upon the conversion or exchange (other
than by a Subsidiary) of the Series A Notes, subsequent to March 3, 1994 or the
issuance date of any Indebtedness of the Company convertible into or
exchangeable for Capital Stock (other than redeemable stock or Exchangeable
Stock) of the Company. (Section 5.7)
The foregoing provisions do not prohibit: (i) the payment of any
dividend in respect of the Company's or any Subsidiary's Capital Stock within 60
days after the date of declaration thereof, if on such date of declaration such
payment complied with the provisions of the Indenture and provided that at the
time of payment no other Default or Event of Default has occurred and is
continuing; (ii) the purchase, redemption, acquisition or retirement of any
Indebtedness with the Incurrence of Refinancing Indebtedness permitted under
"Limitation on Additional Indebtedness and New Operating Leases;" (iii) any
dividend on shares of the Company's or any Subsidiary's Capital Stock payable in
shares of the Company's or such Subsidiary's Capital Stock (other than
redeemable stock or Exchangeable Stock); (iv) an investment by the Company in a
Wholly-Owned Subsidiary which is a Guarantor or a Person who will become a
Wholly-Owned Subsidiary which is a Guarantor as a result of such Investment; and
(v) any payments made by the Company to FCN, Nirenberg or the Foundation to
purchase their respective interests in or relating to the Class B Common Stock
of the Company, as outlined in the Nirenberg Transaction. (Section 5.7)
Limitation on Investments. The Company may not, and may not permit
any Subsidiary, directly or indirectly, to make any Investment other than: (i)
Permitted Investments; (ii) an Investment constituting a Restricted Payment if
such Restricted Payment is permitted by the covenant described under "Limitation
on Restricted Payments;" (iii) Investments in the Non-Recourse Subsidiary in an
amount not to exceed $2.5 million; or (iv) the Nirenberg Transaction. (Section
5.8)
Limitation on Liens. The Company may not, and may not permit any
Subsidiary, directly or indirectly, to create, incur, assume or permit to exist
any Lien upon any of its or any Subsidiary's property or assets now owned or
hereafter acquired, other than Liens that are: (i) outstanding immediately prior
to the issuance of the Notes; (ii) Liens securing Indebtedness of a Subsidiary
owing to the Company or a Wholly Owned Subsidiary which is a Guarantor; (iii)
Liens securing Senior Indebtedness of the Company permitted to be Incurred by
the covenant described under "Limitation on Additional Indebtedness and New
Operating Leases'; (iv) Permitted Liens; (v) Liens incurred in connection with a
Sale-Leaseback Transaction permitted under "Limitation on Sale-Leaseback
Transactions"; (vi) Liens on property of a Person existing at the time such
Person is acquired by, merged into or consolidated with the Company or any
Subsidiary (except to the extent such Liens were Incurred in connection with, or
in contemplation of, such acquisition, merger or consolidation), which Lien is
not applicable to any Person or the properties or assets of any Person, other
than the Person, or the property or asset of the Person, so acquired; and (vii)
any extension, renewal or replacement (including successive extensions, renewals
or replacements) of Liens permitted by any of clauses (i) through (vi) above
("Existing Liens"), so long as (A) the Lien does not extend beyond property or
assets of the Company and its Subsidiaries subject to the Existing Lien and
improvements and construction on such property or assets and (B) the
Indebtedness secured by the Lien does not exceed the Indebtedness secured at the
time by the Existing Lien. (Section 5.9)
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company may not, and may not permit any Subsidiary to, create
or otherwise cause or permit to exist or become effective any encumbrance or
restriction of any kind which restricts the ability of any such Subsidiary to:
(i) pay dividends or make any other distributions on such Subsidiary's Capital
Stock or pay any Indebtedness or other obligation owed to the Company or any
Subsidiary; (ii) make any loans or advances to the Company or any Subsidiary;
(iii) guaranty the Notes or any renewals or refinancings thereof; or (iv)
transfer any of its property or assets to the Company or any Subsidiary, except,
in each case, for such encumbrances or restrictions existing under or by reason
of
13
(1) applicable law, (2) the Indenture, (3) customary nonassignment provisions of
any lease governing a leasehold interest of the Company or any Subsidiary, (4)
any instrument governing Acquired Indebtedness (except to the extent such
Indebtedness was Incurred in connection with, or in contemplation of, such
acquisition) as in effect at the time of acquisition, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, (5) Existing Indebtedness or (6) permitted Refinancing Indebtedness
provided that the encumbrances or restrictions contained in the agreements
governing such Refinancing Indebtedness are not more restrictive than those
contained in the agreements governing the Indebtedness being refinanced, as in
effect on March 3, 1994. (Section 5.10)
Limitation on Sale-Leaseback Transactions. The Company will not, and
will not permit any Subsidiary to, enter into any Sale-Leaseback Transaction
unless at least one of the following conditions is satisfied: (i) under the
provisions described under "Limitation on Liens" and "Limitation on Additional
Indebtedness and New Operating Leases," the Company or a Subsidiary could create
a Lien on the property to secure Indebtedness in an amount equal to the
Attributable Indebtedness in connection with such Sale-Leaseback Transaction; or
(ii) the net proceeds of such Sale-Leaseback Transaction are at least equal to
the fair market value of such property as determined in good faith by the Board
of Directors of the Company. (Section 5.11)
Limitation on Sales of Assets. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, make any Asset Disposition
unless the Company (or such Subsidiary, as the case may be) receives at the time
of such Asset Disposition consideration which (x) is paid at least 85% in cash
and (y) is at least equal to the fair market value (including the value of all
noncash consideration), as determined in good faith by, and evidenced by a
resolution of, the Board of Directors, if the consideration to be received by
the Company is equal to or greater than $1 million (or, if the consideration to
be received by the Company is less than $1 million but greater than $100,000
(except in the case of Asset Dispositions to franchisees in the ordinary course
of business), as certified in good faith by two Officers, one of whom shall be
the President, in an Officer's Certificate delivered to the Trustee within 30
Business Days following such Asset Disposition (no certificate being required
for sales as to which the consideration is $100,000 or less), of the shares and
assets subject to such Asset Disposition); provided, however, that the
requirement set forth in clause (x) above shall not apply to any sale, lease,
sublease, transfer or other disposition of stores to franchisees in the ordinary
course of business or of individual underperforming, nonutilized or obsolete
assets by the Company or any Subsidiary in the ordinary course of business.
Within 210 days from the date of such Asset Disposition (the "Disposition
Period"), the Company (or such Subsidiary, as the case may be) may apply all or
any portion of the Net Available Cash Proceeds from such Asset Disposition to
(x) the prepayment of Senior Indebtedness or (y) an investment in Fixed Assets
in the same or substantially similar line of business as the assets that were
the subject of such Asset Disposition, provided that, if such Net Available Cash
Proceeds are applied to the prepayment of Senior Indebtedness, the related loan
commitment, if any, shall be permanently reduced, except that in the event the
Company repays revolving loans outstanding under the Credit Agreement with such
Net Available Cash Proceeds, the related loan commitment need not be permanently
reduced so long as the Company reborrows the full amount of the amount so
prepaid and invests such amount in Fixed Assets in the same or substantially
similar line of business as the assets that were the subject of such Asset
Disposition within the Disposition Period. Without limiting the lines of
business which are considered the same or substantially similar for the purposes
hereof, the sale of gasoline, the operation of convenience stores, the
franchising of convenience stores, and the manufacturing, processing and
distribution businesses currently conducted by the Company will be deemed to
qualify as the same or substantially similar lines of business. Notwithstanding
the foregoing, if the Company enters into a written agreement within the
Disposition Period pursuant to which the Company commits to reinvest such Net
Available Cash Proceeds in Fixed Assets in the same or substantially similar
line of business as the assets that were the subject of such Asset Disposition,
the Company shall be permitted to reinvest such Net Available Cash Proceeds
within 90 days from the date of termination of the Disposition Period in
accordance with such written agreement. Any Net Available Cash Proceeds from any
such Asset Disposition that are not applied or invested as provided in the
preceding two sentences shall constitute and be referred to herein as "Excess
Proceeds." When (x) any Excess Proceeds arise from the sale, issuance or other
disposition of Capital
14
Stock of a Subsidiary or the Non-Recourse Subsidiary (except to a Wholly Owned
Subsidiary which is a Guarantor) or the sale or other disposition of all or
substantially all of the assets of a Subsidiary or the Non-Recourse Subsidiary
in one transaction or a series of related transactions (except to a Wholly Owned
Subsidiary which is a Guarantor) or (y) the aggregate amount of Excess Proceeds
from all Asset Dispositions (other than those referred to in clause (x) of this
sentence) exceeds $5.0 million, the Company shall make an Offer (as defined in
the following paragraph) to purchase Notes pursuant to and subject to the
conditions of the following paragraph. Notwithstanding the foregoing, an
aggregate of $1.0 million of Net Available Cash Proceeds received by the Company
and/or the Subsidiaries in any fiscal year from Asset Dispositions, not
involving the sale, issuance or other disposition of Capital Stock of a
Subsidiary or the Non-Recourse Subsidiary or the sale or other disposition of
all or substantially all of the assets of a Subsidiary or the Non-Recourse
Subsidiary, shall not be subject to the covenant described in this paragraph.
