-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QBQwfUTbrVpfvw/t8aWNJsyNt9wT9rkx4ZZV79/EotyXE4vUFovf+FBGbzdrCkyA qgELwbcidNRyw1b7VsaK3w== 0000910647-97-000115.txt : 19970505 0000910647-97-000115.hdr.sgml : 19970505 ACCESSION NUMBER: 0000910647-97-000115 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970201 FILED AS OF DATE: 19970502 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAR MARKETS CO INC CENTRAL INDEX KEY: 0000933160 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 043243710 STATE OF INCORPORATION: MA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25262 FILM NUMBER: 97594057 BUSINESS ADDRESS: STREET 1: 625 MT ALBURN ST CITY: CAMBRIDGE STATE: MA ZIP: 02138 BUSINESS PHONE: 6176612200 MAIL ADDRESS: STREET 1: 625 MOUNT AUBURN STREET CITY: CAMBRIDGE STATE: MA ZIP: 02138 10-K 1 BODY OF 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 1, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 33-86690 -------- STAR MARKETS COMPANY, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-3243710 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 625 MT. AUBURN STREET, CAMBRIDGE, MA 02138 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (617) 528-2550 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of the voting stock held by nonaffiliates of the registrant at April 21, 1997: None Number of shares of the issuer's common stock, outstanding as of April 21, 1997: 5,000 shares Documents incorporated by reference: None PART I Item 1. Business - ---------------- Throughout this report, the "Company" or "Star" refers to Star Markets Company, Inc. ("Successor"), which acquired the assets and business of the Star Market Company operating division of Jewel Food Stores, Inc. ("Predecessor" or "Star Markets"), a wholly owned subsidiary of American Stores Company (the "Parent" or "ASC"). Star Markets Company, Inc., a Massachusetts corporation, is a wholly-owned subsidiary of Star Markets Holdings, Inc., ("Holdings"), a Massachusetts corporation. Both the Company and Holdings were formed for purposes of the acquisition. Historical financial statements of Predecessor are presented as if it existed as a separate entity during the periods presented. The Company is a leading regional food retailer, with 48 stores (at the end of fiscal 1996) located in Eastern Massachusetts. Thirty-one of the Company's 48 stores are located inside Route 128, an area which includes many of the most densely populated and affluent communities in the metropolitan Boston area. The Company also operates a wholesale food business serving locations in New England and New York. The Company employs approximately 9,400 people. On September 8, 1994, the Company acquired the business and assets of Star Markets from ASC (the "Acquisition"). The Company was formed to acquire Star Markets on behalf of affiliates of INVESTCORP SA ("Investcorp"), management and certain other investors. In connection with the Acquisition, the Company acquired rights to expand into certain adjacent store sites and to acquire and develop certain additional store sites. In addition, management negotiated extensions for a number of its store leases. In July 1996, the Company acquired 10 supermarket locations, comprising three stores in greater Boston and seven stores on Cape Cod, Massachusetts, from The Stop & Shop Companies, Inc. ("Stop & Shop"). Nine of the locations, comprising four superstores and five conventional, opened late in the second quarter ended August 2, 1996. The remaining location opened as the first free-standing Wild Harvest store in October 1996. One of the new superstores is a replacement store for a conventional store which closed in the second quarter of 1996 and reopened as a Wild Harvest store in December 1996. Store formats - ------------- The Company currently operates three food retailing formats: superstores, conventional stores, and Wild Harvest stores. Superstores - ----------- The Company's 20 superstores offer a wider range of goods and services than its conventional stores. In addition to traditional supermarket offerings, the Company's superstores contain most of the following specialty service areas: full-service bakeries, delicatessens with prepared foods, self- service salad bars, floral departments, pharmacies, "Petcetera" pet food and accessories departments, "Wild Harvest" natural foods departments, and full- service kitchens offering a variety of freshly prepared meal selections. Prepared foods include store-cooked meats and poultry, salads and baked goods. Four of the locations acquired from Stop & Shop are superstores, one of which replaced a conventional store which closed in 1996. The Company remodeled two of its existing superstores during 1996. Conventional Stores - ------------------- The Company currently operates 26 conventional stores which offer a wide selection of national brands and private label products as well as high- quality produce, meat, seafood, and a select line of general merchandise. Conventional stores typically contain one or more specialty service departments, such as floral, seafood, bakery or delicatessen. During 1996, the Company acquired five conventional stores and replaced a conventional store with an acquired superstore during 1996. Wild Harvest Stores - ------------------- The Company introduced a new format in two locations during 1996. The Medford Wild Harvest location was acquired from Stop & Shop and the Saugus Wild Harvest location was previously a Star conventional store. Wild Harvest stores offer an extensive selection of natural foods, natural meats and seafood, bulk foods, and fresh fruits and vegetables including, certified organic, pesticide-free, conventional and locally grown produce. Wild Harvest stores also offer: "Wild Juices," a California style juice bar; "Harvest Grain," a scratch bakery where bakers make their own dough from unbleached and unbromated flours; a Granola Factory where 12 different granolas are made on-site and baked fresh daily; "Harvest Table," a selection of healthy, prepared foods for time-starved consumers; and a Wellness Department, which offers a complete assortment of natural vitamins, nutritional supplements, herbal and homeopathic remedies and natural personal care products. In addition to the items mentioned above, Wild Harvest stores feature a selection of the most popular grocery items sold in traditional supermarkets allowing consumers one shopping destination. Marketing - --------- The Company's marketing strategy emphasizes its long-standing reputation for quality perishable goods and superior customer service. The Company's advertising also highlights its broad selection of national brand and private label merchandise via weekly circulars and through radio and television commercials. The Wild Harvest advertising programs emphasize fresh affordable natural foods as well as the convenience of one-stop shopping. In November 1995, the Company was the first food retailer in the metropolitan Boston area to introduce a card-based marketing and merchandising program designed to increase customer loyalty. The Star Advantage Card offers customers promotional benefits and eliminates the need to clip Star circular coupons. Wild Harvest stores offer the Wild Card with benefits similar to the Star Advantage Card. During 1996, the Company utilized both cards, which also track customers' purchasing data, to target specific customers for certain promotional events. Information Systems - ------------------- The Company's management information systems and point-of-sale scanning technology reduce labor costs attributable to product pricing and customer check-out, and provide management with information that facilitates purchasing, receiving and management of inventory and accounts payable. The Company has point-of-sale scanning technology in all of its stores. All stores use electronic systems for employee time and attendance records. The Company believes that its information systems enable management to operate efficiently in product procurement, store delivery scheduling, inventory management and pricing accuracy. In conjunction with the Acquisition, the Company developed a plan to upgrade and/or replace a significant portion of its information systems architecture to state-of-the-art technology. During 1996, the Company successfully completed and implemented the first phase of replacing the core application software within its buying, merchandising and inventory management systems. The project is scheduled for completion in fiscal 1997. The Company made infrastructure upgrades during 1996 to its store network resulting in more timely information and better customer service. Distribution - ------------ The Company operates a warehouse and distribution complex in Norwood, Massachusetts that supplies both the Company's retail and wholesale operations with dry grocery, dairy and perishable products. This facility provides approximately 14.5 million cubic feet of storage space, or capacity for approximately 1.6 million cases of product. Management believes this facility has sufficient capacity to support the Company's growth plans over the next several years. The Norwood complex is conveniently located within the Company's market area and provides efficient distribution of product with a fleet of 30 tractors and 421 trailers. The Norwood complex also includes a corrugated paper recycling facility that reclaims packaging materials from the stores and prepares it for sale to processors of corrugated paper products. Competition - ----------- The retail food industry is highly competitive. It is characterized by narrow profit margins and, accordingly, earnings are dependent on high sales volume and operating efficiency. The Company's competitors include regional and local supermarket chains and natural food stores, independent grocery stores, specialty food stores, warehouse club stores, drug stores and convenience stores. Supermarket chains generally compete on the basis of location, quality of products, service, price, product variety and store condition. The Company's principal competitors include Stop & Shop, Shaw's, Roche Bros., Bread & Circus, and Demoulas. Merchandising Programs - ---------------------- The Company's merchandising programs are designed to increase gross margins and optimize product assortment. The key elements of the Company's merchandising strategy are to (i) provide its superstores with a wider range of non-grocery items, such as home office products, kitchen and bath items, books and magazines and other general merchandise, (ii) introduce high- quality prepared foods departments, (iii) provide an expanded selection of high-quality perishable products from its existing in-store bakeries, seafood, floral, and produce departments, (iv) expand the Company's offerings of natural, organic and ethnic foods, and (v) establish specialty departments, such as juice bars, prepared foods, "Petcetera" pet food and accessories departments, and "Wild Harvest" natural food departments, where space permits. In addition, the Company is implementing strategies to increase its sales of private label products. The Company intends to increase sales of private label products by offering a wider range of private label products and improving the marketing and merchandising of such products. Further, the Company has exclusive distribution rights within its trade area for the President's Choice brand of products, a line of high- quality packaged products. Wholesale Operations - -------------------- The Company's wholesale operations principally involve the distribution of grocery and perishable products to locations in New England and New York. Approximately 17 of these locations are contractually allowed to operate under the "Star" name, provided that the customer complies with certain operating covenants intended to protect the value of the "Star" trade name by insuring that the customer's stores are clean and well-run. The existing contracts are generally terminable by the Company on 30 days notice. In addition to providing product distribution, the Company also offers marketing and advertising programs to wholesale customers for an incremental charge. The Company does not generally provide financing to its wholesale customers, other than the Company's standard payment terms for product purchases. Item 2. Properties - ------------------ At the end of fiscal 1996, the Company owned eight stores, its office in Cambridge, Massachusetts and its warehouse and distribution complex in Norwood, Massachusetts. In addition, as of the end of fiscal 1996, the Company owned one non-operating retail site located in Rhode Island. The Company has granted mortgages on all of its real estate to the lenders under its Senior Credit Facility to secure the Company's obligations thereunder. The Company sold one non-operating retail site during fiscal 1996, and in February 1997, subsequent to fiscal 1996, the Company completed a sale- leaseback transaction for one of its operating properties. At the end of fiscal 1996, the Company leased 40 stores throughout the metropolitan Boston area and Cape Cod, Massachusetts. The leases for the 40 stores have an average life of approximately 32 years until final expiration, and only one lease has a remaining term of less than five years. The Company will continue to evaluate additional sale-leaseback transactions for properties owned, and the sale of the remaining non-operating property to partially finance the anticipated growth of the Company. Item 3. Legal Proceedings - ------------------------- From time to time, the Company has been involved in various legal proceedings. Management believes that all of such litigation is routine in nature and incidental to the conduct of the Company's business, and that none of such litigation, if determined adversely to the Company, would have a material adverse effect on the financial condition or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- No matters were submitted to a vote of security holders during the 13-week period ended February 1, 1997. PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters - ------------------------------------------------------------------------------ There is no established public trading market for the Company's common equity. The authorized common stock of the Company consists of 10,000 shares of common stock, par value $.01 per share ("Common Stock"). At April 21, 1997, there were 5,000 shares of Common Stock issued and outstanding, all of which are held of record by Holdings. All outstanding shares of Common Stock are pledged to secure the Company's obligations under its Senior Credit Facility and, pursuant to restrictions contained therein, the Company is not expected to be able to pay dividends on its Common Stock for the foreseeable future, other than certain limited dividends permitted under the Senior Credit Facility. The Company's 13% Senior Subordinated Notes due 2004 (the "Subordinated Notes") were issued pursuant to an indenture (the "Indenture") containing certain covenants that also restrict the payment of dividends, the repurchase of capital stock and the making of other Restricted Payments (as defined in such indenture), subject to certain exceptions similar to those contained in the Senior Credit Facility. Item 6. Selected Financial Data - ------------------------------- The following table sets forth summary historical financial data of Star Markets and the Company for the five fiscal years ended February 1, 1997. For financial statement purposes, the Acquisition was accounted for as a purchase effective September 10, 1994. As a result, the Company has adopted a new basis of accounting that reflects estimated fair values for assets and liabilities at that date. For additional information, see the Financial Statements included elsewhere in this report.