(Section 5.16)
In the event of an Asset Disposition that requires the purchase of
Notes pursuant to the preceding paragraph, the Company will be required to make
an offer for the Notes (an "Offer") and repurchase Notes tendered pursuant
thereto in an amount equal to the aggregate amount of Excess Proceeds, at a
repurchase price in cash equal to 100% of their principal amount plus accrued
interest to the date of repurchase in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture. Upon
completion of the repurchase, if any, of Notes pursuant to the Offer, the amount
of Excess Proceeds shall be reset to zero. If the aggregate repurchase price of
Notes tendered pursuant to the Offer is less than the Excess Proceeds allotted
to the repurchase of the Notes, the Company may use the remaining Excess
Proceeds for general corporate purposes. (Section 4.9)
Notwithstanding the foregoing, the Company may not, and may not permit
any Subsidiary to, directly or indirectly, make any Asset Disposition of any of
the Capital Stock of a Subsidiary or the Non-Recourse Subsidiary except pursuant
to an Asset Disposition of all of the Capital Stock of such Subsidiary or the
Non-Recourse Subsidiary. (Section 5.16)
Limitation on Transactions with Affiliates. The Company will not, and
will not permit any Subsidiary to, directly or indirectly, enter into or permit
to exist any transaction or series of related transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company or of any Subsidiary (other than a
Wholly Owned Subsidiary which is a Guarantor) on terms that are less favorable
to the Company or such Subsidiary, as the case may be, than those which might be
obtained at the time of such transaction from unrelated third parties. This
provision will not prohibit the payment of reasonable and customary directors'
fees to directors who are not employees of the Company or the payment of
reasonable compensation to employees of the Company in the ordinary course of
business. Without in any way limiting the foregoing restriction, the Company
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into or permit to exist any transactions or series of related transactions
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company or of any Subsidiary
(other than a Wholly Owned Subsidiary which is a Guarantor) involving aggregate
payments in excess of $250,000 unless (i) a committee of independent members of
the Board of Directors of the Company shall approve by resolution certifying
that such transaction or series of transactions comply with the first sentence
of the covenant described in this paragraph and (ii) with respect to: (A) a
transaction or series of transactions involving aggregate payments equal to or
greater than $2.0 million, the Company also receives a written opinion from a
nationally-recognized investment bank with total assets in excess of $ 1.0
billion that such transaction or series of transactions is fair to the Company
from a financial point of view; or (B) any purchase, sale, lease or exchange of
real property or Fixed Assets involving aggregate payments equal to or greater
than $2.0 million, in lieu of the opinion referred to in clause (A), at the
option of the Company, the Company also receives an opinion from a qualified
appraisal company, that the value of the property sold, purchased, leased or
exchanged by the Company or any Subsidiary is substantially equal to (or more
favorable to the Company than) the value of the consideration provided by or to
the Company, as the case may be, in respect thereof. The provisions of this
paragraph do not apply to the Nirenberg Transaction. (Section 5.12)
15
Limitation on Other Senior Subordinated Indebtedness. The Company will
not incur any Indebtedness which is senior in right of payment to the Notes and
is subordinate or junior in right of payment to the Company's Senior
Indebtedness. In addition, the Indenture provides that no Guarantor will incur
any Indebtedness which is senior in right of any payment to such Guarantor's
obligations under its Guarantee and the Indenture and which is subordinate or
junior in right of payment to Guarantor Senior Indebtedness of such Guarantor.
(Section 5.13)
Additional Guarantors. If the Company or any Subsidiary makes any
Investment having a fair market value exceeding $1,000, in one or a series of
related transactions, in any Subsidiary which is not a Guarantor, or any
Subsidiary which is not a Guarantor holds property or assets (including, without
limitation, cash, businesses, divisions, real property, assets or equipment)
having a fair market value exceeding $1,000, the Company shall cause such
Subsidiary to (i) execute and deliver to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee pursuant to which such Subsidiary
shall unconditionally guarantee all of the Company's obligations under the Notes
and the Indenture on the terms set forth in the Indenture and (ii) deliver to
the Trustee an Opinion of Counsel that such supplemental indenture has been duly
executed and delivered by such Subsidiary. Thereafter, such Subsidiary shall be
a Guarantor for all purposes of the Indenture. (Section 5.14)
Use of Proceeds. No part of such proceeds will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock. Neither the issuance of any Note nor
the use of the proceeds thereof will violate or be inconsistent with the
provisions of Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System. (Section 4.15)
SEC Reports. The Company will file with the Trustee, within 30 days
after it files them with the Commission, copies of its annual report and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Company is required to file with the Commission pursuant to Section 13 or
15(d) of the 1934 Act. If the Company is not required to file reports,
information and documents pursuant to such Sections, the Company shall file with
the Commission and the Trustee, in accordance with the rules and regulations of
the Commission, such supplementary and periodic information which may be
required pursuant to Section 13 or 15(d) of the 1934 Act, in respect of a
security listed and registered on a national securities exchange. (Section 5.2)
Issuances of Class B Common Stock. The Company will not issue any
shares of its Class B Common Stock unless it issues an equal number of shares of
its Class A Common Stock. (Section 5.24)
SUCCESSOR COMPANY
Subject to the provisions set forth in the fourth paragraph under
"Guarantees" below, neither the Company nor any Guarantor may consolidate with
or merge with or into, or sell, convey, transfer or lease all or substantially
all of its assets (either in one transaction or a series of transactions) to,
any Person unless: (i) the Person formed by or surviving such consolidation or
merger (if other than the Company or such Guarantor, as the case may be), or to
which such sale, conveyance, transfer, or lease shall have been made is
organized and existing under the laws of the United States of America or any
state thereof or the District of Columbia and such entity expressly assumes by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company or such
Guarantor, as the case may be, under the Notes or the Guarantees, as the case
may be, and the Indenture; (ii) immediately prior to and after giving effect to
such transaction (and treating any Indebtedness which becomes an obligation of
such Person or any Subsidiary (including any Guarantor) as a result of such
transaction as having been incurred by such Person or such Subsidiary (including
any Guarantor) at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing; (iii) except with respect to
consolidations, mergers, sales, conveyances, transfers and leases between
Guarantors, immediately after giving effect to such transaction, on a pro forma
basis, such Person would be able to incur an additional $1.00 of Indebtedness
(other than Permitted Indebtedness) in accordance with the covenant described
under "Limitation on
16
Additional Indebtedness and New Operating Leases;" (iv) if the Company is a
party to such consolidation, merger, sale, conveyance, transfer and lease,
immediately after giving effect to such transaction, on a pro forma basis, the
Company has Consolidated Net Worth in an amount which is not less than its
Consolidated Net Worth immediately prior to such transaction; (v) if such
Guarantor is a party to such consolidation, merger, sale, conveyance, transfer
or lease, immediately after giving effect to such transaction, on a pro forma
basis, the Company has Consolidated Net Worth in an amount which is not less
than its Consolidated Net Worth immediately prior to such transaction; and (vi)
the Company, or such Guarantor, as the case may be, delivers to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, conveyance, transfer or lease and such supplemental
indenture comply with the Indenture. Such Person will be the successor Company,
or a successor Guarantor, as the case may be, but in the case of a sale,
conveyance, transfer or lease of all or substantially all of the assets of the
Company or Guarantor (i) the predecessor Company will not be released from its
obligation to pay the principal of, premium, if any, and interest on the Notes,
and (ii) the predecessor Guarantor will not be release from its obligations
under its Guarantee. (Section 6.1)
DEFAULTS
An Event of Default is defined in the Indenture as: (i) default for 30
days in the payment of interest on any Series B Note or Series A Note when due;
(ii) default in the payment of principal of, or premium, if any, on any Note
when due at its Stated Maturity, upon redemption, upon required repurchase, upon
declaration or otherwise, including, without limitation, the failure to
repurchase Notes when required as described under "Change of Control" and "--
Certain covenants--Limitation on Sale of Assets" above; (iii) default in the
performance of, or failure to comply with, any other covenant or agreement
contained in the Notes or the Indenture for a period of 30 days after written
notice by the Trustee or holders of at least 25% of the aggregate principal
amounts of Notes outstanding; (iv) the failure of the Company, any of its
Subsidiaries (including any Guarantor) or the Non-Recourse Subsidiary to pay the
principal of any indebtedness with a principal amount then outstanding in excess
of $500,000, individually or in the aggregate, when the same becomes due and
payable at its Stated Maturity and such failure shall continue after any
applicable grace period specified in the agreement relating to such
Indebtedness; or a default of any such Indebtedness which results in such
Indebtedness becoming due and payable prior to its Stated Maturity; (v) certain
events of bankruptcy, insolvency or reorganization of the Company, a Subsidiary
(including any Guarantor) or the Non-Recourse Subsidiary; (vi) any judgment or
decree for the payment of money in excess of $1,500,000 (to the extent not
covered by insurance) is rendered against the Company, a Subsidiary (including
any Guarantor) or the Non-Recourse Subsidiary and is not discharged and either
(A) an enforcement proceeding has been commenced by a creditor upon such
judgment or decree or (B) there is a period of 45 days following such judgment
or decree during which such judgment or decree is not discharged, waived or the
execution thereof stayed; (vii) any of the Guarantees shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect, or any Guarantor, or any person acting by or on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Guaranty; (viii) failure by the Company or any Subsidiary to comply with the
restrictions set forth under "Successor Company" or "Certain Covenants--
Limitations on Sales of Assets" above; or (ix) failure by the Company to comply
with the covenant described under "Use of Proceeds." (Section 7.1)
If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Company, a Subsidiary (including any
Guarantor) or the Non-Recourse Subsidiary occurs and is continuing, the
principal of and interest on all the Notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders of the Notes. If any other Event of Default occurs
and is continuing, the Trustee or the holders of at least 25% in principal
amount of the outstanding Notes may declare the principal of and accrued but
unpaid interest on all the Notes to be due and payable. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences. (Section 7.2)
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Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium, if any, or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture, the Guarantees or the Notes
unless (i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in aggregate principal
amount of the Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in aggregate principal amount of the Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability. (Sections 7.5, 7.6 and 8.1)
The Indenture provides that if a Default occurs and is continuing and
is known to an officer in the Corporate Trust Department of the Trustee, the
Trustee must mail to each holder of the Notes notice of the Default within 60
days after it occurs. Except in the case of a Default in the payment of
principal of, premium, if any, or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its Trust officers determines that
withholding notice is in the interest of the holders of the Notes. In addition,
the Company is required to deliver to the Trustee, within 90 days after the end
of each fiscal year, a certificate indicating whether the signers thereof know
of any Default that occurred during the previous year. The Company also is
required to deliver to the Trustee, within 10 days after it obtains knowledge
thereof, written notice of any event which would constitute a Default, its
status and what action the Company is taking or proposes to take in respect
thereof. (Sections 7.2, 8.5 and 8.6)
GUARANTEES
The principal of, premium (if any) and interest on the Series B Notes,
along with the Series A Notes, and all other amounts payable to the Company
under the Indenture are unconditionally guaranteed on a senior subordinated
basis, jointly and severally, by the Guarantors. All payments pursuant to the
Guarantees by each Guarantor are (i) subordinated in right of payment to the
prior payment in full of all Guarantor Senior Indebtedness, to the same extent
and manner that all payments pursuant to the Notes are subordinated in right of
payment to the prior payment in full of all Senior Indebtedness of the Company
and (ii) senior in right of payment to all Guarantor Subordinated Indebtedness.
All of the Guarantors have guaranteed the Company's obligations under the Credit
Agreement, and the Company has pledged all of the issued and outstanding shares
of Capital Stock of the Guarantors to secure Indebtedness outstanding under the
Credit Agreement. In addition, the Company and the Guarantors have granted a
security interest in their accounts receivable, inventory and general
intangibles to secure the Indebtedness under the Credit Agreement. As of
February 3, 1996, Guarantors as a group would have had outstanding Guarantor
Senior Indebtedness of approximately $8.0 million. In the future, the Guarantors
may issue additional Guarantor Senior Indebtedness. See "--Certain Covenants--
Limitation on Additional Indebtedness and New Operating Leases." (Section 12.2)
The obligations of each Guarantor in respect of its Guarantee are
limited to the maximum amount which, after giving effect to all other contingent
and fixed liabilities of such Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Guarantor in respect of its Guarantee not constituting a
fraudulent conveyance or fraudulent
18
transfer under Federal or state law. Each Guarantor that makes a payment or
distribution under its Guarantee shall be entitled to a contribution from each
other Guarantor in an amount pro rata, based on the net assets of each
Guarantor, determined in accordance with GAAP. (Section 12.5)
Separate financial statements of the Guarantors have not been
delivered herewith because each is jointly and severally liable with respect to
the Company's obligations under the Notes and the Indenture, and the operations
of the Non-Recourse Subsidiary are inconsequential to the operations of the
Company on a consolidated basis.
In the event of a sale or other disposition of all or substantially
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or all of the Capital Stock of any Guarantor, then such Guarantor (in
the event of a sale or other disposition of all of the Capital Stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition by way of a merger, consolidation or otherwise of all or
substantially all of the assets of such Guarantor) shall be released and
relieved of its obligations under its Guarantee provided that: (i) after giving
effect thereto, no Event of Default shall have occurred and be continuing; (ii)
the Company shall apply the Net Available Cash Proceeds of such sale or other
disposition in accordance with the covenant described under "--Certain
Covenants--Limitation on Sales of Assets"; and (iii) such Guarantor has been
unconditionally and fully released in writing from all obligations under
guarantees of Indebtedness of the Company, each Subsidiary and the Non-Recourse
Subsidiary (including, without limitation, Indebtedness under the Credit
Agreement). (Section 12.3)
AMENDMENT, SUPPLEMENT, WAIVER
Subject to certain exceptions, the Indenture may be amended or
supplemented with the consent of the holders of a majority in principal amount
of the Series A Notes and the Notes then outstanding and any past default or
compliance with any provisions may be waived with the consent of the holders of
a majority in principal amount of the Notes then outstanding. However, without
the consent of each holder of an outstanding Series A Note, no amendment or
waiver may, among other things, (i) reduce the amount of Series A Notes whose
holders must consent to an amendment or waiver (ii) reduce the interest rate of
or extend the fixed maturity of any Series A Note, (iii) reduce the premium
payable upon the redemption of any Series A Note or change the time at which any
Series A Note may be redeemed, (iv) make any Series A Note payable in currency
other than that stated in the Series A Note, (v) impair the right of any holder
of the Series A Notes to receive payment of principal and interest on such
holder's Series A Notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such holder's Series A
Notes, (vi) impair any provisions relating to security for or guarantees with
respect to the Series A Notes, (vii) make any change in the subordination
provisions of the Indenture, the Series A Notes or the Guarantees that adversely
affects the rights of any holder of Series A Notes, or (viii) make any change in
the amendment or waiver provisions which require the consent of each holder of
Series A Notes. (Section 10.2)
Further, without the consent of each holder of an outstanding Series B
Note, no amendment or waiver may, among other things, (i) reduce the amount of
Series B Notes whose holders must consent to an amendment or waiver, (ii) reduce
the interest rate of or extend the fixed maturity of any Series B Note, (iii)
reduce the premium payable upon the redemption of any Series B Note or change
the time at which any Series B Note may be redeemed, (iv) make any Series B Note
payable in currency other than that sated in the Series B Note, (v) impair the
right of any holder of the Series B Notes to receive payment of principal and
interest on such holder's Series B Notes on or after the due dates therefor or
to institute suit for the enforcement of any payment on or with respect to such
holder's Series B Notes, (vi) impair any provisions relating to security for or
guarantees with respect to the Series B Notes, or (vii) make any change in the
amendment or waiver provisions which require the consent of each holder of
Series B Notes. (Section 10.2)
19
Neither the Company nor any Subsidiary shall, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any Notes for or as an inducement to any consent,
waiver or amendment of any terms or provisions of the Notes unless such
consideration is offered to be paid or agreed to be paid to all holders of the
Notes which so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement. (Section
5.22)
Without the consent of any holder of the Notes, the Company, the
Guarantors and the Trustee may amend or supplement the Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of the Company and the Guarantor, as
the case may be, under the Indenture, to provide for uncertificated Notes in
addition to or in place of certificated Notes (provided that the uncertificated
Notes are issued in registered form for purposes of Section 163(f) of the Code,
or in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code), to add additional guarantees of the Notes, to add
security for the Notes, to add to the covenants of the Company for the benefit
of the holders of the Notes or to surrender any right or power conferred upon
the Company, to make any change that does not adversely affect the rights of any
holder of the Notes or to comply with any requirement of the Commission in
connection with the qualification of the Indenture under the TIA. (Section 10.1)
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
(Section 10.1)
After an amendment under the Indenture becomes effective, the Company
is required to mail to holders of the Notes a notice briefly describing such
amendment. However,the failure to give such notice to all holders of the Notes
or any defect therein, will not impair the validity of the amendment. (Section
10.2)
TRANSFER
The Series B Notes have been issued in registered form and will be
transferable only upon the surrender of the Series B Notes being transferred for
registration of transfer. The Company may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge payable in connection
with certain transfers and exchanges. (Section 3.7)
SATISFACTION AND DISCHARGE
The Trustee, on demand of and at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of the
Indenture upon compliance with certain enumerated conditions, including the
Company having paid or duly provided for the payment of all sums payable by the
Company under the Indenture and having delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that there has been compliance
with all conditions precedent relating to such satisfaction and discharge.