Predecessor The Company ----------------------------------------- ----------------------------------------- (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks) Fiscal Year Fiscal Year 32-Week 20-Week Fiscal Year Fiscal Year Ended Ended Period Ended Period Ended Ended Ended January 30, January 29, September 10, January 28, February 3, February 1, 1993 1994 1994 1995 1996 1997 ------------------------------------------------------------------------------------ (Dollars in thousands) ------------------------------------------------------------------------------------ Operating Data: Revenues Retail $703,622 $716,979 $427,762 $268,617 $ 763,513 $ 877,827 Wholesale 122,794 119,326 69,227 39,687 90,991 76,704 --------------------------------------------------------------------------------- Total revenues 826,416 836,305 496,989 308,304 854,504 954,531 Gross profit Retail 171,613 176,408 104,249 65,293 191,418 234,514 Wholesale 5,704 6,156 4,058 2,230 6,273 4,927 --------------------------------------------------------------------------------- Total gross profit 177,317 182,564 108,307 67,523 197,691 239,441 Depreciation and amortization 12,557 12,841 8,295 7,218 19,326 22,178 Operating income 26,715 29,705 15,266 6,384 19,642 19,949 Interest expense 350 79 27 9,781 28,382 28,894 Income (loss) before extraordinary loss 15,905 17,476 8,592 (3,507) (8,890) (9,336) Extraordinary loss (2,094) Net income (loss) 15,905 17,476 8,592 (5,601) (8,890) (9,336) Store Data (Period End): Number of stores 31 32 33 33 38 48 Selling square footage 752,496 797,346 842,146 859,773 1,144,486 1,419,013 Balance Sheet Data (Period End): Total assets $186,440 $209,445 $208,084 $421,355 $ 425,503 $ 453,270 Long-term debt 240,057 257,400 271,827 Redeemable preferred stock 10,037 10,134 10,230
Item 7. Management's Discussion and Analysis of the Results of Operations - ------------------------------------------------------------------------- and Financial Condition - ----------------------- Fiscal 1996 and Fiscal 1995 Revenues - -------- Revenues from retail operations for the 52-week period ended February 1, 1997 increased 15.0% to $877.8 million from $763.5 million for the 53-week period ended February 3, 1996. The increase in revenues from retail operations was due to both an increase in the number of stores operated and to increased revenues from existing stores. For stores open more than one year ("same store sales"), adjusted to reflect a 52-week comparison, revenues increased by 3.2% from the prior period. Revenues from wholesale operations for the 52-week period ended February 1, 1997 declined 15.7% to $76.7 million from $91.0 million for the 53-week period ended February 3, 1996. The decrease in wholesale revenues was primarily due to the loss of certain wholesale accounts which ceased operations due to increased competition in their respective trading areas. Gross Profit - ------------ Gross profit from retail operations for the 52-week period ended February 1, 1997 increased 22.5% to $234.5 million from $191.4 million for the 53-week period ended February 3, 1996 primarily due to the increase in revenues. Gross profit as a percentage of revenues for the retail operations for the 52-week period ended February 1, 1997 increased to 26.7% from 25.1% for the 53-week period ended February 3, 1996. The increase in gross profit as a percentage of revenues was primarily attributable to an increase in the gross margin rate in the perishable categories. Gross profit from wholesale operations for the 52-week period ended February 1, 1997 decreased 21.5% to $4.9 million from $6.3 million for the 53-week period ended February 3, 1996. Gross profit as a percentage of revenues for wholesale operations for the 52-week period ended February 1, 1997 decreased to 6.4% from 6.9% for the 53-week period ended February 3, 1996. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses for the 52-week period ended February 1, 1997 increased by 24.3% to $197.3 million from $158.7 million for the 53- week period ended February 3, 1996. Operating and administrative expenses as a percentage of total revenues for the 52-week period ended February 1, 1997 increased to 20.7% from 18.6% for the 53-week period ended February 3, 1996. The increase in operating and administrative expenses as a percentage of total revenues was attributable to a number of factors: continued investment in increased service levels in the stores; an increase in retail operations which incur a higher rate of operating and administrative expenses than wholesale operations; an increase in rent expense as a result of sale-leaseback transactions which occurred in October 1995 and January 1996; the acquisition of 10 locations during the period; the opening of the two new Wild Harvest stores as well as the operating and administrative infrastructure established to support existing and future Wild Harvest locations; and additional administrative costs as the Company continues to grow. Depreciation and Amortization - ----------------------------- Depreciation and amortization expense, which includes the amortization of goodwill, was 2.3% of total revenues for the 52-week period ended February 1, 1997 and the 53-week period ended February 3, 1996. Non-Operating Expenses - ---------------------- Interest expense for the 52-week period ended February 1, 1997 increased to $28.9 million from $28.4 million for the 53-week period ended February 3, 1996. The Company recorded state income tax expense of $0.4 million for the 52-week period ended February 1, 1997 and $0.3 million for the 53-week period ended February 3, 1996. The Company did not record a federal or state tax benefit associated with the losses recorded in the 52-week period ended February 1, 1997 and the 53-week period ended February 3, 1996. Fiscal 1995 and Fiscal 1994 Revenues - -------- Revenues from retail operations for the 53-week period ended February 3, 1996 increased 9.6% to $763.5 million from $696.4 million for the 52-week period ended January 28, 1995. For stores open more than one year ("same store sales"), adjusted to reflect a 52-week comparison, revenues declined by 1.0% from fiscal 1994. Same store sales results by quarter for the adjusted period ending February 3, 1996, were -3.7%, -4.5%, 0.3%, and 4.0%, respectively. The decline in same store sales during the first two quarters was primarily due to reduced promotional activity as compared to the prior year. Revenues from wholesale operations for the 53-week period ended February 3, 1996 declined 16.5% to $91.0 million from $108.9 million for the 52-week period ended January 28, 1995. The decrease in wholesale revenues was primarily due to the loss of certain wholesale accounts which ceased operations due to increased competition in their respective trading areas. Gross Profit - ------------ Gross profit from retail operations for the 53-week period ended February 3, 1996 increased 12.9% to $191.4 million from $169.5 million for the 52-week period ended January 28, 1995 primarily due to the increase in revenues. Gross profit as a percentage of revenues for retail operations for the 53- week period ended February 3, 1996 increased to 25.1% from 24.4% for the 52- week period ended January 28, 1995. The increase in gross profit as a percentage of revenues was primarily attributable to an increase in the gross margin rate in the non-perishable categories. Gross profit from wholesale operations for the 53-week period ended February 3, 1996 was $6.3 million, substantially the same as the 52-week period ended January 28, 1995. Gross profit as a percentage of revenues for wholesale operations for the 53-week period ended February 3, 1996 increased to 6.9% from 5.8% for the 52-week period ended January 28, 1995. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses for the 53-week period ended February 3, 1996 increased by 15.3% to $158.7 million from $137.7 million for the 52- week period ended January 28, 1995. Operating and administrative expenses as a percentage of total revenues for the 53-week period ended February 3, 1996 increased to 18.6% from 17.1% for the 52-week period ended January 28, 1995. The increase in operating and administrative expenses as a percentage of total revenues was primarily attributable to continued investment in increased service levels in the stores, the opening of two new superstores, and the acquisition of three conventional stores during fiscal 1995. Depreciation and Amortization - ----------------------------- Depreciation and amortization expense, which includes the amortization of goodwill, was 2.3% of total revenues for the 53-week period ended February 3, 1996 and 1.9% of total revenues for the 52-week period ended January 28, 1995. Non-Operating Expenses - ---------------------- Interest expense for the 53-week period ended February 3, 1996 increased to $28.4 million from $9.8 million for the 52-week period ended January 28, 1995. The increase in interest expense was attributable to indebtedness incurred in connection with the Acquisition, the issuance of Subordinated Notes, and borrowings under the revolving credit facility to fund fixed asset and working capital requirements for new stores, acquisitions and expansions. Income tax expense for the 53-week period ended February 3, 1996 decreased to $0.3 million from $6.1 million for the 52-week period ended January 28, 1995. The Company recorded state income tax expense of $.3 million for the 53-week period ended February 3, 1996 and $0.1 million for the 20-week period ended January 28, 1995. The Company did not record a federal or state tax benefit associated with the losses recorded in the 53- week period ended February 3, 1996 and the 20-week period ended January 28, 1995. Extraordinary Loss. - ------------------- The Company recorded an extraordinary loss of $2.1 million for the 20-week period ended January 28, 1995, resulting from the write-off of deferred financing costs related to the repayment of indebtedness under the Company's $75.0 million Subordinated Loan Facility dated September 8, 1994 (the "Subordinated Loan Facility") with the proceeds from the offering of the Subordinated Notes. The Company entered into the Subordinated Loan Facility in connection with the Acquisition. Liquidity and Capital Resources - ------------------------------- The Company's liquidity needs arise primarily from debt service on the indebtedness incurred in connection with the Acquisition and the funding of the Company's store acquisitions, capital expenditure and working capital requirements. The Company's total indebtedness as of April 21, 1997 was $259.0 million, which includes $110.0 million of Subordinated Notes due November 1, 2004, $145.4 million due under the Senior Credit Facility, and a $3.6 million note payable. The Senior Credit Facility provides for a $108.0 million term loan facility and a $75.0 million revolving credit facility. As of April 21, 1997, the Company had $8.8 million drawn under the letter of credit facilities of the Senior Credit Facility and $37.4 million drawn under the revolving credit portion of the Senior Credit Facility leaving an aggregate of $28.8 million of unused revolving credit availability under the Senior Credit Facility. The Company paid $1.3 million in aggregate principal amount which matured in 1996. An additional $0.9 million in aggregate principal amount will mature in 1997. During 1996, the Company acquired 10 supermarket locations from Stop & Shop for an aggregate purchase price of $28.0 million, excluding related fees and inventory. In January 1996, the Company's lenders executed an amendment to the Senior Credit Facility which allowed the Company to utilize $12.0 million in proceeds from the sale of assets to fund a portion of this acquisition. The amendment to the Senior Credit Facility contemplated one additional location not included in the final agreement with Stop & Shop. Accordingly, the terms of the Senior Credit Facility were amended a second time in June 1996 to reflect the final agreement with Stop & Shop regarding the acquired locations. In addition, the Company incurred approximately $4.0 million in long-term debt payable to Stop & Shop over five years and the balance of the purchase price was funded by an equity contribution of $12.0 million from Holdings. On April 21, 1997, the Company completed an amendment to the Senior Credit Facility in order to accommodate continued investment in new store growth. The amendment provides for a $108.0 million term loan facility and a $75.0 revolving credit facility, extends the revolving credit facility by two years to December 31, 2001, amends certain covenant levels, and replaces a term loan that was due in 1999 with a new term loan due in 2003. Capital expenditures for fiscal 1996 were $54.8 million as compared to $65.3 million in fiscal 1995 and $29.8 million in fiscal 1994. Predecessor's capital expenditures were funded through cash flow from operations. Successor's capital expenditures have been funded through cash flow from operations, proceeds from sale-leaseback transactions, proceeds from the sale of non-operating properties, and borrowings under the revolving credit portion of its Senior Credit Facility. Subsequent to the end of fiscal 1996, the Company completed a sale-leaseback transaction for one of its stores for a gross selling price of $21.0 million. The Company currently anticipates making capital expenditures of approximately $43.2 million in fiscal 1997. Capital expenditures will include opening two new superstores, opening a new superstore to replace an existing conventional store, remodeling six existing stores, converting one conventional store to a superstore, and opening two new Wild Harvest stores. Planned capital expenditures for fiscal 1997 include approximately $6.1 million for maintenance, systems, and distribution. The Company believes that funds generated from operations, proceeds from additional sale-leaseback transactions and borrowings under the Senior Credit Facility will provide sufficient resources through fiscal 1997 to permit it to meet its working capital requirements, to make all interest and principal payments due and payable on the Subordinated Notes and its existing indebtedness and to fund planned capital expenditures. However, if the Company's cash flow and capital resources are insufficient to fund its debt service obligations, the Company may be required to reduce or delay planned capital expenditures, sell assets, obtain additional equity capital or restructure its debt. Borrowings under the Senior Credit Facility are subject to variable interest rates, which could cause the Company to be vulnerable to future increases in prevailing interest rates. To the extent that the Company is required to dedicate materially greater amounts of its cash flow from operations and other capital resources to pay interest on its outstanding indebtedness as a result of future interest rate increases, it will reduce the funds available for other purposes. Item 8. Consolidated Financial Statements and Supplementary Data - ---------------------------------------------------------------- The Consolidated financial statements and supplementary data are included under Item 14. of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure - -------------------- None. Part III Item 10. Directors and Executive Officers of the Registrant - ----------------------------------------------------------- The following table sets forth the name, age and position of each current director and executive officer of the Company. Each director of the Company will hold office until the next annual meeting of shareholders of the Company or until his or her successor has been elected and qualified. Officers of the Company are elected by the Board of Directors of the Company and serve at the discretion of the Board of Directors. The size of the Board of Directors may be increased from time to time.