(Section 8.1)
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Legal Defeasance. In addition, the Indenture provides that the
Company may defease and be discharged from its obligations in respect of the
Series B Notes and Series A Notes (except for certain obligations to register
the transfer, substitution or exchange of Notes, to replace stolen, lost or
mutilated Notes, rights of the holders to receive payments of principal of and
interest on the Notes, and rights of the holders of the Notes as beneficiaries
of the Indenture with respect to the property so deposited with the Trustee
payable to all or any of them and to maintain an office or agency for payments
on and registration of transfer of the Notes and the rights, obligations and
immunities of the Trustee), if the Company has irrevocably deposited with the
Trustee, in trust for such purpose, (a) money in an amount, (b) U.S. government
securities which through the payment of principal and
20
interest in accordance with their terms will provide money in an amount, or (c)
a combination thereof, sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay the principal of (and premium, if any) and
interest on the outstanding Notes at maturity or upon redemption, together with
all other amounts payable by the Company under the Indenture. Such defeasance
will become effective 91 days after such deposit and only if, among other
things, (a) no Default or Event of Default with respect to the Notes has
occurred and is continuing on the date of such deposit or occurs as a result of
such deposit or at any time during the period ending on the 91st day after the
date of such deposit; (b) such defeasance does not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company or such Guarantor is a party or by which it is bound; (c)
the Company or such Guarantor, as the case may be, has delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent relating to a defeasance have been complied with; and (d)
the Company or any Guarantor, as the case may be, has delivered to the Trustee
(i) either a private Internal Revenue Service ruling or an Opinion of Counsel
based on a ruling of the Internal Revenue Service or other change in applicable
Federal income tax law that holders of the Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit, defeasance
and discharge and will be subject to Federal income tax with respect to the
Notes on the same amount, in the same manner, and at the same times as would
have been the case if such deposit, defeasance and discharge had not occurred,
and (ii) an Opinion of Counsel to the effect that (A) the deposit shall not
result in the Company, the Trustee or the trust being deemed to be an
"investment company" under the Investment Company Act of 1940, as amended, and
(B) such deposit creates a valid trust in which the holders of the Notes who are
not "insiders" for purposes of any bankruptcy law have the sole beneficial
ownership interest or that the holders of the Notes have a non-avoidable first
priority security interest in such trust. Notwithstanding the foregoing, the
Company's obligations to pay principal, premium, if any, and interest on the
Notes, and the Guarantors' obligations under the Guarantees and the Indenture,
shall continue until the Internal Revenue Service ruling or Opinion of Counsel
referred to in clause (i) above is provided with regard to and without reliance
upon such obligations continuing to be obligations of the Company and the
Guarantors, respectively. (Section 9.1)
Covenant Defeasance. The Company will be released from its
obligations with respect to certain covenants contained in the Indenture,
including, without limitation, those described under "Certain Covenants," and
any failure to comply with such covenants will not be an Event of Default, if
(a) the Company deposits or causes to be deposited with the Trustee in trust an
amount of cash or U.S. government securities sufficient to pay and discharge
when due the entire unpaid principal, premium, if any, and interest on all
outstanding Series B Notes and Series A Notes and (b) certain other conditions
are met. The obligations of the Company under the Indenture with respect to the
Notes, other than with respect to the covenants and Events of Default referred
to above, will remain in full force and effect. (Section 7.1)
THE TRUSTEE
First National Bank Association is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Series B Notes and the Series A Notes. (Section 3.4)
GOVERNING LAW
The Indenture provides that it, the Series B Notes and the Series A
Notes will be governed by, and construed in accordance with, the laws of the
State of New York. (Section 1.14)
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CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the
Indenture. (Section 1.1)
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Subsidiary (or such Person is merged into the Company
or a Subsidiary) or assumed in connection with the acquisition of properties or
assets from any such Person and not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary or such acquisition.
"Acquired Operating Lease" means any Operating Lease of a Person
existing at the time such Person becomes a Subsidiary (or such Person is merged
into the Company or a Subsidiary) or assumed in connection with the acquisition
of properties or assets from any such Person after the March 3, 1994 and not
entered into in connection with, or in contemplation of, such Person becoming a
Subsidiary or in contemplation of such acquisition, and includes any
replacements or renewals of any such Operating Lease.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. A
specified Person beneficially owning 30% or more of the voting power of the
Voting Stock of a corporation will be presumed to control such corporation
unless another Person beneficially owns more Voting Stock than such specified
Person beneficially owns and such other Person has actual control.
Notwithstanding the foregoing, the term Affiliate shall not include any Wholly
Owned Subsidiary which is a Guarantor but shall include the Non-Recourse
Subsidiary.
"Asset Disposition" means any sale, lease, sublease, transfer,
issuance or other disposition (or series of related sales, leases, subleases,
transfers, issuances or dispositions) of shares of Capital Stock of the Company,
any Subsidiary or the Non-Recourse Subsidiary (other than directors' qualifying
shares and shares issuable in connection with the Warrants), property or other
assets (each referred to for the purposes of this definition as a
"disposition"), by the Company, any Subsidiary or the Non-Recourse subsidiary,
including any disposition by means of a merger, consolidation, Sale-Leaseback or
other similar transaction (other than (i) a disposition of inventory at not less
than fair market value in the ordinary course of business, (ii) a disposition of
obsolete assets in the ordinary course of business, (iii) a sale or issuance of
Capital Stock of the Company which is not Exchangeable Stock, (iv) sales of
individual assets in the ordinary course of business having a fair market value
less than, and for consideration less than, $5,000, (v) any disposition of
assets of the Non-Recourse Subsidiary not constituting, together with any
related dispositions by the Non-Recourse Subsidiary, a sale of all or
substantially all of the assets of the Non-Recourse Subsidiary, and (vi) any
disposition to a Wholly Owned Subsidiary which is a Guarantor).
"Attributable Indebtedness" in respect of a Sale-Leaseback Transaction
means, as at the time of the Sale-Leaseback Transaction, the greater of (i) the
fair value of the property subject to such arrangement (as determined in good
faith by the Board of Directors) or (ii) the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such arrangement (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness, the quotient obtained by dividing (i) the sum of the products
of the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness multiplied by the
amount of such principal payment by (ii) the sum of all such principal payments.
22
"Beneficial Owner" has the meaning ascribed thereto in Rules 13d-3 and
13d-5 promulgated by the Commission under the 1934 Act, except that a person
shall be deemed to be the beneficial owner of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time; and the terms "beneficial ownership" and
"beneficially owns" have meanings correlative to the foregoing.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in equity interest (however designated) in
such Person and rights (other than debt securities convertible into an equity
interest), warrants or options to acquire an equity interest in such Person.
"Code" means the Internal Revenue Code of 1986, as from time to time
amended.
"Consolidated Fixed Charge Coverage Ratio" of the Company for any
period means the ratio, on a pro forma basis, of (i) the sum of Consolidated Net
Income, Consolidated Fixed Charges and Consolidated Tax Expense, plus
depreciation, and without duplication, all amortization, in each case, for such
period, of the Company and its subsidiaries (other than the Non-Recourse
Subsidiary) on a consolidated basis, as determined in accordance with GAAP, to
(ii) Consolidated Fixed Charges; provided, that in calculating Consolidated
Fixed Charges on a pro forma basis, an Indebtedness bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation has
been the applicable rate for the entire period and the aggregate amount of
available commitments under any revolving credit facility (excluding any letter
of credit facility) of the Company or any Subsidiary will be deemed to be
outstanding.
"Consolidated Fixed Charges" of the Company means, for any period, the
sum of: (i) the aggregate amount of interest which, in conformity with GAAP,
would be set opposite the caption "interest expense" or any like caption on an
income statement for the Company and its subsidiaries (other than the Non-
Recourse Subsidiary) on a consolidated basis (including, without limitation,
imputed interest included on Capital Lease Obligations, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, the net costs associated with any Interest Rate
Agreement, foreign currency exchange agreement, option or futures contract or
other similar agreement or arrangement relating to interest rates or foreign
exchange rates); (ii) an amount equal to one-third of Consolidated Operating
Lease Payments; and (iii) dividends on Preferred Stock of the Company or a
Subsidiary held by Persons other than the Company or a Wholly Owned Subsidiary
which is a Guarantor. For purposes of clause (iii) of the preceding sentence,
dividends shall be deemed to be an amount equal to the actual dividends paid
divided by one minus the applicable combined federal, state and local income tax
rate of the Company (expressed as a decimal), on a consolidated basis, for the
fiscal year immediately preceding the date of the transaction giving rise to the
need to calculate Consolidated Fixed Charges.
"Consolidated Net Income" means, for the Company for any period, the
net income of the Company and its subsidiaries (other than, except as expressly
provided below, the Non-Recourse Subsidiary) determined on a consolidated basis
in accordance with GAAP; however, there will not be included in such
Consolidated Net Income: (i) subject to clause (iv) below, any net income of the
Non-Recourse Subsidiary or any Person which is not a Subsidiary, except that (A)
the Company's equity in the net income of the Non-Resource Subsidiary or any
such Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash
23
actually distributed by the Non-Recourse Subsidiary (including as a result of
sales by the Non-Recourse Subsidiary of Capital Stock pledged or delivered by
borrowers who are franchisees of convenience stores of the Company or any
Subsidiary) or any such Person during such period to the Company or a Guarantor
as a dividend or other distribution (subject, in the case of a dividend or other
distribution to a Guarantor, to the limitations contained in clause (iii) below)
and (B) the Company's equity in a net loss of the Non-Recourse Subsidiary or any
such Person for such period shall be included in determining such Consolidated
Net Income, (ii) any net income (but not net loss) of any Person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any subsidiary if
such Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Subsidiary, directly
or indirectly, to the Company, except that (A) the Company's equity in the net
income of any such Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Subsidiary during such period to the Company or a Guarantor as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to another Subsidiary, to the limitation contained in this clause)
and (B) the Company's equity in a net loss of any such Subsidiary for such
period shall be included in determining such Consolidated Net Income; (iv) any
gain (but not loss) realized upon the sale or other disposition of any property,
plant or equipment of the Company or its consolidated subsidiaries (including
the Non-Recourse subsidiary and including pursuant to any Sale-Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person (except for sales by the Non-
Recourse Subsidiary of Capital Stock pledged or delivered by borrowers who are
franchisees of convenience stores of the Company or any Subsidiary up to the
aggregate amount of cash actually distributed by the Non-Recourse Subsidiary
during such period to the Company or a Guarantor as a dividend or other
distribution); (v) any gains or losses from currency exchange transactions not
in the ordinary course of business consistent with past practice; (vi) any gains
(but not losses) attributable to any extraordinary items; (vii) all
extraordinary expenses, including a result of the write-off of deferred loan
costs in connection with the application of the proceeds from the sale of the
Notes; (viii) the cumulative effect of a change in accounting principles; (ix)
all non-recurring expenses up to $10,000,000 arising from the Nirenberg
Transaction; and (x) expenses resulting from the write-off of goodwill and other
intangible assets (as they are generally recognized under GAAP) in respect of
the period commencing on December 1, 1995 and ending on February 3, 1996.
"Consolidated Net Worth" of any Person means the total of the amounts
shown on the balance sheet of such Person and its consolidated subsidiaries
(including, with respect to the Company, the Non-Recourse Subsidiary),
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of such Person ending prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of such Person plus (ii) paid-
in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to redeemable stock (only to the extent such amounts shall
be due prior to the final maturity of the Notes) and (C) any amounts
attributable to Exchangeable Stock.
"Consolidated Operating Lease Payments" means for any Reference
Period: (i) the aggregate amount of all rents paid or payable (net of sublease
income) by the Company or any of its consolidated subsidiaries (other than the
Non-Recourse Subsidiary) under all Operating Leases of the Company or any of its
consolidated subsidiaries, all as determined in accordance with GAAP; (ii) less
$2.5 million.
"Consolidated Tax Expense" means, for the Company for any period, the
provision (benefit) for taxes based on income and profits (or losses) of the
Company and its subsidiaries (other than the Non-Recourse Subsidiary) on a
consolidated basis to the extent such income or profits (or losses) were
included in computing Consolidated Net Income of the Company for such period.
"Credit Agreement" means the Amended and Restated Credit Agreement
among the Company, Society National Bank and Bank of Boston, Connecticut, as
such agreement may be amended, supplemented or otherwise
24
modified from time to time and any agreement evidencing any refunding,
replacement, refinancing or renewal, in whole or in part, of the Indebtedness
permitted to be borrowed thereunder on the date of execution thereof.
"Default" means any event or condition which is, or after notice or
passage of time, or both, would be, an Event of Default.
"Excess Proceeds" has the meaning set forth in "Certain Covenants--
Limitation on Sales of Assets."
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of the Company which
is neither Exchangeable Stock nor redeemable stock).
"Existing Indebtedness" means Indebtedness of the Company and each
Subsidiary in existence on March 3, 1994.
"FINOP" means Financial Opportunities, Inc., a Kentucky corporation,
licensed as an SBIC by the SBA, all of the Capital stock of which is owned by
the Company or a Wholly-Owned Subsidiary.
"Fixed Assets" means assets of the Company, a Subsidiary or a Non-
Recourse Subsidiary which are "fixed assets," as defined in accordance with
GAAP.
"Franchise Agreements" means franchise agreements entered into by the
Company or any Subsidiary in the ordinary course of business in connection with
the franchising of the Company's convenience retail stores.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of
determination; provided, however, that these definitions and all ratios and
calculations contained in the covenants described under "Certain Covenants--
Limitation on Additional Indebtedness and New Operating Leases," "Certain
Covenants--Limitation on Restricted Payments," "Certain Covenants--Limitation on
Sale-Leaseback Transactions," and "Certain Covenants--Limitation on Sales of
Assets" shall be determined in accordance with GAAP as in effect and applied by
the Company on March 3, 1994, consistently applied.
"Guarantee" means the guarantee by a Guarantor of the Company's
obligations under the Notes.
"Guarantor" means each Subsidiary executing a signature page to the
Indenture on March 3, 1994 and December 1, 1995 and any Person who becomes a
Guarantor as provided in the covenant described under "Certain Covenants--
Additional Guarantors," and any of their respective successors or assigns.
"Guarantor Senior Indebtedness" means all Indebtedness of the
specified Guarantor under: (i) its guarantee of the Company's obligations under
the Credit Agreement; and (ii) all additional Indebtedness that is permitted to
be incurred by such Guarantor under the Indenture that is not by its terms
subordinated to or pari passu with the obligations of such Guarantor under its
Guarantee (it being understood that Indebtedness permitted to be incurred by
such Guarantor under the Indenture that is not by its terms subordinated to or
pari passu with the obligations of such Guarantor under its Guarantee shall not
in any event constitute Guarantor Senior Indebtedness if such Indebtedness is
subordinated by its terms to any other Indebtedness that constitutes Guarantor
Senior Indebtedness). Notwithstanding anything to the contrary in the foregoing,
Guarantor Senior Indebtedness shall not include (x) any liability of such
Guarantor for state, local or other taxes, (y) any Indebtedness between or among
such Guarantor, the Company, any other Subsidiary or the Non-Recourse Subsidiary
or (z) any Indebtedness of such Guarantor
25
incurred for the purchase of goods or materials or for services obtained in the
ordinary course of business. (Section 11.2)
"Guarantor Subordinated Indebtedness" means, with respect to a
specified Guarantor, any Indebtedness of such Guarantor (whether outstanding on
March 3, 1994 or thereafter Incurred) which is subordinate or junior in right of
payment to the Guarantee of such Guarantor.
"Incurrence" means the incurrence, creation, assumption, issuance,
guarantee of the payment of, or in any other manner becoming liable with respect
to, the payment of, any Indebtedness. "Incur" and "Incurred" shall have a
comparable meaning.