Name Age Positions - ---- --- --------- Henry J. Nasella 50 Chairman of the Board of Directors, President and Chief Executive Officer Robert R. Spellman 49 Director, Executive Vice President, Administration, and Chief Financial Officer Edward Albertian 44 Executive Vice President, Operations and Chief Operating Officer Carole O'Connor Gates 39 Executive Vice President, Marketing William P. Paul 50 Executive Vice President, Merchandising
Henry J. Nasella became Chairman of the Board of Directors, President and Chief Executive Officer of the Company in September 1994 upon the consummation of the Acquisition. Prior to joining the Company, Mr. Nasella was Chief Executive Officer of Staples, the Office Superstore Division of Staples, Inc., a leading office products retailer, during 1993, and President of Staples, Inc. from 1988 through 1993. Mr. Nasella is also a director of Au Bon Pain Co., Inc. Robert R. Spellman became a Director, Executive Vice President, Administration, and Chief Financial Officer of the Company in October 1994 upon the consummation of the Acquisition. Prior to joining the Company, he served as Senior Vice President, Finance of Staples, Inc. from September 1988, Secretary of Staples, Inc. from December 1988 through March 1993 and was Treasurer of Staples, Inc. from September 1989 through August 1993. Edward Albertian became Executive Vice President, Operations, and Chief Operating Officer in May 1996. He joined the Company in May 1995 as Senior Vice President, Operations. Prior to joining the Company, Mr. Albertian served as Senior Vice President, Eastern Operations for Staples, Inc. from 1992. Carole O'Connor Gates became Executive Vice President, Marketing in April 1996. She joined the Company in November 1994 as Senior Vice President, Marketing. Prior to joining the Company, she served as Senior Vice President, Advertising of BayBank, Inc. from January 1990. William P. Paul became Executive Vice President, Merchandising in April 1996. He joined the Company in May 1995 as Senior Vice President, Merchandising. Prior to joining the Company, he served as Vice President of Merchandising of Staples, International from February 1994 to May 1995, and Vice President of Merchandising of Staples, Inc. from September 1990 to February 1994. Director Compensation - --------------------- The Company pays no remuneration to its employees or to executives of Investcorp or any of its wholly-owned subsidiaries for serving as directors. See "Management--Executive Compensation." There are no family relationships among any of the directors or executive officers. Item 11. Executive Compensation - ------------------------------- The following table sets forth certain information concerning the compensation of the Company's Chief Executive Officer and the four other most highly compensated executive officers for fiscal years 1996 and 1995, and the short fiscal year ended January 28, 1995. Summary Compensation Table
Long Term Annual Compensation Compensation ------------------- ------------ Awards - --------------------------------------------------------------------------------------- Number of Other Shares Annual Underlying All Other Name and Principal Salary(2) Bonus(3) Compensation Options/SARs Compensation(4) Position Year(1) ($) ($) ($) (#) ($) - ---------------------------------------------------------------------------------------------------------- Henry J. Nasella 1996 300,000 0 0 0 12,046 Chairman, President and 1995 300,000 100,000 0 0 13,140 Chief Executive Officer 1994 125,000 115,500 0 76,239 10,026 - ---------------------------------------------------------------------------------------------------------- Robert R. Spellman 1996 250,000 50,000 0 0 9,334 Executive Vice President, 1995 250,000 50,000 0 0 9,368 Administration and Chief 1994 83,333 38,500 0 8,083 18,892(5) Financial Officer - ---------------------------------------------------------------------------------------------------------- Edward Albertian 1996 197,583 63,238 0 500 7,998 Executive Vice President, 1995 131,396 26,279 0 4,114 5,868 Operations and Chief Operating Officer - ---------------------------------------------------------------------------------------------------------- Carole O'Connor Gates 1996 168,333 51,667 0 0 7,495 Executive Vice President, 1995 160,000 32,000 0 5,477 1,181 Marketing 1994 42,540 75,000 0 0 95 - ---------------------------------------------------------------------------------------------------------- William P. Paul 1996 159,167 32,142 0 0 8,381 Executive Vice President, 1995 109,792 21,958 0 3,328 4,928 Merchandising - ---------------------------------------------------------------------------------------------------------- Star Markets Company, Inc. began operations on September 9, 1994, as successor to the Star Market Company operating division of Jewel Food Stores, Inc. Represents salary paid since date of employment. Dates on which the employment of each named executive commenced were September 1, 1994 for Mr. Nasella, October 1, 1994 for Mr. Spellman, October 26, 1994 for Ms. O'Connor Gates, May 15, 1995 for Mr. Albertian and May 15, 1995 for Mr. Paul. Represents amounts paid for the relevant fiscal year. Bonuses are reported in the fiscal year earned and typically paid during the following fiscal year. The compensation reported represents: amounts contributed by the Company under the 401(K) Savings Plan and imputed income on the value of Company provided term life insurance in excess of $50,000. - Company contributions under the 401(K) Savings Plan for fiscal 1994 were as follows: $5,190 for Mr. Nasella and Mr. Spellman, and $0 for Ms. O'Connor Gates. Imputed income on the value of Company provided term life insurance in excess of $50,000 in fiscal 1994 was as follows: $4,836 for Mr. Nasella, $508 for Mr. Spellman, and $95 for Ms. O'Connor Gates. - Company contributions under the 401(K) Savings Plan for fiscal 1995 were as follows: $6,332 for Mr. Nasella, $6,932 for Mr. Spellman, $5,095 for Mr. Albertian, $613 for Ms. O'Connor Gates and $4,025 for Mr. Paul. Imputed income on the value of Company provided term life insurance in excess of $50,000 in fiscal 1995 was as follows: $6,808 for Mr. Nasella, $2,436 for Mr. Spellman, $773 for Mr. Albertian, $568 for Ms. O'Connor Gates, and $903 for Mr. Paul. - Company contributions under the 401(K) Savings Plan for fiscal 1996 were as follows: $5,458 for Mr. Nasella, $6,898 for Mr. Spellman, $6,898 for Mr. Albertian, $6,898 for Ms. O'Connor Gates and $6,898 for Mr. Paul. Imputed income on the value of Company provided term life insurance in excess of $50,000 in fiscal 1996 was as follows: $6,588 for Mr. Nasella, $2,436 for Mr. Spellman, $1,100 for Mr. Albertian, $597 for Ms. O'Connor Gates, and $1,483 for Mr. Paul. Includes a $13,194 reimbursement of certain amounts forfeited in connection with termination of prior employment.
Option Grants The following table sets forth certain information concerning grants of stock options in respect of Class C Stock of Star Markets Holdings, Inc. ("Holdings") during the fiscal year ended February 1, 1997 to the executive officers named in the Summary Compensation Table. Option Grants in 1996 Individual Grants -----------------
Number of Percent of Shares of Total Potential Realized Value at Class C Options Assumed Annual Rates of Stock Stock Granted to Price Appreciation for Option Underlying Employees Exercise Term(2) Options in Fiscal Price per Expiration Name Granted Year Shares($) Date 0%($) 5%($) 10%($) - --------------------------------------------------------------------------------------------------------- Henry J. Nasella 0 - - - - - - - --------------------------------------------------------------------------------------------------------- Robert R. Spellman 0 - - - - - - - --------------------------------------------------------------------------------------------------------- Edward Albertian 500(1) 41.7 75 7/19/06 0 23,584 59,765 - --------------------------------------------------------------------------------------------------------- Carole O'Connor Gates 0 - - - - - - - --------------------------------------------------------------------------------------------------------- William Paul 0 - - - - - - - --------------------------------------------------------------------------------------------------------- Each option becomes exercisable on a cumulative basis in five equal annual installments beginning on the last day of fiscal year 1996, provided the optionee continues to be employed by the Company on such dates, and subject to the achievement of certain earnings targets. In addition, the exercisability of stock options will accelerate upon an initial public offering and may accelerate upon a change of control. In accordance with the rules of the Securities and Exchange Commission, the amounts shown on this table represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 0%, 5% and 10% compounded annually from the date the respective options were granted to their expiration date. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on many factors, including the future performance of the Company, the option holder's continued employment through the option period, and the date on which the options are exercised.
Option Exercises and Holdings The following table sets forth certain information related to stock options in respect of Class C Stock of Holdings for the fiscal year ended February 1, 1997 for each of the executive officers named in the Summary Compensation Table; and the number and value of options held by each of these executives on February 1, 1997.
Number of Number of Shares of Shares Common Stock Underlying Value of Unexercised In- Common Unexercised Options at The-Money Options at Stock Fiscal Year End Fiscal Year End(1) Acquired on Value ---------------------------- ---------------------------- Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ---------------------------------------------------------------------------------------------------------------- Henry J. Nasella 0 $0 7,624 68,615 $0 $1,429,500 - --------------------------------------------------------------------------------------------------------------- Robert R. Spellman 0 0 1,617 6,466 0 0 - --------------------------------------------------------------------------------------------------------------- Edward Albertian 0 0 823 3,791 0 0 - --------------------------------------------------------------------------------------------------------------- Carole O'Connor Gates 0 0 1,095 4,382 0 0 - --------------------------------------------------------------------------------------------------------------- William Paul 0 0 666 2,662 0 0 - --------------------------------------------------------------------------------------------------------------- Underlying shares are not publicly traded and are subject to repurchase by Holdings under certain circumstances at the employee's cost or at the then current value of the underlying share, as determined by the Holding's Board of Directors upon the termination of the employee's employment with the Company. Only those options granted to Mr. Nasella at an exercise price of $37.50 per share are classified as in-the-money for purposes of this table based on an estimated value of such shares of $75.00 per share. Neither Holdings nor the Company has established any recent valuations for such shares.
Item 12. Security Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------------------- All of the Company's issued and outstanding capital stock is owned by Holdings. Class D Stock, par value $.01 per share, is the only class of Holdings' stock that currently possesses voting rights. At February 1, 1997 there were 5,000 shares of Holdings' Class D Stock issued and outstanding. Members of the Company's management own 38,935 shares, and have the right to acquire an additional 19,149 shares subject to presently exercisable options, of Holdings' Class C Stock, par value $.01 per share, which stock has no voting rights except in certain limited circumstances. The following tables set forth the beneficial ownership of each class of issued and outstanding securities of Holdings by each director of the Company, each of the executive officers of the Company listed under "Management," the directors and executive officers of the Company as a group and each person who beneficially owns more than 5% of the outstanding shares of any class of voting securities of Holdings.
Class D Voting Stock: - --------------------- Number of Voting Shares(1) Percentage(1) --------- ------------- INVESTCORP S.A.(2)(6) 5,000 100.0% 37 rue Notre-Dame, Luxembourg SIPCO Limited(3) 5,000 100.0% P.O. Box 1111 West Wind Building George Town, Grand Cayman Cayman Islands CIP Limited(4)(5) 4,600 92.0% P.O. Box 1111 West Wind Building George Town, Grand Cayman Cayman Islands Ballet Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands Denary Limited(4)(5) 460 9.2% West Wind Building George Town, Grand Cayman Cayman Islands Gleam Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands Highlands Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands Noble Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands Outrigger Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands Quill Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands Radial Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands Shoreline Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands Zinnia Limited(4)(5) 460 9.2% P.O. Box 2197 West Wind Building George Town, Grand Cayman Cayman Islands INVESTCORP Investment Equity Limited(6) 400 8.0% P.O. Box 1111 West Wind Building George Town, Grand Cayman Cayman Islands As used in this table, beneficial ownership means the sole or shared power to vote, or to direct the voting of a security, or the sole or shared power to dispose, or direct the disposition of, a security. Investcorp does not directly own any stock in Holdings. The number of shares shown as owned by Investcorp includes all of the shares owned by INVESTCORP Investment Equity Limited (see (6) below). Investcorp owns no stock in Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited, Zinnia Limited, or in the beneficial owners of these entities. Investcorp may be deemed to share beneficial ownership of the shares of voting stock held by these entities because the entities have entered into revocable management services or similar arrangements with an affiliate of Investcorp pursuant to which each of such entities has granted such affiliate the authority to direct the voting and disposition of the Holdings voting stock owned by such entity for so long as such agreement is in effect. Investcorp is a Luxembourg corporation. SIPCO Limited may be deemed to control Investcorp through its ownership of a majority of a company's stock that indirectly owns a majority of Investcorp's shares. CIP Limited ("CIP") owns no stock in Holdings. CIP owns less than 0.1% of the stock in each of Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited (see (5) below). CIP may be deemed to share beneficial ownership of the shares of voting stock of Holdings held by such entities because CIP acts as a director of such entities and the ultimate beneficial shareholders of each of those entities have granted CIP revocable proxies in companies that own those entities' stock. None of the ultimate beneficial owners of such entities beneficially owns individually more than 5% of Holdings' voting stock. CIP, Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited each is a Cayman Islands corporation. INVESTCORP Investment Equity Limited is a Cayman Islands corporation, and a wholly-owned subsidiary of Investcorp.
Class C Non-Voting Stock: - ------------------------- Number of Shares(1) --------- Henry J. Nasella 34,291(2) 625 Mount Auburn Street Cambridge, MA 02138 Robert R. Spellman 4,950(3) 625 Mount Auburn Street Cambridge, MA 02138 Edward Albertian 1,423(4) 625 Mount Auburn Street Cambridge, MA 02138 Carole O'Connor Gates 1,735(5) 625 Mount Auburn Street Cambridge, MA 02138 William P. Paul 1,266(6) 625 Mount Auburn Street Cambridge, MA 02138 ------ All directors and executive officers of the Company as a group (5) persons 43,665 ====== As used in this table, beneficial ownership means the sole or shared power to vote, or direct the voting of a security, or the sole or shared power to dispose, or direct the disposition of, a security. Each of the persons listed is deemed to beneficially own shares issuable upon the exercise of stock options that are currently exercisable ("Presently Exercisable Options"). Includes 7,624 shares subject to Presently Exercisable Options. Includes 1,617 shares subject to Presently Exercisable Options. Includes 823 shares subject to Presently Exercisable Options. Includes 1,095 shares subject to Presently Exercisable Options. Includes 666 shares subject to Presently Exercisable Options.
Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- Holdings was originally capitalized with $75.0 million of equity contributed by Investcorp, its affiliates, other international and domestic investors and senior management of the Company and $10.0 million in the form of $11.0 million principal amount of junior subordinated indebtedness (the "Junior Notes") provided, and acquired at a discount, by Invifin S.A. ("Invifin"), an affiliate of Investcorp. Holdings capitalized the Company with $86.0 million in exchange for 100% of the outstanding common and redeemable preferred stock of the Company in connection with the consummation of the Acquisition. This capital contribution to the Company, in addition to borrowings under the Senior Credit Facility and the Subordinated Loan Facility, provided the sources of the consideration for the Acquisition and related costs and fees. In connection with the Acquisition, the Company paid Investcorp International, Inc. ("International") advisory fees of $5.7 million. The Company also paid approximately $5.1 million to International for arranging the commercial bank financing and $165,000 in commitment fees to Invifin in connection with the Junior Notes. In July 1996, Holdings issued an additional $12.0 million of equity securities to affiliates of Investcorp. Holdings contributed the proceeds from the issuance of securities as additional paid-in-capital to the Company to partially fund the acquisition of 10 supermarket locations from Stop & Shop in July 1996. In connection with the Acquisition, the Company entered into an agreement for management advisory and consulting services (the "Management Agreement") with International pursuant to which the Company agreed to pay International $750,000 per annum for a five-year term. At the closing of the Acquisition, the Company paid International approximately $2.3 million for the first three years in accordance with the terms of the Management Agreement. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - ------------------------------------------------------------------------- (a) 1. The financial statements listed in the List of Financial Statements on page F-2 are filed as part of this Annual Report on Form 10-K. (a) 2. Financial Statement Schedules All schedules are omitted as the required information is inapplicable or are presented in the financial statements or related notes. (a) 3. List of Exhibits: Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K is identified with an asterisk ("*") below. Exhibit Number Description of Exhibits - ------- ----------------------- 3(a) Amended and Restated Articles of Organization of the Company, dated as of September 6, 1994 (filed as Exhibit 3(a) to the Registration Statement (No. 33-86690) on Form S-4 (the "Registration Statement") and incorporated herein by reference). 3(b) By-laws of the Company (filed as Exhibit 3(b) to the Registration Statement and incorporated herein by reference). 3(c) Certificate of Designation relating to the Preferred Stock of the Company, dated September 7, 1994 (filed as Exhibit 3(c) to the Registration Statement and incorporated herein by reference). 4(a) Indenture between the Company and State Street Bank and Trust Company, as Trustee, dated as of November 1, 1994 (filed as Exhibit 4(a) to the Registration Statement and incorporated herein by reference). 4(b) Exchange and Registration Rights Agreement among the Company, Chemical Securities Inc. and BT Securities Corporation, dated November 2, 1994 (filed as Exhibit 4(b) to the Registration Statement and incorporated herein by reference). 10(a) Asset Purchase Agreement between Jewel Food Stores, Inc. and Star Acquisition Corp., dated July 28, 1994 (filed as Exhibit 10(a) to the Registration Statement and incorporated herein by reference). 10(b) First Amendment to Asset Purchase Agreement between Jewel Food Stores, Inc. and Star Acquisition Corp., dated August 3, 1994 (filed as Exhibit 10(b) to the Registration Statement and incorporated herein by reference). 10(c) Second Amendment to Asset Purchase Agreement between Jewel Food Stores, Inc. and the Company, dated September 8, 1994 (filed as Exhibit 10(c) to the Registration Statement and incorporated herein by reference). 10(d) Purchase Agreement among the Company, Chemical Securities Inc. and BT Securities Corporation, dated October 26, 1994 (filed as Exhibit 10(d) to the Registration Statement and incorporated herein by reference). 10(e) Credit Agreement among the Company, Chemical Bank, as Administrative Agent, and the lenders party thereto, dated as of September 8, 1994 (filed as Exhibit 10(e) to the Registration Statement and incorporated herein by reference). 10(f) Security Agreement made by the Company in favor of Chemical Bank, as Administrative Agent, dated as of September 8, 1994 (filed as Exhibit 10(f) to the Registration Statement and incorporated herein by reference). 10(g) Transition Services Agreement between Jewel Food Stores, Inc. and the Company, dated as of September 8, 1994 (filed as Exhibit 10(g) to the Registration Statement and incorporated herein by reference). 10(h) Interim Limited Management Agreement between the Company and Star Market Liquors, Inc., dated as of September 8, 1994 (filed as Exhibit 10(h) to the Registration Statement and incorporated herein by reference). 10(i) Agreement for Management Advisory and Consulting Services between Investcorp International, Inc. and the Company, dated as of September 8, 1994 (filed as Exhibit 10(i) to the Registration Statement and incorporated herein by reference). 10(j)* Employment Agreement between the Company and Henry Nasella, dated as of September 8, 1994 (filed as Exhibit 10(j) to the Registration Statement and incorporated herein by reference). 10(k) Trust Agreement between the Company and Fidelity Management Trust Company, dated as of September 8, 1994 (filed as Exhibit 10(m) to the Registration Statement and incorporated herein by reference). 10(l) Third Amendment to Asset Purchase Agreement between Jewel Food Stores, Inc. and Star Acquisition Corp., dated January 13, 1995 (filed as Exhibit 10(n) to the Registration Statement and incorporated herein by reference). 10(m)* Star Markets Retirement Estates plan description dated November 7, 1994 (filed as Exhibit 10(o) to the Registration Statement and incorporated herein by reference). 10(n)* 1994 Stock Incentive Plan of Holdings, dated September 8, 1994 (filed as Exhibit 10(p) to the Registration Statement and incorporated herein by reference). 10(o) First Amendment to Credit Agreement among the Company, Chemical Bank, as Administrative Agent, and the lenders party thereto, dated as of January 16, 1996 (filed as Exhibit 10(q) to the Company's 1995 Form 10-K and incorporated herein by reference). 10(p)** Second Amendment to Credit Agreement among the Company, Chemical Bank, as Administrative Agent, and the lenders party thereto, dated as of June 25, 1996. 10(q)** Third Amendment to Credit Agreement among the Company, Chemical Bank, as Administrative Agent, and the lenders party thereto, dated as of April 21, 1997. 27** Financial Data Schedule for the 52 weeks ended February 1, 1997. (b) No reports were filed on Form 8-K for the 13-week period ended February 1, 1997. ** As filed herewith. Signatures ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Star Markets Company, Inc. DATE: May 2, 1997 BY: /s/ Henry J. Nasella Henry J. Nasella Chairman of the Board of Directors President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- /s/ Henry J. Nasella - ------------------------- Henry J. Nasella Chairman of the Board of Directors May 2, 1997 President and Chief Executive Officer (Principal Executive Officer)
Signature Title Date - --------- ----- ---- /s/ Robert R. Spellman - ------------------------- Robert R. Spellman Director May 2, 1997 Executive Vice President, Administration Chief Financial Officer (Principal Financial and Accounting Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. Not Applicable. No Annual Report or proxy material has been sent to holders of the Registrant's securities. Annual Report on Form 10-K Item 8, Item 14 (a) 1. List of Financial Statements Financial Statements Exhibit 52 weeks ended February 1, 1997, 53 weeks ended February 3, 1996, 20 weeks ended January 28, 1995, and 32 weeks ended September 10, 1994 Star Markets Company, Inc. Cambridge, MA Form 10-K - Item 14 (a) 1. Star Markets Company, Inc. 52 weeks ended February 1, 1997, 53 weeks ended February 3, 1996, 20 weeks ended January 28, 1995, and 32 weeks ended September 10, 1994 List of Financial Statements The following financial statements of Star Markets Company, Inc. ("The Company") are included herein: Balance sheets - February 1, 1997 and February 3, 1996 Statements of operations - 52 weeks ended February 1, 1997, 53 weeks ended February 3, 1996 and 20 weeks ended January 28, 1995 Statements of equity - 52 weeks ended February 1, 1997, 53 weeks ended February 3, 1996 and 20 weeks ended January 28, 1995 Statements of cash flows - 52 weeks ended February 1, 1997, 53 weeks ended February 3, 1996 and 20 weeks ended January 28, 1995 Notes to financial statements - February 1, 1997. The following financial statements of Star Markets ("Predecessor") are included herein: Statement of operations - 32 weeks ended September 10, 1994 Statement of equity - 32 weeks ended September 10, 1994 Statement of cash flows - 32 weeks ended September 10, 1994. Report of Ernst & Young LLP, Independent Auditors Shareholder and Board of Directors Star Markets Company, Inc. We have audited the accompanying balance sheets of Star Markets Company, Inc. ("Successor") as of February 1, 1997 and February 3, 1996 and the related statements of operations, changes in equity, and cash flows for the 52 week period ended February 1, 1997, the 53 week period ended February 3, 1996, and the 20 week period ended January 28, 1995 ("Successor periods"). We have also audited the accompanying statements of operations, changes in equity, and cash flows of Star Market Company ("Predecessor") for the 32 week period ended September 10, 1994 ("Predecessor period"). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Star Markets Company, Inc. at February 1, 1997 and February 3, 1996 and the results of its operations and its cash flows for the Successor periods and the Predecessor period in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP --------------------- Ernst & Young LLP Boston, Massachusetts March 28, 1997, except for Note 5, as to which the date is April 21, 1997 Star Markets Company, Inc. Balance Sheets (Amounts in thousands, except share data)
February 1, February 3, 1997 1996 ----------- ----------- Assets Current assets: Accounts receivable, net of reserve for doubtful accounts of $1,589 in 1996 and $1,779 in 1995 $ 21,815 $ 13,544 Inventory 65,550 62,915 Prepaid expenses 4,959 5,044 ----------------------- Total current assets 92,324 81,503 Property and equipment at cost: Land 31,015 32,402 Building 66,603 68,876 Equipment & fixtures 88,623 71,148 Leasehold improvements 44,024 28,670 ----------------------- Total property & equipment 230,265 201,096 Less accumulated depreciation and amortization 35,569 19,423 ----------------------- Net property and equipment 194,696 181,673 Other assets, net 33,058 25,885 Goodwill, net 133,192 136,442 ----------------------- Total Assets $453,270 $425,503 ======================= Liabilities and Shareholder's Equity Current liabilities: Accounts payable $ 46,798 $ 39,770 Accrued payroll & benefits 12,842 12,509 Current portion self-insurance 8,121 7,967 Accrued interest 6,003 5,133 Other current liabilities 13,637 10,170 ----------------------- Total current liabilities 87,401 75,549 Self-insurance reserves, less current portion 18,960 19,687 Other liabilities 3,772 3,532 Long-term debt 271,827 257,400 Redeemable preferred stock, redemption value $11,000 10,230 10,134 Shareholder's equity: Common stock, $.01 par value, 10,000 shares authorized and 5,000 shares outstanding 0 0 Additional paid-in-capital 84,907 73,692 Retained earnings (deficit) (23,827) (14,491) ----------------------- Total shareholder's equity 61,080 59,201 ----------------------- Total Liabilities and Shareholder's Equity $453,270 $425,503 =======================
See accompanying notes. Star Markets Company, Inc. Statements of Operations (Amounts in thousands)
The Company Predecessor ----------------------------------------- ------------- 52 Weeks 53 Weeks 20 Weeks 32 Weeks Ended Ended, Ended Ended February 1, February 3, January 28, September 10, 1997 1996 1995 1994 ----------- ----------- ----------- ------------- Total revenues $954,531 $854,504 $308,304 $496,989 Cost of goods sold 715,090 656,813 240,781 388,682 ------------------------------------------------------ Gross profit 239,441 197,691 67,523 108,307 Operating and administrative expenses 197,314 158,723 53,921 83,823 Depreciation and amortization 22,178 19,326 7,218 8,295 ------------------------------------------------------ 19,949 19,642 6,384 16,189 Parent charges 923 Interest expense 28,894 28,382 9,781 27 Other income (expenses), net (13) 100 (10) (676) ------------------------------------------------------ Income (loss) before income taxes and extraordinary items (8,958) (8,640) (3,407) 14,563 Income taxes 378 250 100 5,971 ------------------------------------------------------ Income (loss) before extraordinary items (9,336) (8,890) (3,507) 8,592 Extraordinary loss (2,094) ------------------------------------------------------ Net income (loss) $ (9,336) $ (8,890) $ (5,601) $ 8,592 =====================================================
See accompanying notes. Star Markets Company, Inc. Statements of Equity (Amounts in thousands)
Additional Common Paid-In- Retained The Company Stock Capital Earnings Total ----------- ------ ---------- -------- ----- Balance at September 10, 1994 (Inception) - - - - Proceeds from issuance of common stock $ 75,000 $75,000 Net loss $ (5,601) (5,601) Accretion of preferred stock (37) (37) Preferred stock dividend (483) (483) ------------------------------------------- Balance at January 28, 1995 $ 0 74,480 (5,601) 68,879 Net loss (8,890) (8,890) Accretion of preferred stock (97) (97) Preferred stock dividend (1,248) (1,248) Deferred compensation 557 557 ------------------------------------------- Balance at February 3, 1996 0 73,692 (14,491) 59,201 Net loss (9,336) (9,336) Accretion of preferred stock (96) (96) Preferred stock dividend (1,230) (1,230) Deferred compensation 556 556 Equity contribution, net of issuance costs 11,985 11,985 ------------------------------------------- Balance at February 1, 1997 $ 0 $ 84,907 $(23,827) $61,080 ===========================================
Division Predecessor Equity ----------- -------- Balance at January 29, 1994 $ 83,906 Net income 8,592 -------- Balance at September 10, 1994 (Pre-acquisition) 92,498 Cancellation of Predecessor equity (92,498) -------- Balance at September 10, 1994 (Post-acquisition) $ 0 ========
See accompanying notes. Star Markets Company, Inc. Statements of Cash Flows (Amounts in thousands)