"Indebtedness" means, with respect to any Person without duplication,
(i) the principal of and premium (if any) in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments (including purchase money obligations) for
payment of which such Person is responsible or liable; (ii) all Capital Lease
Obligations of such Person; (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance, note
purchase facility or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in (i) through (iii) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit are not drawn upon
or, if and to the extent drawn upon, such drawing is reimbursed no later than
the third business day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit); (v) all obligations of
the type referred to in clauses (i) through (iv) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable as obligor, guarantor or otherwise; (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured (vii) redeemable stock of such Person; and (viii) with
respect to the Company or any Subsidiary, Preferred Stock of any Subsidiary
(other than Preferred Stock held by the company or any Wholly Owned Subsidiary
which is a Guarantor); provided, however, that Indebtedness will not include
endorsements of negotiable instruments for collection in the ordinary course of
business.
"Interest Rate Agreement" of any Person means by arrangement with any
other Person whereby, directly or indirectly, such Person is entitled to receive
from time to time periodic payments calculated by applying either a floating or
fixed rate of interest on a notional amount in exchange for periodic payments
made by such Person calculated by applying a fixed or floating rate of interest
on the same notional amount and shall include, without limitation, any interest
rate swap agreement, interest rate cap, floor or collar agreement, option or
futures contract or other similar agreements.
"Investment" means, as to any investing Person, any direct or indirect
advance, loan (other than extensions of trade credit on commercially reasonable
terms in the ordinary course of business that are recorded as accounts
receivable on the balance sheet of such Person or any of its Subsidiaries in
accordance with GAAP) or other extension of credit, guarantee or capital
contribution to, or any acquisition by such Person of any Capital Stock, bonds,
notes, debentures or other securities or evidences of Indebtedness issued by any
other Person. In determining the amount of any Investment involving a transfer
of property, such property shall be valued at its fair market value at the time
of such transfer, and such fair market value shall be determined in good faith
by the Board of Directors of the investing Person, whose determination in such
regard shall be conclusive.
26
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any Capital Lease Obligations in the nature
thereof, any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give any security
interest in and any filing or other agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Available Cash Proceeds" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) therefrom, in each case net of all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Disposition, and in each case net of
all payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law, be repaid out of the proceeds from such Asset Disposition,
and net of all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition.
"Net Proceeds" means, with respect to a specified transaction, total
cash proceeds net of all customary legal expenses, commissions and other fees
and expenses incurred and all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence of, and
in connection with, such transaction.
"New Operating Leases" means Operating Leases entered into by the
Company or any of its consolidated subsidiaries (other than the Non-Recourse
Subsidiary) following March 3, 1994 for the purpose of leasing real property,
gasoline equipment or other equipment in connection with the operation of real
convenience stores not owned, operated or franchised by the Company or any of
its consolidated subsidiaries on or prior to March 3, 1994; provided, however,
that the term New Operating Leases shall not be deemed to include Acquired
Operating Leases.
"Nirenberg Transaction" means the purchase by the Company, pursuant to
and upon the terms set forth in that certain agreement, dated as of October 30,
1995, by and among Charles Nirenberg ("Nirenberg"), FCN Properties Corporation
("FCN"), The Nirenberg Foundation (the "Foundation") and the Company, as
amended, of (i) all right, title and interest in and to the limited partner
interests of Nirenberg and the Foundation in DM Associates; (ii) all right,
title and interest in and ownership by FCN of the 9% Secured Promissory Note,
dated March 12, 1992 (the "CDA Note"), in the principal amount of $7,100,000
made by DM Associates in favor of the Connecticut Development Authority (the
"CDA") and subsequently assigned by the CDA to FCN on or about September 30,
1994, and FCN's right, title and interest in 1,220,000 shares of the Class B
Common Stock of the Company pledged by DM Associates as security for the payment
of the CDA Note pursuant to a Stock Pledge Agreement, dated March 12, 1992 (the
"CDA Pledge Agreement"), between DM Associates and CDA, and subsequently
assigned by CDA to FCN on or about September 30, 1994 and all of FCN's rights
pursuant to the CDA Pledge Agreement and any other agreement executed by DM
Associates in favor of the CDA in connection with the CDA Note and/or the loan
evidenced thereby; (iii) all right, title and interest of Nirenberg, FCN and the
Foundation pursuant to the agreements, instruments and letters dated January 25,
1995 and entered into by such parties with the Company and/or the other limited
partners of DM Associates and the other general partners of New DM Management
Associates I, a Connecticut general partnership, and new DM Management
Associates II, a Connecticut general partnership, in connection with the
reconstitution of DM Associates and its general partners; and (iv) the issuance
by the Company of the Series B Notes and the performance of its other
obligations pursuant to those certain Note and Warrant Purchase Agreements,
dated of even date herewith, among the Company, the Persons listed in the
Schedule of Purchasers thereto.
27
"Non-Convertible Capital Stock" means, with respect to any
corporation, any nonconvertible Capital Stock of such corporation and any
Capital Stock of such corporation convertible solely into nonconvertible common
stock of such corporation which is not redeemable stock or Exchangeable Stock;
provided, however, that Non-Convertible Capital Stock does not include any
redeemable stock or Exchangeable Stock.
"Non-Recourse Subsidiary" means FINOP, provided that:
(a) no portion of FINOP's Indebtedness or any of its other
obligations (contingent or otherwise), (i) is guaranteed by the
Company or any Subsidiary, (ii) is recourse to or obligates the
Company or any Subsidiary in any way or (iii) subjects any property or
asset of the Company or any Subsidiary, directly or indirectly,
contingently or otherwise, to satisfaction thereof;
(b) neither the Company nor any Subsidiary has any contract,
agreement, arrangement, understanding with FINOP or is subject to an
obligation of any kind, written or oral, other than on terms no less
favorable to the Company or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the
Company;
(c) neither the Company nor any Subsidiary has any obligation (i)
to subscribe for additional shares of Capital Stock or other equity
interests of FINOP or (ii) to maintain or preserve FINOP's financial
condition or to cause FINOP to achieve certain levels of operating
results;
(d) FINOP continues to be an SBIC, regulated and licensed as such
by the SBA, and performs no activities or engages in no business other
than as an SBIC;
(e) FINOP maintains a bank account or accounts separate from
those of the Company and each Subsidiary and does not otherwise
commingle its funds or any other properties or assets with those of
the Company or any Subsidiary;
(f) from and after June 1, 1994, the Board of Directors of FINOP
contains at least one independent director who is not an officer,
director, employee, shareholder (other than a shareholder owning less
than 1% of the outstanding Capital Stock of any class of the Company's
or any Subsidiary's Capital Stock) or Affiliate of the Company or any
Subsidiary; and
(g) the sum of Indebtedness and aggregate liquidation preference
of Preferred Stock of FINOP does not exceed $20 million, unless at the
time of the Incurrence of additional Indebtedness or the issuance of
Preferred Stock by FINOP, the Consolidated Fixed Charge Coverage Ratio
for the Company is equal to or greater than 2.0 to 1.0.
At the time FINOP ceases to meet any of the requirements set forth for
characterization as the Non-Recourse Subsidiary, FINOP shall be deemed to be a
Subsidiary for all purposes of the Indenture if, at such time, it is properly
characterized as such in accordance with the definition of "Subsidiary" set
forth below.
"Officer" means, with respect to any corporation, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of such corporation.
"Officers' Certificate" means a written certificate containing the
information specified by the Indenture, signed in the name of the Company, any
Guarantor or other obligor on the Notes, as the case may be, by any two of its
Officers, and delivered to the Trustee.
28
"Operating Lease" shall mean, as applied to any Person, any lease with
respect to which such Person is the lessee (including, without limitation,
leases which may be terminated by the lessee at any time) of any property
(whether real, personal or mixed) which is not a lease which is required to be
classified and accounted for as a capital lease on the face of the balance sheet
of such Person prepared in accordance with GAAP.
"Opinion of Counsel" means a written opinion containing information
specified by the Indenture rendered by legal counsel who is reasonably
acceptable to the Trustee.