The Company Predecessor ----------------------------------------- ----------- 52 Weeks 53 Weeks 20 Weeks 32 Weeks Ended Ended, Ended Ended February 1, February 3, January 28, September 10, 1997 1996 1995 1994 ---------------------------------------------------------- Operating activities Net income (loss) $ (9,336) $ (8,890) $ (5,601) $ 8,592 Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss 2,094 Amortization of deferred financing costs 1,543 1,564 914 Depreciation and amortization 22,178 19,326 7,218 8,295 Loss (gain) on sale or disposal of property and equipment 15 (93) 16 305 Changes in operating assets and liabilities: Accounts receivable (8,271) 2,008 (1,588) 2,160 Inventories (2,636) (3,529) (3,926) (165) Prepaid expenses 85 (1,888) (2,463) (217) Accounts payable 7,028 1,139 9,744 (2,637) Accrued payroll and benefits 333 1,686 2,192 585 Self-insurance reserves (571) (2,445) 838 36 Accrued interest 870 1,231 3,902 Other current liabilities 2,754 (1,604) 3,458 (11,323) Other 524 (4,263) 393 (1) ------------------------------------------------------ Net cash provided by operating activities 14,516 4,242 17,191 5,630 Investing activities Purchases of property and equipment (34,762) (60,710) (25,494) (4,319) Proceeds from sale of property and equipment 4,365 56,296 36 Decrease (increase) in restricted cash 6,028 (6,028) Purchase of other intangibles (500) Purchase of Cape Ann Market, Inc. (5,293) Acquisition of leasehold interests (20,064) Purchase of business and assets net of cash acquired (299,416) ------------------------------------------------------ Net cash used in investing activities (44,433) (15,735) (325,410) (4,283) Financing Activities Net proceeds from revolving credit facility 12,400 18,400 Proceeds from long-term debt 4,087 341,000 Repayment of long-term debt (1,340) (1,000) (100,000) Net proceeds from issuance of redeemable preferred stock 10,000 Net proceeds from issuance of common stock 75,000 Preferred dividends paid (1,230) (1,226) (178) Deposits refunded (made) 4,000 (4,500) Equity contribution 12,000 Deferred financing costs (181) (17,603) Change in due from/to Parent and affiliates 6,578 ------------------------------------------------------ Net cash provided by financing activities 29,917 11,493 308,219 6,578 Net increase in cash and cash equivalents 0 0 0 7,925 Cash and cash equivalents beginning of period 0 0 0 (3,079) ------------------------------------------------------ Cash and cash equivalents end of period $ 0 $ 0 $ 0 $ 4,846 ====================================================== Supplemental disclosure of cash flow information: Cash paid for interest $ 26,374 $ 25,382 $ 5,939 $ 0 Cash paid for income taxes 370 359 0 0
See accompanying notes. Star Markets Company, Inc. Notes to Financial Statements February 1, 1997 1. Background Star Markets Company, Inc., a Massachusetts corporation (the "Company"), is a leading food retailer in the metropolitan Boston area and operated 48 stores as of February 1, 1997. Additionally, the Company operates a wholesale business which provides warehousing, distribution and certain administrative services to independent store locations throughout the New England area. The Company is a wholly-owned subsidiary of Star Markets Holdings, Inc., a Massachusetts corporation ("Holdings"). Both Holdings and the Company were formed for purposes of the acquisition described below. 2. Acquisitions Star Market Company ("Predecessor") was operated as a division of Jewel Food Stores, Inc. ("Jewel"), a wholly-owned subsidiary of American Stores Company (the "Parent" or "ASC"). On September 8, 1994, the Company acquired all of the business and assets of Predecessor from Jewel and other affiliates of ASC (the "Acquisition"). For financial statement purposes, the Acquisition was accounted for as a purchase effective September 10, 1994. The acquisition resulted in a new basis of accounting reflecting estimated fair values for assets and liabilities at that date. Accordingly, the financial statements for the periods subsequent to September 10, 1994 are presented on the Company's new basis of accounting, while the financial statements at September 10, 1994 and the prior period are presented on the Predecessor's historical cost basis of accounting. The assets and business were acquired for an aggregate purchase price of $293.3 million, exclusive of related fees and expenses. The purchase price, including approximately $11.0 million in related fees and expenses, has been allocated based upon the fair value of the Company's assets and liabilities as follows (in millions): Historical basis of net assets acquired $126.4 Fair value and other adjustments: Property, plant and equipment 40.9 Inventory 5.6 Accounts receivable (1.1) Liabilities (5.1) ------ Fair market value of net assets 166.7 Goodwill 137.6 ------ Total purchase price $304.3 ======
During 1995, the Company adjusted the amount of goodwill initially recorded by approximately $3.0 million as a result of the resolution of contingencies identified as part of the original purchase price allocation. In May 1995, the Company purchased the operations, which consisted of three conventional supermarkets, and certain assets of Cape Ann Market, Inc. for an aggregate purchase price of $5.0 million, exclusive of related fees and expenses. 3. Significant Accounting Policies Basis of Presentation The historical financial statements of Predecessor for the 32-week period ended September 10, 1994 are presented as if Predecessor existed as a separate entity from Jewel/ASC during the period presented and include financial information directly related to its operations. Reclassification Certain amounts in the historical financial statements of the Company and Predecessor have been reclassified to conform with the Company's current method of presentation. Fiscal Year The fiscal year of the Company ends on the Saturday nearest to January 31. All references herein to "1996", "1995", the "20 week period", the "32 week period", and "1994", mean the 52-week fiscal year ended February 1, 1997, the 53-week fiscal year ended February 3, 1996, the 20-week period ended January 28, 1995, and the 32-week period ended September 10, 1994, respectively. The effect of the additional week on 1995 results of operations was not material. Cash and Cash Equivalents The Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost, using the FIFO (first-in, first-out) and weighted average cost methods, or market. Goodwill Goodwill represents the excess of the cost of the purchased businesses over the fair value of the net underlying assets and is being amortized using the straight-line method over 40 years. Accumulated amortization at February 1, 1997 and February 3, 1996 was $8.3 million and $4.8 million, respectively. At each balance sheet date, management assesses whether there has been a permanent impairment in the value of goodwill by comparing anticipated undiscounted future cash flows from operating activities with the carrying value of the goodwill. The amount of any resulting impairment is calculated using the same undiscounted cash flows from operating activities. The factors considered by management in this assessment include operating results, trends and prospects, as well as the effects of demand, competition and other economic factors. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Deferred Financing Costs Deferred financing costs, included in other assets, are amortized over the term of the related financing. Amortization of deferred financing costs is included in interest expense in the Statement of Operations. Accumulated amortization at February 1, 1997 and February 3, 1996 was $3.6 million and $2.1 million, respectively. Depreciation and Amortization Depreciation and amortization is provided on a straight-line basis over the estimated useful lives of owned assets. Leasehold improvements are amortized over the estimated useful life of the property or over the term of the lease, whichever is shorter. Depreciation begins when the asset is placed in service. Costs of Opening and Closing Stores The costs of opening new stores are charged against operations as incurred. When a store is closed, the remaining investment, net of salvage value, is charged against operations and, for leased stores, a provision is made for the remaining lease liability, net of expected sublease income. Recently Issued Accounting Pronouncements Effective February 4, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. There was no effect on the financial statements due to the adoption of the provisions of this statement. Advertising Expense Total advertising expense amounted to $10.5 million, $9.8 million, $3.3 million, and $5.3 million in 1996, 1995, the 20 week period, and the 32 week period, respectively. The Company expenses all advertising costs as incurred. 4. Financial Instruments The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments: Cash and cash equivalents, receivables, and accounts payable and other current liabilities: the carrying amounts reported in the balance sheet approximate fair value. Long-term debt: the fair value of the Company's 13% Senior Subordinated Notes is based on quoted market prices; the fair value of other long-term debt approximates carrying amounts. The carrying amounts and fair values of the Company's financial instruments are as follows (in thousands):
February 1, 1997 February 3, 1996 --------------------- -------------------- Carrying Carrying Amount Fair Value Amount Fair Value ---------------------------------------------- Long-term debt $273,548 $287,298 $258,400 $260,325
5. Long-term Debt Long-term debt consists of the following (in thousands):
April 21, 1997 February 1, 1997 February 3, 1996 -------------- ---------------- ---------------- Senior Credit Facility: Term Loan: Tranche A $ 38,500 $ 39,250 Tranche B $ 39,750 39,750 39,875 Tranche C 29,750 29,750 29,875 Additional Tranche C 38,500 0 0 Revolving credit facility 37,400 51,800 39,400 ----------------------------------------------- Total Senior Credit Facility 145,400 159,800 148,400 13% Senior subordinated notes 110,000 110,000 110,000 8% Note Payable 3,573 3,748 0 ----------------------------------------------- Total 258,973 273,548 258,400 Less current maturities 1,054 1,721 1,000 ----------------------------------------------- $257,919 $271,827 $257,400 ===============================================
The following table presents the maturities of the long-term debt for the next five fiscal years and thereafter (in thousands) as of April 21, 1997, after the third amendment to the Senior Credit Facility: Fiscal 1997 $ 865 1998 1,099 1999 1,163 2000 20,796 2001 and thereafter 235,050 -------- Total $258,973 ========
Senior Credit Facility The Senior Credit Facility (as first amended in January 1996, amended again in June 1996, and further amended on April 21, 1997), dated as of September 8, 1994, provides for a total of $183.0 million of term and revolving loan credit (the "loans"). The availability under the revolving credit facility may be utilized to meet the Company's current working capital requirements, including issuance of letters of credit. The Company can also utilize the remaining availability to fund capital expenditures. The revolving credit facility expires on December 31, 2001. At February 1, 1997, the Company had outstanding letters of credit totaling $8.8 million as required by certain contracts relating to inventory and self-insurance, which reduced the amount available under the revolving credit facility. The loans are secured by a first priority security interest in substantially all the assets of the Company and a pledge of all the issued and outstanding stock of the Company. In addition, the loans are guaranteed by Holdings. Borrowings under the loans accrue interest at a floating interest rate, which at the option of the Company is either (a) the greater of (i) the bank's announced reference rate, (ii) a rate which fluctuates with the secondary market rate for certificates of deposits, plus 1% or (iii) the federal funds rate, plus .5%, in each case plus a margin varying from 1.25% to 2.25% depending on the type and maturity of the loan, or (b) LIBOR, plus a margin varying from 2.50% to 3.50% depending on the type and maturity of the loan. At February 1, 1997, the interest rates on the term loan facility ranged from 8.00% to 9.00% and the weighted average interest rate on amounts outstanding under the revolving credit facility at February 1, 1997 and February 3, 1996 were 8.11% and 8.50%, respectively. The loans require that under certain circumstances, proceeds from the issuance of certain debt or equity or specified asset sales, exchanges or excess cash flow are required to prepay indebtedness under the loan facility. The terms of the Senior Credit Facility have been amended to allow for certain proceeds from the sale of assets to be used to partially fund acquired store locations. The Company also obtained a waiver to the Senior Credit Facility for the fourth quarter ended February 1, 1997, relating to certain financial covenants. In order to accommodate continued investment in new store growth, the terms of the Senior Credit Facility were further amended on April 21, 1997. This amendment, dated April 21, 1997, provides for a $108.0 million term loan facility and a $75.0 revolving credit facility, extends certain term loans, extends the revolving credit facility by two years to December 31, 2001, and amends certain financial covenants. 13% Senior Subordinated Notes On November 2, 1994, the Company issued $110 million of Senior Subordinated Notes ("Notes"), due November 1, 2004. The Notes were offered and sold pursuant to Rule 144A under the Securities Act and net proceeds were used as follows: (i) approximately $75.8 million was used to repay the outstanding indebtedness under the Company's Subordinated Loan Facility and all accrued and unpaid interest thereon, (ii) approximately $25.1 million was used to repay outstanding indebtedness under the term loan portion of the Company's Senior Credit Facility and all accrued and unpaid interest due thereon and (iii) the remaining proceeds were retained by the Company for general corporate purposes, including working capital. On November 22, 1994, the Company filed a registration statement on Form S-4 under the Securities Act of 1933 which was declared effective on March 9, 1995 pursuant to which an exchange offering was completed to exchange the Notes for a series of notes of the Company with terms substantially identical to the Notes. 8% Note Payable The Company issued a $4.0 million note payable in connection with the store locations acquired in July 1996. The note payable bears interest at 8.00% per annum and requires quarterly payments of principal and interest through July 2001. Subordinated Loan Facility The Subordinated Loan Facility, dated September 8, 1994, provided for borrowings of $75.0 million of unsecured subordinated loans. The indebtedness under the Subordinated Loan Facility was repaid in 1994 prior to its maturity out of the proceeds of the Notes offering. Accordingly, the write-off of deferred financing costs has been reflected as an extraordinary item in the Statement of Operations for the 20-week period. The Subordinated Loan Facility was subject to interest at a rate of 11.75% per annum. Capitalized interest totaled $55,000, $1,839,000, $835,000, and $15,000 for 1996, 1995, the 20 week period, and the 32 week period, respectively. 6. Preferred Stock The Company is authorized to issue 10,000 shares of preferred stock, par value $.01 per share. During the 20-week period ended January 28, 1995, the Company issued 5,000 preferred shares for $11.0 million, and concurrently paid an issuance fee of $1.0 million on behalf of Holdings. All of the outstanding preferred shares are held by Holdings. Dividends on the preferred stock accrue at a rate of 11% per annum. Dividends are cumulative and are payable when declared by the Board of Directors of the Company, out of assets legally available therefore, on April 30 and October 31 of each year, commencing on October 31, 1994. The Company's Board of Directors declared, and the Company has paid, all required dividends on the Company's cumulative preferred stock through February 1, 1997. To the extent that dividends are accrued, but have not been declared and paid, such undeclared and unpaid dividends will accrue additional dividends from the date upon which such dividends accrued until the date upon which they are paid at the rate of 13% per annum. The shares of preferred stock are redeemable at the option of the Company at a redemption price of $2,200 per share plus accrued and unpaid dividends thereon to the date fixed for redemption. On December 31, 2005, the Company is required to redeem all outstanding shares of preferred stock at $2,200 per share plus accrued and unpaid dividends thereon to the date fixed for redemption. 7. Leases The Company leases retail stores and equipment. The store leases have an average of approximately 32 years until final expiration, with only one store having less than five years until final maturity. The store leases generally have renewal options and provide for contingent rent based on sales levels in excess of specified levels. The summary below shows the aggregate future minimum lease commitments at February 1, 1997. Operating leases are shown net of an aggregate $4.8 million of minimum rental income under noncancelable subleases.
Operating Leases -------------- (In thousands) 1997 $ 20,306 1998 20,220 1999 19,446 2000 17,674 2001 18,690 Thereafter 215,472 -------- Total minimum rent commitments $311,808 ========
Rent expense for real property was as follows:
Minimum Sublease Contingent Total Rent Rent Net Rent Rent ------------------------------------------------ (In thousands) 1996 $16,639 $(970) $15,669 $ 338 $16,007 1995 9,876 (560) 9,316 431 9,747 20 weeks 3,030 (168) 2,862 220 3,082 32 weeks 3,877 (201) 3,676 1,170 4,846
Additionally, rent expense for personal property totaled approximately $2.1 million, $1.7 million, $0.6 million, and $0.9 million for 1996, 1995, the 20 week period, and the 32 week period, respectively. Leasehold interests were acquired in connection with the 10 locations acquired during 1996 and represent the present value of the excess of market rents over actual rents payable over the remaining lives of the leases. The leasehold interests are being amortized on the straight-line method over the remaining lives of the leases. Accumulated amortization at February 1, 1997 was $0.4 million. 8. Income Taxes Federal and state income taxes charged to earnings are summarized below:
The Company Predecessor ------------------------------------ 1996 1995 20 weeks 32 weeks ------------------------------------ Current: Federal $5,097 State $378 $250 $100 874 --------------------------------- Income taxes $378 $250 $100 $5,971 =================================
The effective income tax rate differs from the statutory federal income tax rate as follows:
The Company Predecessor ---------------------------- ----------- 1996 1995 20 weeks 32 weeks ------------------------------------------- Statutory federal income tax rate (34.0%) (34.0%) (34.0%) 35.0% State income taxes, net of federal income tax effect 4.2 2.9 1.8 6.0 Unbenefitted Losses / Loss Carryforward 34.0 34.0 34.0 ------------------------------------- Effective income tax rate 4.2% 2.9% 1.8% 41.0% =====================================
Deferred tax assets and liabilities as of 1996 and 1995 related to the following temporary differences (in thousands):
February 1, February 3, 1997 1996 -------------------------- Deferred tax liabilities: Goodwill ($3,393) ($2,008) Basis in fixed assets (3,786) (1,558) Other, net (1,489) (1,313) --------------------- Total deferred tax liabilities (8,668) (4,879) Deferred tax assets: Self-insurance reserves 14,522 13,367 Net operating loss carryforward 13,816 7,794 Compensation and benefits 2,194 2,010 Miscellaneous accruals 575 988 Other, net 1,777 940 --------------------- Total deferred tax assets 32,884 25,099 Valuation allowance (24,216) (20,220) --------------------- Net deferred tax assets 8,668 4,879 --------------------- $ 0 $ 0 ======================
The Company has tax net operating loss carryforwards of $36.0 million that expire through 2012. For financial reporting purposes, a valuation allowance has been recognized to offset deferred tax assets in excess of deferred tax liabilities since the Company has only incurred losses since inception and realization of such assets is not probable at February 1, 1997. 9. Postretirement Health Care Benefits Prior to January 1, 1996, it was the Company's practice that employees were eligible to participate in a plan that provided certain health care benefits to eligible retirees of certain defined employee groups under two unfunded plans, a defined dollar and a full coverage benefit plan. Effective January 1, 1996 the Company revised its retiree health care practice. Eligible retirees desiring health care coverage may now purchase it directly from a local provider of such coverages. While the benefits provided to the retirees remained essentially unchanged, none of the costs are borne by the Company. As a result, the Company's postretirement benefit liability was reduced by $1.5 million at February 3, 1996. 10. Retirement Plans The Company established a defined contribution retirement plan, Star Markets Retirement Estates ("SMRE"). This plan is authorized by the Board of Directors for the purpose of providing retirement benefits for associates of the Company. The plan covers associates meeting age and service eligibility requirements, except those represented by a labor union, unless the collective bargaining agreement provides for participation. Contributions to SMRE are made at the discretion of the Board of Directors. Prior to September 10, 1994, employees of Predecessor participated in and contributed to a Parent-sponsored defined contribution retirement plan, American Stores Retirement Estates, which was substantially identical to the SMRE. The Company also contributes to multi-employer defined benefit retirement plans in accordance with the provisions of the various labor contracts that govern the plans. The plans cover all associates represented by a labor union. The multi-employer plan contributions are generally based on the number of hours worked. Information about these plans as to vested and nonvested accumulated benefits and net assets available for benefits is not available. Retirement plan expense in each period was as follows (in thousands):
The Company Predecessor ---------------------------- ----------- 1996 1995 20 weeks 32 weeks ----------------------------------------- Company-sponsored plans $2,685 $2,271 $1,701 $3,463 Multi-employer plans 2,102 1,929 685 1,127 ---------------------------------------- $4,787 $4,200 $2,386 $4,590 ========================================
11. Related-Party Transactions During fiscal 1995, the Company entered into two sale-leaseback transactions with affiliates of INVESTCORP S.A. ("Investcorp"). The Company sold six of its stores for an aggregate gross selling price of $53.4 million. Concurrent with the sale, the Company leased the properties back for an initial term of 20 years. No gain or loss was recorded in connection with the sale-leaseback transactions. In connection with the Acquisition, the Company paid Investcorp and its affiliates $13.2 million for acquisition, financing, management advisory and consulting services. Prior to September 10, 1994, Predecessor incurred parent company charges which represented costs related to corporate salaries, benefits, administrative, data processing, interest expense, and miscellaneous income and expenses. Charges were allocated based upon relative operating profit of Predecessor and other factors at the discretion of the management of the Parent. 12. Commitments and Contingencies The Company has identified environmental contamination sites related primarily to underground petroleum tanks at various store, warehouse, and office facilities. At most identified locations, remediation is either underway or completed. Charges against earnings for environmental remediation were not significant in any of the periods presented. Pursuant to the asset purchase agreement, ASC would indemnify the Company for the costs and expenses related to environmental contamination provided that the Company paid the first $1 million of such costs. However, for costs and expenses related to any non-governmental claim filed by a third-party, ASC was not liable until the aggregate of such costs and expenses exceeded $6 million. ASC's obligation to indemnify the Company expired on the second anniversary of the Closing Date, except for those locations and claims for which ASC has received specific notification from the Company. Although the ultimate outcome and expense of environmental remediation is uncertain, the Company believes that required remediation and continuing compliance with environmental law will not have a material adverse effect on the financial position or results of operations of the Company. EX-10 2 EXHIBIT 10(P) Star Markets Company, Inc. Exhibit 10(p) Exhibit 10(p) - Second Amendment to Credit Agreement among the Company, Chemical Bank, as Administrative Agent, and the lenders party thereto, dated as of June 25, 1996. AMENDMENT, dated as of June 25, 1996 (this "Amendment"), to and of the Credit Agreement, dated as of September 8, 1994 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among STAR MARKETS COMPANY, INC. (the "Company"), the Lenders from time to time parties thereto (the "Lenders") and CHEMICAL BANK as administrative agent for the Lenders (in such capacity, the "Administrative Agent") WITNESSETH: WHEREAS, the Company desires to acquire from The Stop & Shop Supermarket Company ("Stop & Shop") and operate as its own three stores; and WHEREAS, the Company desires to increase its Capital Expenditure limit by $3,130,000 which may be used to acquire a fourth store from Stop & Shop or otherwise; and WHEREAS, the Company has requested the Lenders and the Administrative Agent to amend the Credit Agreement in connection with the acquisition of such stores from Stop & Shop and to increase such Capital Expenditure limit; WHEREAS, the Lenders and the Administrative Agent are willing to so amend the Credit Agreement, but only on, and subject to, the terms and conditions hereof; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company, the Lenders and the Administrative Agent hereby agree as follows: Section 1. Defined Terms. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. Section 2. Amendment of Subsection 1.1 (Defined Terms). (a) Subsection 1.1 of the Credit Agreement is hereby amended by adding thereto in appropriate alphabetical order the following new definition: "'Stop & Shop Acquisition': the acquisition of three stores located in the Company's trade area from The Stop & Shop Supermarket Company for gross consideration of approximately $20,870,000." (b) The second sentence of the definition of "Capital Expenditures" is hereby amended by (1) deleting the word "and" appearing at the end of clause (x) and substituting therefore the punctuation ",", (b) deleting the period appearing at the end of clause (y) and substituting therefor the punctuation and the word ", and" and (c) adding to the end thereof the following new clause (z): "(z) assets included in the Stop & Shop Acquisition." Section 3. Amendment of Subsection 10.5 (Prohibition on Sales of Assets). Subsection 10.5(c) of the Credit Agreement is hereby amended by deleting the amount "$40,000,000" appearing in clause (i) and substituting therefor the amount "$52,000,000". Section 4. Amendment of Subsection 10.7 (Capital Expenditures). Section 10.7 of the Credit agreement hereby amended by adding to the end thereof "and that the Base Amount for 1996 and/or 1997 may be further increased by $3,130,000 in the aggregate." Section 5. Conditions Precedent. This Amendment shall become effective as of the date (the "Amendment -Effective Date") that each of the conditions precedent set forth below shall have been fulfilled to the satisfaction of the Administrative Agent, provided that the Amendment Effective Date may not occur later than the earlier of July 25, 1996 and the closing of the initial acquisition under the Stop & Shop Acquisition: (a) Amendment. The Administrative Agent shall have received counterparts of this Amendment, duly executed by the Company, the Required Lenders and the Administrative Agent. (b) No Default or Event of Default. On and as of the Amendment Effective Date and after giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing. (c) Representations and Warranties. The representations and warranties made by the Company and its Subsidiaries in this Amendment and in the Credit Documents after giving effect to this Amendment shall be true and correct in all material respects on and as of the Amendment Effective Date as if made on such date, except where such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. (d) Certificate. The Administrative Agent shall have received a certificate of a Responsible Officer of the Company, dated the Amendment Effective Date, certifying the matters referred to in paragraphs (b) and (c) above and (e) below. (e) Equity Contribution. The Company shall have received an equity contribution of at least $12,000,000. Section 6. Representations and Warranties. To induce the Lenders to enter into this Amendment, the Company hereby represents and warrants to the Lenders that as of the Amendment Effective Date that the representations and warranties made by the Company in the Credit Documents are true and correct in all material respects on and as of the Amendment Effective Date, before and after giving effect to the effectiveness of this Amendment, as if made on and as of the Amendment Effective Date unless expressly stated to relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. Section 7. Miscellaneous. (a) Except for the amendments and waivers expressly provided herein, the Credit Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms. The amendments and waivers provided herein shall be limited precisely as drafted and shall not be construed to be an amendment or waiver of any other provision of the Credit Agreement other than as specifically provided herein. (b) The Company hereby confirms that, after giving effect hereto, each Credit Document to which it is a party remains in full force and effect in accordance with its terms. (c) The Company agrees to pay or reimburse the Administrative Agent for all of its out-of-pocket costs and reasonable expenses incurred in connection with the Amendment any other documents prepared in connection herewith and the transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of Simpson Thacher & Bartlett counsel to the Administrative Agent. (d) This Amendment may be executed in any number of counterparts by the parties hereto, and all of said counterparts when taken together shall be deemed to constitute one and the same instrument. (e) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. (f) This Amendment replaces and supersedes in its entirety the Amendment dated as of January 16, 1996 which shall be of no force or effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duty executed and delivered in New York, New York by their proper and duly authorized officers as of the date first above written. STAR MARKETS COMPANY, INC. By: ---------------- Title: CHEMICAL BANK, as Administrative Agent, Issuing Lender and a Lender By: ---------------- Title: BANKERS TRUST COMPANY By: ---------------- Title: THE FIRST NATIONAL BANK OF BOSTON By: ---------------- Title: SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: ---------------- Title: ------------- FLEET CREDIT CORPORATION By: ---------------- Title: ------------- GIROCREDIT BANK By: ---------------- Title: ------------- INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION By: ---------------- Title: ------------- MELLON BANK By: ---------------- Title: ------------- MERRILL LYNCH SENIOR FLOATING RATE FUND INC. By: ---------------- Title: ------------- MERRILL LYNCH PRIME RATE PORTFOLIO By: ---------------- Title: ------------- MITSUBISHI TRUST AND BANKING CORPORATION By: ---------------- Title: ------------- NATIONAL WESTMINSTER BANK PLC By: ---------------- Title: ------------- PILGRIM PRIME RATE TRUST By: ---------------- Title: ------------- PROTECTIVE LIFE INSURANCE COMPANY By: ---------------- Title: ------------- VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: ---------------- Title: ------------- STRATA FUNDING LIMITED By: Chancellor Senior Secured Management, Inc. as Portfolio Advisor By: ---------------- Title: ------------- EX-10 3 EXHIBIT 10(Q) Star Markets Company, Inc. Exhibit 10(q) Exhibit 10(q) - Third Amendment to Credit Agreement among the Company, Chemical Bank, as Administrative Agent, and the lenders party thereto, dated as of April 21, 1997. AMENDMENT, dated as of April 21, 1997 (this "Amendment"), to and of the Credit Agreement, dated as of September 8, 1994 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among STAR MARKETS COMPANY, INC. (the "Company"), the Lenders from time to time parties thereto (the "Lenders") and THE CHASE MANHATTAN BANK as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). W I T N E S S E T H : WHEREAS, the Company has requested the Lenders and the Administrative Agent to: (i) extend the Revolving Credit Termination Date under the Credit Agreement from December 31, 1999 to December 31, 2001, (ii) provide a new $38,500,000 Term Loan for the purpose of refinancing the Tranche A Term Loans and (iii) establish new financial covenant levels; and WHEREAS, the Lenders and the Administrative Agent are willing to so amend the Credit Agreement, but only on, and subject to, the terms and conditions hereof; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company, the Lenders and the Administrative Agent hereby agree as follows: Section 1. Defined Terms. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. Section 2. Amendments of Subsection 1.1 (Defined Terms). Subsection 1.1 of the Credit Agreement is hereby amended by: (a) deleting the definition "Applicable Margin" in its entirety and replacing it with the following: "'Applicable Margin': for Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans, Additional Tranche C Term Loans, Revolving Credit Loans and Swing Line Loans of the Types set forth below, the rate per annum set forth under the relevant column heading opposite such Loans below:
Alternate Base Rate Eurodollar Loans Loans --------- ---------- Tranche A Term Loans: 1.25% 2.50% Tranche B Term Loans: 1.75% 3.00% Tranche C Term Loans: 2.25% 3.50% Additional Tranche C Term Loans 2.25% 3.50% Revolving Credit Loans: 1.25% 2.50% Swing Line Loans: 1.25% Not applicable"
(b) adding the punctuation and the words ", Additional Tranche C Term Loan Commitment" after the words "Tranche C Term Loan Commitment" in the definition of "Commitment", (c) adding the punctuation and the words ", its Additional Tranche C Term Loan Commitment Percentage" after the words "its Tranche C Term Loan Commitment Percentage" in the definition of "Commitment Percentage", (d) deleting the year "1999" and replacing it with the year "2001" in the definition of "Revolving Credit Termination Date", (e) deleting the word "and" and substituting therefore the punctuation ", " and adding the words "and the Additional Tranche C Term Loan Notes" after the words "the Tranche C Term Loan Notes" in the definition of "Term Loan Notes", (f) deleting the word "and" and substituting therefore the punctuation ", " and adding the words "and the Additional Tranche C Term Loans" after the words "the Tranche C Term Loans" in the definition of "Term Loans", and (g) by adding thereto in appropriate alphabetical order the following new definitions: "'Additional Tranche C Amendment': the Amendment to this Agreement dated as of April 8, 1997." "'Additional Tranche C Amendment Effective Date': as defined in the Additional Tranche C Amendment." "'Additional Tranche C Lenders': the Lenders listed in Schedule I to the Additional Tranche C Amendment." "'Additional Tranche C Term Loan' and 'Additional Tranche C Term Loans': as defined in subsection 4.4." "'Additional Tranche C Term Loan Commitment': as to any Lender, its obligation to make an Additional Tranche C Term Loan to the Company pursuant to subsection 4.4 in an aggregate amount not to exceed the amount set forth under such Lender's name in Schedule I to the Additional Tranche C Amendment opposite the caption "Additional Tranche C Term Loan Commitment" or in Schedule 1 to the Assignment and Acceptance pursuant to which a lender acquires its Additional Tranche C Term Loan Commitment, as the same may be adjusted pursuant to subsection 13.6(c); collectively, as to all the Lenders, the 'Additional Tranche C Term Loan Commitments'." "'Additional Tranche C Term Loan Commitment Percentage': as to any Lender at any time, the percentage of the aggregate Additional Tranche C Term Loan Commitments then constituted by such Lender's Additional Tranche C Term Loan Commitment." "'Additional Tranche C Term Loan Note': as defined in subsection 6.13(e)." Section 3. Amendments of Section 4 (Tranche C Term Loans). (a) The heading of Section 4 is amended hereby by adding the words "AND ADDITIONAL TRANCHE C TERM LOANS" after the words "TRANCHE C TERM LOANS". (b) Section 4 is hereby amended by adding the following subsections: "4.4 Additional Tranche C Term Loans: Subject to the terms and conditions hereof, each Lender severally agrees to make a loan in Dollars (individually, an 'Additional Tranche C Term Loan'; and collectively, the 'Additional Tranche C Term Loans') to the Company on the Additional Tranche C Amendment Effective Date, in an aggregate principal amount equal to such Lender's Additional Tranche C Loan Commitment. The Additional Tranche C Term Loans shall be made initially as Alternate Base Rate Loans. 4.5 Repayment of Additional Tranche C Term Loans. the Company shall repay the Additional Tranche C Term Loans as provided in subsection 6.4(c). 4.6 Use of Proceeds. The proceeds of the Additional Tranche C Term Loans shall be used for the purpose of refinancing in full the outstanding Tranche A Term Loans." Section 4. Amendments of Section 6 (General Provisions Applicable to Loans). (a) Subsection 6.1(a) clause (D) is hereby amended by deleting it in its entirety and substituting therefore the following: "(D) whether the loan is a Tranche A Term Loan, a Tranche B Term Loan, a Tranche C Term Loan, an Additional Tranche C Term Loan, a Swing Line Loan or a Revolving Credit Loan." (b) Subsection 6.2(b) clause (iii) is hereby amended by deleting it in its entirety and substituting therefore the following: "(iii) after the date that is one month prior to the Revolving Credit Termination Date (in the case of continuations of Revolving Credit Loans) or the date of the final installment of principal of the Tranche A Term Loans, the Tranche B Term Loans, the Tranche C Term Loans or the Additional Tranche C Term Loans, as applicable." (c) The first sentence of subsection 6.4(a) is hereby amended by deleting it in its entirety and substituting therefore the following: "The Company may at any time and from time to time prepay Loans, in whole or in part, without premium or penalty, upon at least two Business Days' (or, in the case of Swing Line Loans, by 12:00 noon, New York City time on the same Business Day) irrevocable notice to the Administrative Agent in the case of alternate Base Rate Loans, and three Business Days' irrevocable notice to the Administrative Agent in the case of Eurodollar Loans, specifying the date and amount of prepayment and whether the prepayment is of Revolving Credit Loans, Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans or Additional Tranche C Term Loans, provided that Eurodollar Loans may not be optionally prepaid on other than the last day of any Interest Period with respect thereto." (d) The fourth sentence of Subsection 6.4(a) is hereby amended by deleting it in its entirety and substituting therefore the following: "Prepayments of the Term Loans pursuant to this subsection 6.4(a) shall be applied to the outstanding principal amounts of the Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans and Additional Tranche C Term Loans ratably according to the outstanding principal amounts of such Term Loans and shall be applied to the remaining installments of such Term Loans ratably according to the amounts of such installments." (e) Subsection 6.4(c) is hereby amended by adding to the end thereof: "The Additional Tranche C Term Loans shall be repaid in 7 installments on the dates set forth in Schedule II to the Additional Tranche C Amendment (each such day, an 'Additional Tranche C Installment Payment Date'), commencing on January 31, 1998 in an aggregate amount equal to the amount specified for each such Additional Tranche C Installment Payment Date on Schedule II to the Additional Tranche C Amendment under the heading 'Additional Tranche C'." (f) Subsection 6.13(a) is hereby amended by deleting the words and punctuation "and (v)" which appears at the end of clause (iv) and substituting therefore the words and punctuation ", (v) the principal amount of the Additional Tranche C Term Loan of such Lender, in 7 installments, payable on each Additional Tranche C Installment Payment Date (or the then unpaid principal amount of such Additional Tranche C Term Loan, on the date that the Additional Tranche C Term Loans become due and payable pursuant to Section 11) and (vi)". (g) Subsection 6.13(e) is hereby amended by (i) deleting "(v)" and (ii) by inserting the words and punctuation "(v) a promissory note of the Company evidencing the Additional Tranche C Term Loan of such Lender, substantially in the form of Exhibit C-1 with appropriate insertions as to date and principal amount (an 'Additional Tranche C Term Loan Note'), and/or (vi)" after the words and punctuation "(a 'Tranche C Term Loan Note'), and/or". Section 5. Amendment of Section 10 (Negative Covenants). Section 10 is hereby amended by deleting subsections 10.7, 10.8, 10.9 and 10.10 in their entirety and substituting the following: "10.7 Capital Expenditures. Make or commit to make any Capital Expenditures, except that the Company and its Subsidiaries may make or commit to make Capital Expenditures not exceeding the amount set forth below (the "Base Amount") for each of the fiscal years of the Company (or other period) set forth below:
Fiscal Year or Period Base Amount -------------------------- 1996 $35,100,000 1997 40,500,000 1998 48,200,000 1999 35,000,000 2000 35,000,000 2001 35,000,000 2002 35,000,000 2003 35,000,000
provided, however, that for any fiscal year of the Company the Base Amount set forth above may be increased by a maximum of $15,000,000 for any such fiscal year by carrying over to any such fiscal year any portion of the Base Amount (as increased) not spent in the immediately preceding fiscal year. 10.8 Consolidated EBITDA. At the last day of any fiscal quarter set forth below, permit Consolidated EBITDA for the period of four fiscal quarters ending on such day to be less than the amount set forth opposite such fiscal quarter below:
Fiscal Year Fiscal Quarter Amount ----------- -------------- ------ 1996 Fourth $42,000,000 1997 First 43,000,000 Second 44,000,000 Third 45,000,000 Fourth 47,500,000 1998 First 47,500,000 Second 47,500,000 Third 50,000,000 Fourth 52,500,000 1999 First 52,500,000 Second 52,500,000 Third 55,000,000 Fourth 57,500,000 2000 First 57,500,000 Second 60,000,000 Third 62,500,000 Fourth 67,500,000 2001 First 67,500,000 Second 70,000,000 Third 72,500,000 Fourth 77,500,000 2002 First 77,500,000 Second 80,000,000 Third 82,500,000 Fourth 85,000,000 2003 First 85,000,000 Second 87,500,000 Third 90,000,000
10.9 Consolidated Net Worth. At the last day of any fiscal year set forth below, permit Consolidated Net Worth to be less than the amount set forth below for such fiscal year:
Fiscal Year Amount ----------- ------ 1996 $105,000,000 1997 127,500,000 1998 150,000,000 1999 175,000,000 2000 205,000,000 2001 245,000,000 2002 290,000,000
10.10 Interest Coverage; Fixed Charge Coverage. (a) At the last day of any fiscal quarter set forth below, permit the Interest Coverage Ratio to be less than the ratio set forth below for such fiscal quarter:
Fiscal Year Fiscal Quarter Amount ----------- -------------- ------ 1996 Fourth 1.30 to 1 1997 First 1.35 to 1 Second 1.35 to 1 Third 1.35 to 1 Fourth 1.35 to 1 1998 First 1.35 to 1 Second 1.35 to 1 Third 1.40 to 1 Fourth 1.40 to 1 1999 First 1.40 to 1 Second 1.40 to 1 Third 1.45 to 1 Fourth 1.45 to 1 2000 First 1.45 to 1 Second 1.45 to 1 Third 1.50 to 1 Fourth 1.55 to 1 2001 First 1.55 to 1 Second 1.55 to 1 Third 1.60 to 1 Fourth 1.65 to 1 2002 First 1.65 to 1 Second 1.65 to 1 Third 1.70 to 1 Fourth 1.75 to 1 2003 First 1.75 to 1 Second 1.75 to 1 Third 1.80 to 1
(b) At the last day of any fiscal quarter, permit the Fixed Charge Coverage Ratio for such fiscal quarter shall to be less than 1.0 to 1.0:" Section 6. Amendment of Section 13 (Miscellaneous). (a) Subsection 13.1(d) is amended by deleting it in its entirety and substituting therefore the following: " (d) without the consent of the Lenders which are holders of the Tranche B Term Loans, the Tranche C Term Loans, the Additional Tranche C Term Loans and the Revolving Credit Lenders only, the Lenders which are holders of the Tranche A Term Loans may amend this Agreement and the Tranche A Term Loan Notes to extend the maturities of the installments of the Tranche A Term Loans; without the consent of the Lenders which are holders of the Tranche A Term Loans, the Tranche C Term Loans, the Additional Tranche C Term Loans and the Revolving Credit Lenders only, the Lenders which are holders of the Tranche B Term Loans may amend this Agreement and the Tranche B Term Loan Notes to extend the maturities of the installments of the Tranche B Term Loans; without the consent of the Lenders which are holders of the Tranche A Term Loans, the Tranche B Term Loans, the Additional Tranche C Term Loans and the Revolving Credit Notes only, the Lenders which are holders of the Tranche C Term Loans may amend this Agreement and the Tranche C Term Loan Notes to extend the maturities of the installments of the Tranche C Term Loans; without the consent of the Lenders which are holders of the Tranche A Term Loans, the Tranche B Term Loans, the Tranche C Term Loans and the Revolving Credit Notes only, the Lenders which are holders of the Additional Tranche C Term Loans may amend this Agreement and the Additional Tranche C Term Loan Notes to extend the maturities of the installments of the Additional Tranche C Term Loans; and without the consent of the Lenders which are holders of the Term Loans, the Revolving Credit Lenders may amend this Agreement and the Revolving Credit Notes to extend the Revolving Credit Termination Date;" (b) The second sentence of subsection 13.6(e) is hereby amended by adding the words and punctuation ", Additional Trance C Term Loan Notes" after the words "Tranche C Term Notes" each time they appear in said sentence. Section 7. Amendment of Exhibits. Exhibit C-1 hereto is hereby added to the Credit Agreement as Exhibit C-1 thereto. Section 8. Conditions Precedent. This Amendment shall become effective as of the date (the "Additional Tranche C Amendment Effective Date") that each of the conditions precedent set forth below shall have been fulfilled to the satisfaction of the Administrative Agent. (a) Amendment. The Administrative Agent shall have received counterparts of this Amendment, duly executed by the Company, the Lenders holding 100% of the Revolving Credit Commitments and 80% of the sum of the aggregate unpaid principal amount of the Term Loans and the Revolving Credit Commitments, the Administrative Agent and each Additional Tranche C Lender and consented to by Holdings. (b) No Default or Event of Default. On and as of the Additional Tranche C Amendment Effective Date and after giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing. (c) Representations and Warranties. The representations and warranties made by the Company in this Amendment and in the Credit Documents after giving effect to this Amendment shall be true and correct in all material respects on and as of the Additional Tranche C Amendment Effective Date as if made on such date, except where such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. (d) Certificate. The Administrative Agent shall have received a certificate of a Responsible Officer of the Company, dated the Amendment Effective Date, certifying the matters referred to in paragraphs (b) and (c) above. (e) Fees and Expenses. The Administrative Agent shall have received for its own account and the account of the Lenders the fees and expenses required to be paid by the Company on the Amendment Effective Date pursuant to the Fee Letter dated as of March 10, 1997 between the Administrative Agent and the Company. (f) Notes. The Administrative Agent shall have received for the account of each Additional Tranche C Lender requesting the same an Additional Tranche C Term Loan Note in the amount of its Additional Tranche C Term Loan after giving effect hereto. (g) Legal Opinions. The Administrative Agent shall have received, dated the Amendment Effective Date and addressed to the Administrative Agent and the Lenders, opinions of Gibson, Dunn & Crutcher and such local Massachusetts counsel as shall be satisfactory to the Administrative Agent covering the matters set forth in Exhibit D hereto with such assumptions, qualifications and changes thereto as may be approved by and otherwise in form and substance reasonably satisfactory to the Administrative Agent and its counsel. (h) Consents, Authorizations and Filings, etc. All consents, authorizations and filings, if any, required in connection with the execution, delivery and performance by the Company of this Amendment and the validity and enforceability against the Company of the Credit Documents to which it is a party, shall have been obtained or made, and such consents, authorizations and filings shall be in full force and effect, except such consents, authorizations and filings the failure to obtain which would not have a material adverse affect on the business, assets, condition (financial or otherwise) or results of operations of the Company. (i) Closing Certificates. The Administrative Agent shall have received a Certificate of the Company in form and substance satisfactory to it and certifying as to (i) the incumbency of the officers of the Company executing this Amendment and each other document delivered in connection herewith and (ii) resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of the Credit Documents entered into or amended on the Additional Tranche C Amendment Effective Date. (j) Tranche A Refinancing. The Company shall have refinanced its outstanding Tranche A Term Loans with the proceeds of the Additional Tranche C Term Loans. Section 9. Representation and Warranties. To induce the Lenders to enter into this Amendment, the Company hereby represents and warrants to the Lenders as of the Amendment Effective Date that the representations and warranties made by the Company in the Credit Documents are true and correct in all material respects on and as of the Amendment Effective Date, after giving effect to the effectiveness of this Amendment, as if made on and as of the Amendment Effective Date unless expressly stated to relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. Section 10. Additional Tranche C Lenders. Each Additional Tranche C Lender (i) represents and warrants that it is legally authorized to enter into this amendment; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in subsection 7.