"Permitted Indebtedness" means (i) Indebtedness incurred by the
Company under the Credit Agreement as in effect on March 3, 1994, provided that
such amount shall be permanently reduced by (x) the amount of any revolving loan
commitment reductions from time to time effected under the Credit Agreement, and
(y) the amount of any prepayments of such Indebtedness which is not reborrowed
and invested as described in the first proviso under "Limitation on Sales of
Assets," and provided further that the aggregate amount of all Indebtedness
permitted to be outstanding thereunder at any one time shall not exceed $30.0
million; (ii) guarantees by Subsidiaries of the Company's Indebtedness referred
to in clause (i) of this paragraph; (iii) Existing Indebtedness and Indebtedness
represented by the Notes; (iv) Indebtedness issued to repay, refund or refinance
Indebtedness of the Company or any Subsidiary permitted under clauses (i), (ii)
and (iii) of this paragraph (such Indebtedness being referred to herein as
"Refinancing Indebtedness"), provided such Refinancing Indebtedness (a) does not
exceed the principal or accredited amount of, (b) ranks in right of payment to
the Notes no more than to the same extent as, (c) has an Average Life and Stated
Maturity equal to, or greater than, and (d) shall not provide for any mandatory
redemption, amortization or sinking fund requirements in an amount greater than
or at a time prior to the amounts and times specified with respect to, the
Indebtedness so repaid, refunded or refinanced; (v) intercompany Indebtedness
permitted by the covenant described under "Limitation on Restricted Payments";
(vi) Indebtedness under Interest Rate Agreements; (vii) guarantees by the
Company or any Wholly Owned Subsidiary which is a Guarantor of loans (other than
loans made by the Non-Recourse Subsidiary) in the ordinary course of business to
franchisees of the Company's or any Subsidiary's convenience retail stores for
the purpose of financing costs of equipment, leasehold improvements and/or
inventory for such stores pursuant to a Franchise Agreement, provided that the
aggregate liability in respect of all such Indebtedness shall not exceed $5.0
million at any one time under this clause (vii); (viii) Capitalized Lease
Obligations of the Company or any Subsidiary for the purpose of purchasing or
financing personal computers, equipment, software, supplies and/or other assets
necessary for the operation of the Company's POS System, provided that the
aggregate liability in respect of all such Indebtedness shall not exceed $6.0
million at any time; (ix) Indebtedness incurred by FINOP at a time when it
satisfied the definition of Non-Recourse Subsidiary; (x) Indebtedness not
otherwise permitted in an aggregate principal amount not in excess of $7.5
million at any one time outstanding; or (xi) Indebtedness corresponding to the
issuance of the Series B Notes.
"Permitted Investments" means: (a) certificates of deposit with a
maturity of one year or less issued by U.S. commercial banks having capital and
surplus in excess of $100.0 million; (b) commercial paper with a minimum rating
of Al and/or PI by Standard & Poor's Corporation and/or Moody's Investors
Service, Inc., respectively; (c) direct obligations of the United States or of a
United States agency with a maturity of one year or less; and (d) shares of
money market mutual or similar funds having assets in excess of $100.0 million.
"Permitted Liens" means with respect to any Person, (i) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness), utility
services or leases to which such Person is a party, or deposits to secure public
regulatory or statutory obligations of such Person or deposits of cash or U.S.
Government Obligations to secure surety or appeal bonds to which such Person is
a party, or deposits as security for contested taxes or import duties or for the
payment of rent and incurred in the ordinary course of such Person's business,
(ii) Liens arising by operation of law, such as carriers', warehousemen's
mechanics' and bankers' Liens and, in each case, incurred in the ordinary course
of such Person's business and with respect to amounts not yet due or being
contested in good faith by appropriate legal proceedings promptly instituted
29
and diligently conducted and for which a reserve or other appropriate provision,
if any, as shall be required in conformity with GAAP shall have been made, (iii)
Liens arising out of judgments or awards against such Person not giving rise to
an Event of Default with respect to which such Person shall then be diligently
prosecuting appeal or other proceedings for review, (iv) Liens for taxes not yet
subject to penalties for non-payment or which are being contested in good faith
and by appropriate proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (v) Liens in favor of issuers of
surety bonds or letters of credit (other than to satisfy any judgment or
judgments) issued pursuant to the request of and for the account of such Person
in the ordinary course of its business and, (vi) minor survey exceptions, minor
encumbrances, easements or reservations of, or rights of others for, rights-of-
way, sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real properties or
Liens which are incidental to the conduct of the business of such Person or to
the ownership of its properties and which were incurred in the ordinary course
of such Person's business and not in connection with Indebtedness or other
extensions of credit and which do not in the aggregate materially adversely
affect the value of the aforementioned properties or materially impair their use
in the operation of the business of such Person.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"POS System" means the automated reporting system to be installed by
the Company in certain of its retail convenience stores for the purpose of
entering into a central data system maintained by the Company certain
information with respect to such stores through the use of personal computers,
equipment, software, supplies and/or other assets located at such stores.
"Preferred Stock" as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten public offering of
common stock of the Company (other than redeemable stock or Exchangeable Stock),
pursuant to an effective registration statement filed pursuant to the 1933 Act.
"Reference Period" means, with respect to any computation of the
Consolidated Fixed Charge Coverage Ratio, the most recent four fiscal quarters
of the Company for which internal financial statements of the Company are
available prior to the date of determination of the Consolidated Fixed Charge
Coverage Ratio.
"Registrar" means the Person designated by the Company to register
Notes and transfers of Notes as provided in the Indenture.
"Sale-Leaseback Transaction" means any arrangement relating to
property now owned or hereafter acquired whereby the Company or a Subsidiary
transfers such property to a Person and leases it back from such Person.
"SBA" means Small Business Administration or any successor thereto
established by the Small Business Act, as amended (15 U.S.C., Section 633), or
any successor statute to carry out the policies of that Act.
"SBIC" means a small business investment company approved by the SBA
to operate under the provisions of the Small Business Investment Act of 1958, as
amended (15 U.S.C., Section 662), or any successor statute and issued a license
as provided in Section 681 of that Act.
30
"Senior Indebtedness" means all Indebtedness of the Company under: (i)
the Credit Agreement as in effect on the Issue Date; and (ii) all additional
Indebtedness that is permitted under the Indenture that is not by its terms
subordinated to or pari passu with the Notes (it being understood that
Indebtedness permitted under the Indenture that is not by its terms subordinated
to or pari passu with the Notes shall not in any event constitute Senior
Indebtedness if such Indebtedness is subordinated by its terms to any other
Indebtedness that constitutes Senior Indebtedness). Notwithstanding anything to
the contrary in the foregoing, Senior Indebtedness shall not include (w) the
Notes, (x) any liability of the Company, any Subsidiary or the Non-Recourse
Subsidiary for state, local or other taxes, (y) any Indebtedness between or
among the Company, any Subsidiary or the Non-Recourse Subsidiary, or (z) any
Indebtedness of the Company, any Subsidiary or the Non-Recourse Subsidiary
incurred for the purchase of goods or materials or for services obtained in the
ordinary course of business (other than Indebtedness incurred under any
revolving credit facility under the Credit Agreement for such purpose).
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Indebtedness" means any Indebtedness of the Company
(whether outstanding on March 3, 1994 or thereafter Incurred) which is
subordinated or junior in right of payment to the Notes.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interest (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries, or (vi) one or more Subsidiaries. Notwithstanding the foregoing,
the Non-Recourse Subsidiary shall not be deemed to be a Subsidiary.
"U.S. Government Obligations" means, with respect to the securities of
any series, securities which are (i) direct obligations of the United States of
America or (ii) obligations of a Person controlled or supervised by and acting
as an agency or instrumentally of the United States of America the payment of
which is unconditionally guaranteed by the United States of America and which,
in either case, are full faith and credit obligations of the United States of
America and are not callable or redeemable at the option of the issuer thereof
and shall also include a depository receipt issued by a bank (as defined in
Section 3(a)(2) of the 1993 Act as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of any such
Government Obligations held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of the Government Obligation evidenced by such depository receipt.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holders thereof,
under ordinary circumstances and in the absence of contingencies, to vote in
elections of directors.
"Wholly Owned Subsidiary" of a Person means any Subsidiary of such
Person 100% of the total Voting Stock of which (other than directors' qualifying
shares) is owned by such Person and/or one or more Wholly Owned Subsidiaries of
such Person.
31
CERTAIN LEGAL MATTERS
The validity of the Series B Notes offered hereby is being passed upon
for the Company by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts.
EXPERTS
The Consolidated Financial Statements and schedules of the Company for
each of the three years in the period ended January 28, 1995, incorporated by
reference into this Prospectus, have been audited by Arthur Andersen LLP,
Independent Public Accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1995, as amended by Amendment No. 1 on Form 10-K/A (File No. 0-
12497).
(b) The Company's Current Report on Form 8-K for the January 27, 1995
event.
(c) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 29, 1995.
(d) The Company's Current Report on Form 8-K for the August 10, 1995
event.
(e) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 29, 1995.
(f) The Company's Current Report on Form 8-K for the September 28,
1995 event.
(g) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 28, 1995.
(h) The Company's Current Report on Form 8-K for the October 30, 1995
event, as amended by Amendment No. 1 on Form 8-K/A.
(i) The Company's Current Report on Form 8-K for the January 19, 1996
event.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any statement modified or superseded shall not be deemed, except as
modified or superseded, to constitute part of this Prospectus.