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amendment; (iii) agrees that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement, the other Credit Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (v) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender including, if it is organized under the laws of a jurisdiction outside the United States, its obligations pursuant to subsections 6.11(d) and 13.6(g) of the Credit Agreement to deliver the forms prescribed by the Internal Revenue Service of the United States certifying as to the Lender's exemption from United States withholding taxes with respect to all payments to be made to the Lender under the Credit Agreement, or such other documents as are necessary to indicate that all such payments are subject to such tax at a rate reduced by an applicable tax treaty. Section 11. Miscellaneous. (a) Except for the amendments and waivers expressly provided herein, the Credit Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms. The amendments and waivers provided herein shall be limited precisely as drafted and shall not be construed to be an amendment or waiver of any other provision of the Credit Agreement other than as specifically provided herein. (b) The Company hereby confirms that, after giving effect hereto, each Credit Document to which it is a party remains in full force and effect in accordance with its terms. (c) The Company agrees to pay or reimburse the Administrative Agent for all of its out-of-pocket costs and reasonable expenses incurred in connection with the Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of Simpson Thacher & Bartlett counsel to the Administrative Agent. (d) This Amendment may be executed in any number of counterparts by the parties hereto, and all of said counterparts when taken together shall be deemed to constitute one and the same instrument. (e) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the date first above written. STAR MARKETS COMPANY, INC. By: Title: THE CHASE MANHATTAN BANK, as Administrative Agent, Issuing Lender and a Lender By: Title: BANKERS TRUST COMPANY By: Title: THE FIRST NATIONAL BANK OF BOSTON By: Title: BANQUE FRANCAISE DU COMMERCE EXTERIEUR By: Title: By: Title: CAPTIVA FINANCE LTD. By: Title: FLEET NATIONAL BANK By: Title: GIROCREDIT BANK AG DER SPARKASSEN, GRAND CAYMAN ISLAND BRANCH By: Title: KZH HOLDING CORPORATION By: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: Title: MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: Title: THE MITSUBISHI TRUST AND BANKING CORPORATION By: Title: ML CBO IV (CAYMAN) LTD. By: Title: NATIONAL WESTMINSTER BANK PLC By: Title: PILGRIM AMERICA PRIME RATE TRUST By: Title: PRIME INCOME TRUST By: Title: PROTECTIVE LIFE INSURANCE COMPANY By: Title: SENIOR DEBT PORTFOLIO By: Boston Management Research, as Investment Advisor By: Title: SENIOR HIGH INCOME PORTFOLIO, INC. By: Title: STRATA FUNDING LTD. By: Title: VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: Title: Consented to by: ---------------- STAR MARKETS HOLDINGS, INC. By: Title: SCHEDULE I ---------- Additional Tranche C Lenders ----------------------------
Additional Tranche C Additional Tranche C Lenders Address for Notices Commitment - -------------------- ------------------- -------------------- The Chase Manhattan Bank 270 Park Avenue, 10th Floor $15,500,000 New York, NY 10017 Attn: Neil Boylan Telecopy: (212) 972-0009 Banque Francaise 645 Fifth Avenue $ 2,000,000 Du Commerce Exterieur, New York, NY 10022 Cayman Island Branch Attn: Peter Harris Telecopy: (212) 872-5054 The First National Bank of 100 Federal Street $ 2,500,000 Boston Mail Stop 01-09-05 Boston, MA 02110 Attn: Judith Kelly Telecopy: (617) 434-6685 KZH Holding Corporation c/o The Chase Manhattan Bank $ 3,000,000 450 West 33rd Street 15th Floor New York, NY 10001 Attn: Robert Goodwin Joseph Nerich Telecopy: (212) 946-7776 Senior High Income Portfolio, c/o Merrill Lynch Asset $ 3,500,000 Inc. Management 800 Scudders Mill Road Plainsboro, NJ 08536 Attn: Jill Montanye Telecopy: (609) 282-2550 The Mitsubishi Trust and 520 Madison Avenue $ 2,500,000 Banking Corporation 25th Floor New York, NY 10022 Attn: Susan LeFevre Telecopy: (212) 644-6825 Pilgrim America Prime Rate Two Renaissance Square $ 3,500,000 Trust 40 North Central Avenue Phoenix, AZ 85004-4424 Telecopy: (602) 417-8327 Prime Income Trust c/o Dean Witter Intercapital $ 2,500,000 Two World Trade Center 72nd Floor New York, NY 10048 Attn: Louis Pistecchia Telecopy: (212) 392-5345 Van Kampen American Capital c/o Van Kampen American $ 3,500,000 Prime Rate Income Trust Capital One Parkview Plaza Oakbrook Terrace, IL 60181 Attn: Jeffrey Maillet Telecopy: (630) 684-6740 ----------- Total: $38,500,000
SCHEDULE II ----------- Term Loan Amortization Schedule -------------------------------
Installment Payment Date: Installment Amount: - ------------- ------------------- Additional Tranche C ---------- January 31, 1998 $ 125,000 January 31, 1999 125,000 January 31, 2000 125,000 January 31, 2001 125,000 January 31, 2002 125,000 January 31, 2003 125,000 December 31, 2003 $37,750,000 ----------- $38,500,000
EXHIBIT C-1 to Credit Agreement ---------------- ADDITIONAL TRANCHE C TERM LOAN NOTE $__________ New York, New York April 21, 1997 FOR VALUE RECEIVED, the undersigned, STAR MARKETS COMPANY, INC., a Massachusetts corporation (the "Company"), promises to pay to the order of _______________ (the "Lender") at the office of The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, the principal amount of ____________________ DOLLARS ($__________), or, if less, the aggregate unpaid principal amount of all loans made by the Lender pursuant to subsection 4.4 of the Credit Agreement referred to below, which sum shall be due and payable in such amounts and on such dates as are set forth in the Credit Agreement, dated as of September 8, 1994 among the Company, the Lender and certain other banks and financial institutions parties thereto, and The Chase Manhattan Bank, as administrative agent (as the same may be from time to time amended, supplemented or otherwise modified, the "Credit Agreement"; terms defined therein being used herein as so defined). The undersigned further agrees to pay interest at said office, in like money, from the date hereof on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in subsection 6.5 of the Credit Agreement. The holder of this Note is authorized to record the date, Type and amount of the Additional Tranche C Term Loan made by the Lender pursuant to subsection 4.4 of the Credit Agreement, the date and amount of each payment or prepayment of principal hereof, and the date of each interest rate conversion or continuation pursuant to subsection 6.2 of the Credit Agreement and the principal amount subject thereto, on the schedules annexed hereto and made a part hereof and any such recordation shall constitute prima facie evidence of the information so recorded, provided that the failure of the Lender to make such recordation (or any error in such recordation) shall not affect the obligations of the Company hereunder or under the Credit Agreement. This Note is one of the Additional Tranche C Term Loan Notes referred to in the Credit Agreement and is entitled to the benefits thereof and is subject to optional and mandatory prepayment in whole or in part as provided therein. This Note is secured and guaranteed as provided in the Security Documents and the Guarantees. Reference is hereby made to the Security Documents and the Guarantees for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and guarantees, the terms and conditions upon which the security interest and each guarantee was granted and the rights of the holder of this Note in respect thereof. The undersigned agrees to pay all costs and expenses incurred by the Lender in connection with the enforcement of its rights and remedies under the Credit Agreement, this Note, the Security Documents and each other Credit Document. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided therein. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE CREDIT AGREEMENT. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE TERMS OF THE CREDIT AGREEMENT. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. STAR MARKETS COMPANY, INC., By:_____________________________ Title: Schedule A to Additional Tranche C Term Loan Note -------------- ALTERNATE BASE RATE LOANS AND REPAYMENTS OF ALTERNATE BASE RATE LOANS -------------------------------------------
Unpaid Amount Principal Amount of Converted to Amount Balance of Alternate Alternate Amount of Converted to Alternate Base Rate Base Rate Principal Eurodollar Base Rate Notation Date Loans Loans Repaid Loans Loans Made By - ----------------------------------------------------------------------------------------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ----------
Schedule B to Additional Tranche C Term Loan Note -------------- EURODOLLAR LOANS AND REPAYMENTS OF EURODOLLAR LOANS ----------------------------------
Interest Period and Amount Unpaid Amount Eurodollar Converted Principal Amount of Converted to Rate with Amount of to Alternate Balance of Eurodollar Eurodollar Respect Principal Base Rate Eurodollar Date Loans Loans Thereto Repaid Loans Loans - ------------------------------------------------------------------------------------------ - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ---------- ---------- - ---------- ---------- ---------- ---------- ---------- ----------
EXHIBIT D OPINIONS TO BE COVERED 1. The Company is a validly existing corporation in corporate good standing under the laws of The Commonwealth of Massachusetts. The Company has all requisite corporate power and authority to own and operate its properties, conduct its business in the manner in which it presently is conducted, and to execute and deliver the Amendment and the Additional Tranche C Notes, and perform its obligations under the Credit Agreement, as amended by the Amendment and the Additional Tranche C Notes (the "Amendment Documents"). 2. Each of the Amendment and the Additional Tranche C Notes has been duly authorized by all necessary corporate action on the part of the Company. Each of the Amendment and the Additional Tranche C Notes has been duly executed and delivered on behalf of the Company. 3. Each of the Amendment Documents constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 4. Neither the execution and delivery by the Company of the Amendment and the Additional Tranche C Notes, the performance by the Company of its obligations under the Amendment Documents nor the consummation of the transactions contemplated thereby constitutes a violation of any applicable federal, Massachusetts or New York state law, Governmental rule or regulation or, to our actual knowledge, any order of any court or governmental authority that is applicable to the Company, or will result in a breach of the Company's articles of incorporation or by-laws in their present form. To our actual knowledge, neither the execution and delivery by the Company of the Amendment and the Additional Tranche C Notes, performance by the Company of its obligations under the Amendment Documents nor the consummation of the transactions contemplated thereby will conflict with, or result in any material breach of, or constitute a default under, or result in the creation or imposition of any lien upon any property or assets of the Company pursuant to, or require any consent not obtained under, any indenture, mortgage, deed of trust, material agreement or other material instrument identified to us and listed in Annex hereto to which the Company is party or by which it or any of its property is to be bound or to which it is subject, which conflict, breach or default, or lien created or imposed, or the failure to obtain such consent, would have a material adverse effect on the business, condition or results of operation of the Company or on its ability to perform its obligations under the Amendment Documents, or would give rise to liability on the part of the Lenders or the Administrative Agent. 5. No consent, approval or authorization of, and no registration, declaration or filing with any administrative, Governmental or other public authority of the United States of America, The Commonwealth of Massachusetts or the State of New York is required by law to be obtained or made in connection with the execution and delivery, and performance by the Company of the Amendment and the Additional Tranche C Notes, or for the validity or enforceability against the Company, of any of the Amendment Documents, other than (i) such consents, approvals, authorizations, registrations, declarations and filings that have been made or obtained on or prior to the date hereof and remain in full force and effect, and (ii) such consents, approvals, authorizations, registrations, declarations and filings, the failure to perform or obtain (a) which would not have a material adverse effect on the business, condition or results of operation of the Company and (b) which would not adversely affect the validity or enforceability of any of the Amendment Documents or the rights or remedies of the Administrative Agent or the Lenders thereunder, or the ability of any of them to perform its obligations under the Amendment Documents to which it is party, or would give rise to liability on the part of the Administrative Agent or the Lenders. 6. The Company is not an "investment company" or a Person directly or indirectly "controlled" by or "acting on behalf of" an "investment company" within the meaning, of the Investment Company Act of 1940, as amended. The Company is not a "holding company", or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 7. Neither the making of the Additional Tranche C Term Loans on the Additional Tranche C Amendment Effective Date pursuant to, nor application of the proceeds thereof in accords with, the Amendment and the Credit Agreement will violate Regulation G, T, U or X promulgated by the Board of Governors of the Federal Reserve System. 8. To our actual knowledge, except as disclosed in the Amendment and the Credit Agreement or in any schedule, exhibit, annex or attachment thereto, there is pending or threatened no action, suit or proceeding or Governmental investigation, or any order, writ, judgment, injunction or decree against the Company before or by any court, arbitrator or governmental or administrative body that challenges the validity of any Amendment Documents or any of the transactions contemplated thereby or that restrains, prevents or imposes material adverse conditions upon, or seeks to restrain, prevent or impose material adverse conditions upon, any such transaction. EX-27 4 ART. 5 FDS FOR ANNUAL 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEET AS OF FEBRUARY 1, 1997 AND THE ACCOMPANYING STATEMENTS OF OPERATIONS, CHANGES IN EQUITY, AND CASH FLOWS FOR THE 52 WEEK PERIOD ENDED FEBRUARY 1, 1997 FOR STAR MARKETS COMPANY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS FEB-1-1997 FEB-1-1997 0 0 21,815 1,589 65,550 92,324 230,265 35,569 453,270 87,401 271,827 10,230 0 0 84,907 453,270 954,531 954,531 715,090 219,492 (13) 0 28,894 (8,958) 378 (9,336) 0 0 0 (9,336) (2,132.40) (2,132.40)
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