This Prospectus is accompanied by the Company's Form 10-K and Form 10-
K/A-1 for the fiscal year ended January 28, 1995 and Form 10-Q for the quarter
ended October 28, 1995. The Company will provide to each person to whom this
Prospectus is delivered upon written or oral request of such person, a copy of
the documents incorporated by reference into this Prospectus (not including
exhibits to such documents unless the exhibits are specifically incorporated by
reference into the documents which this Prospectus incorporates). Requests for
such
32
documents should be directed to the Company at Dairy Mart Convenience Stores,
Inc., One Vision Drive, Enfield, Connecticut 06082; Attention: Investor
Relations, telephone number (860) 741-4444.
33
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy to any person in any jurisdiction in which such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
offer or sale hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or that the
information contained herein is correct as of any date subsequent to the date
hereof.
________________________
TABLE OF CONTENTS
Page
----
Available Information......................................... 2
Risk Factors.................................................. 3
The Company................................................... 6
Ratio of Earnings to Fixed Charges............................ 7
Selling Noteholders........................................... 7
Plan of Distribution.......................................... 8
Description of the Series B Notes............................. 8
Certain Legal Matters......................................... 32
Experts....................................................... 32
Documents Incorporated by Reference........................... 32
================================================================================
================================================================================
DIARY MART CONVENIENCE
STORES, INC.
$13,500,000
PRINCIPAL AMOUNT
10 1/4% SENIOR SUBORDINATED
NOTE DUE 2004, SERIES B
___________________
P R O S P E C T U S
___________________
__________________
________, 1996
================================================================================
34
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses incurred in connection with the sale of the
securities being registered will be borne by Dairy Mart Convenience Stores, Inc.
(the "Registrant"). Other than the registration fee, the amounts stated are
estimates.
Registration Fee $ 4,655.00
Legal Fees and Expenses 15,000.00
Accounting Fees and Expenses 10,000.00
Miscellaneous 2,000.00
_________
TOTAL $ 31,655.00
=========
No portion of the above-listed fees will be borne by the Selling
Noteholders. In connection with the sale of the securities being registered, the
Selling Noteholders will pay underwriting discounts and selling commissions, if
any, and the fees of additional legal counsel, if any, for the Selling
Noteholders.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify its officers and
directors against the expenses, including attorney's fees, judgments, fines or
settlement amounts, actually and reasonably incurred by them in connection with
the defense of any action by reason of being or have been directors or officers,
if such person shall have acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
except that if such action shall be in the right of the corporation, no such
indemnification shall be provided as to any claim, issue or matter as to which
such person shall have been judged to have been liable to the corporation unless
and to the extent that the Court of Chancery of the State of Delaware, or
another court in which the suit was brought, shall determine upon application
that, in view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity. The Registrant's certificate of incorporation
provides for indemnification of its directors and officers to the fullest extent
permitted by the DGCL.
As permitted by Section 102 of the DGCL, the Registrant's certificate
of incorporation provides that no director shall be liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a director
other than: (i) for breaches of the director's duty of loyalty to the Registrant
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for the
unlawful payment of dividends or unlawful stock purchases or redemptions under
Section 174 of the DGCL; and (iv) for any transaction from which the director
derived an improper personal benefit.
The Registrant has purchased a liability insurance policy which
insures: (i) the Registrant, under certain circumstances, in the event it
indemnifies a director or officer of the Registrant or the subsidiary pursuant
to the foregoing provisions of the certificate of incorporation or by-laws of
the Registrant or otherwise; and (ii) directors and officers, under certain
circumstances, against liability and costs (including the cost of defending any
action) incurred by directors or officers in their capacity as such.
In addition, the Registration Rights Agreement, dated December 1,
1995, filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 28, 1995, incorporated herein by reference,
provides for indemnification by the Registrant of the Selling Noteholders
against certain liabilities under the 1933 Act, the 1934 Act, state securities
laws or otherwise, and provides for indemnification by the Selling
II-1
Noteholders of the Registrant and its directors, its officers and certain
control persons against certain liabilities under the 1933 Act, the 1934 Act,
state securities laws, or otherwise.
ITEM 16. EXHIBITS.
Exhibit
Number Description
- ------- -----------
4.1 Amended and Restated Indenture, dated as of December 1, 1995, by
and among the Registrant, Certain Subsidiaries of the Registrant,
as Guarantors, and First Bank National Association, as Trustee.
Incorporated herein by reference to Exhibit 4.1 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 25, 1995.
5/*/ Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.,
with respect to the legality of the securities being registered
12 Statement Regarding Computation of Ratios
13 Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 28, 1995
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (see Exhibit 5)
24 Power of Attorney (filed in Part II of this Registration
Statement)
99.1 Note Purchase Agreement, dated as of December 1, 1995, between
the Registrant and the Purchasers Listed in the Schedule of
Purchasers therein, relating to 10-1/4% Senior Subordinated Notes
(Series B) due March 15, 2004. Incorporated herein by reference
to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 25, 1995.
99.2 Registration Rights Agreement, dated December 1, 1995, by and
among the Registrant and the Holders of (iii) 10-1/4% Senior
Subordinated Notes (Series B) of the Registrant, due March 15,
2004, and (iv) Warrants to Purchase 1,715,000 shares of Class A
Common Stock par value $.01 per share, of the Registrant.
Incorporated herein by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 28, 1995.
_______________________________
/*/ To be filed by amendment.
II-2
ITEM 17. UNDERTAKINGS.
A. Rule 415 Offering
-----------------
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the 1933 Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not
apply if this Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the 1934 Act that are incorporated by reference
in this Registration Statement.
(2) That, for the purpose of determining any liability under the
1933 Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. Filings Incorporating Subsequent 1934 Act Documents by
------------------------------------------------------
Reference
---------
The Registrant hereby undertakes that, for purposes of determining any
liability under the 1933 Act, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the 1934 Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the 1934 Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Request for Acceleration of Effective Date or Filing of
-------------------------------------------------------
Registration Statement on Form S-8
----------------------------------
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been
II-3
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Enfield, Connecticut, on February 28, 1996.
DAIRY MART CONVENIENCE STORES, INC.
By:/s/ Robert B. Stein, Jr.
---------------------------------------
Robert B. Stein, Jr.
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert B. Stein, Jr. and Gregory G.
Landry, or any of them, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Registration Statement (including post-effective amendments), and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as full to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Robert B. Stein, Jr. President, Chief Executive February 28, 1996
- --------------------------- Officer and Chairman of
Robert B. Stein, Jr. the Board
(principal executive officer)
/s/ Gregory G. Landry Executive Vice President, February 28, 1996
- --------------------------- Chief Financial Officer,
February 28, 1996 Chief Accounting Officer
Gregory G. Landry and Director
(principal financial and
accounting officer)
/s/ Frank W. Barrett Director February 28, 1996
- ---------------------------
Frank W. Barrett
/s/ J. Kermit Birchfield, Jr. Director February 28, 1996
- ------------------------------
J. Kermit Birchfield, Jr.
/s/ John W. Everets, Jr. Director February 28, 1996
- ------------------------------
John W. Everets, Jr.
/s/ Thomas W. Janes Director February 28, 1996
- -----------------------------
Thomas W. Janes
/s/ Truby G. Proctor, Jr. Director February 28, 1996
- ----------------------------
Truby G. Proctor, Jr.
DAIRY MART CONVENIENCE STORES, INC.
-----------------------------------
INDEX TO EXHIBITS FILED WITH
FORM S-2 REGISTRATION STATEMENT
Exhibit Sequential
Number Description Page No.
- -------- ----------- --------
4.1 Amended and Restated Indenture, dated as of December 1, 1995, by and among
the Registrant, Certain Subsidiaries of the Registrant, as Guarantors, and
First Bank National Association, as Trustee. Incorporated herein by
reference to Exhibit 4.1 of the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 25, 1995.
5/*/ Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., with respect to
the legality of the securities being registered
12 Statement Regarding Computation of Ratios
13 Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended October 28,
1995
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see Exhibit 5)
24 Power of Attorney (filed in Part II of this Registration Statement)
99.1 Note Purchase Agreement, dated as of December 1, 1995, between the Registrant
and the Purchasers Listed in the Schedule of Purchasers therein, relating to 10-1/4%
Senior Subordinated Notes (Series B) due March 15, 2004. Incorporated herein by
reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 25, 1995.
99.2 Registration Rights Agreement, dated December 1, 1995, by and among the
Registrant and the Holders of (iii) 10-1/4% Senior Subordinated Notes (Series B) of
the Registrant, due March 15, 2004, and (iv) Warrants to Purchase 1,715,000 shares
of Class A Common Stock par value $.01 per share, of the Registrant. Incorporated
herein by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-
Q for the fiscal quarter ended October 28, 1995.
___________________________________
/*/ To be filed by amendment.
II-7