-----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, LMKFbX75V6/peiktLKfr8a/HTIEha5Hcy4oYLfgxC9lYAy9t3fQPzZIzWrRbU45o zo9mzjh2tbUUFxO4pVbOfw== 0000910647-99-000122.txt : 19990503 0000910647-99-000122.hdr.sgml : 19990503 ACCESSION NUMBER: 0000910647-99-000122 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990430 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: SEC FILE NUMBER: 000-25262 FILM NUMBER: 99605579 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 THE 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 January 30, 1999 [ ] 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 Identification Number) incorporation or organization) 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 20, 1999: None Number of shares of the issuer's common stock, outstanding as of April 20, 1999: 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., 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 information of Predecessor is presented as if it existed as a separate entity during the periods presented. The Company is a leading regional food retailer, with 53 stores (at the end of fiscal 1998) located in Eastern Massachusetts. Thirty-three of the Company's 53 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 10,000 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. Pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") by and among the Company, Holdings, and J Sainsbury plc ("Sainsbury") dated as of November 25, 1998, Sainsbury has agreed to acquire all of the issued and outstanding voting securities of Holdings. Pursuant to the Stock Purchase Agreement, all other shares of capital stock of Holdings will also be either purchased or redeemed. The value of the transaction is approximately $490.0 million (including assumed debt), subject to adjustment. The transaction has been approved by the boards of directors of the Company, Holdings and Sainsbury. Consummation of the transaction is subject to customary conditions including regulatory approvals. Store formats - ------------- The Company currently operates three food retailing formats: superstores, conventional stores, and Wild Harvest stores. Superstores - ----------- The Company's 24 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, "Peticulars" 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. During 1998, the Company opened one new superstore and remodeled one existing superstore. Conventional Stores - ------------------- The Company currently operates 25 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. Wild Harvest Stores - ------------------- The Company's four 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. 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 1998, the Company continued to utilize 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 1998, the Company continued the implementation of new core application software within its purchasing and distribution systems. The project included the implementation of new buying, merchandising and inventory management systems for dairy operations, non-perishable categories, distribution systems and a new pricing system. 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 380 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, other mass merchandisers, 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 competitor is Stop & Shop. The Company also competes in certain locations with B.J.'s Wholesale Club, Bread & Circus, Costco, Demoulas, Johnnie's Foodmaster, Roche Bros., Shaw's, Wal-Mart and others. 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, "Peticulars" 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. Seven 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 payment terms for product purchases. Item 2. Properties - ------------------ At the end of fiscal 1998, the Company owned five stores and its office in Cambridge, Massachusetts. In addition, as of the end of fiscal 1998, the Company owned one property held for development located in Dorchester, Massachusetts. 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 completed a sale-leaseback for two of its operating properties and its warehouse and distribution complex during 1998. In February 1999, subsequent to fiscal 1998, the Company completed the sale of one of its operating properties and plans to close the location in June 1999. At the end of fiscal 1998, the Company leased 48 stores throughout the metropolitan Boston area and Cape Cod, Massachusetts. The leases for the 48 stores have an average life of approximately 34 years until final expiration. 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 January 30, 1999. 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 20, 1999, 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 the 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 January 30, 1999. 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.
Predecessor(1) The Company -------------------------------------------------------------------------------------------- (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) 32-Week Period 20-Week Period Fiscal Year Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended Ended Ended Ended September 10, January 28, February 3, February 1, January 31, January 30, 1994 1995 1996 1997 1998 1999 -------------------------------------------------------------------------------------------- (Dollars in thousands) -------------------------------------------------------------------------------------------- Operating Data: Revenues Retail $ 427,762 $ 268,617 $ 763,513 $ 877,827 $ 965,845 $1,002,616 Wholesale 69,227 39,687 90,991 76,704 68,343 61,622 -------------------------------------------------------------------------------------------- Total revenues 496,989 308,304 854,504 954,531 1,034,188 1,064,237 Gross profit Retail 104,249 65,293 191,418 234,514 267,350 281,623 Wholesale 4,058 2,230 6,273 4,927 5,040 4,773 -------------------------------------------------------------------------------------------- Total gross profit 108,307 67,523 197,691 239,441 272,390 286,396 Depreciation and amortization 8,295 7,218 19,326 22,178 23,792 24,837 Operating income 15,266 6,384 19,642 19,949 21,890 24,098 Interest expense 27 9,781 28,382 28,894 30,177 29,486 Income (loss) before extraordinary loss 8,592 (3,507) (8,890) (9,336) (8,565) (5,677) Extraordinary loss (2,094) Net income (loss) 8,592 (5,601) (8,890) (9,336) (8,565) (5,677) Store Data (Period End): Number of stores 33 33 38 48 52 53 Total square footage 1,096,544 1,119,990 1,639,015 2,034,603 2,240,966 2,290,307 Selling square footage 842,146 859,773 1,144,486 1,419,013 1,567,976 1,602,830 Balance Sheet Data (Period End): Total assets $ 208,084 $ 421,355 $ 425,503 $ 453,270 $ 452,542 $ 412,971 Long-term debt 240,057 257,400 271,827 276,327 259,037 Redeemable preferred stock 10,037 10,134 10,230 10,326 10,421 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.
Item 7. Management's Discussion and Analysis of the Results of Operations - ------------------------------------------------------------------------- and Financial Condition ----------------------- Fiscal 1998 and Fiscal 1997 Revenues - -------- Revenues from retail operations for the 52-week period ended January 30, 1999 increased 3.8% to $1,002.6 million from $965.8 million for the 52-week period ended January 31, 1998. The increase in revenues from retail operations was due to an increase in the number of stores operated. For stores open more than one year ("same store sales"), revenues decreased by 0.6% from the prior period. Revenues from wholesale operations for the 52- week period ended January 30, 1999 declined 9.8% to $61.6 million from $68.3 million for the 52-week period ended January 31, 1998. Gross Profit - ------------ Gross profit from retail operations for the 52-week period ended January 30, 1999 increased 5.3% to $281.6 million from $267.3 million for the 52-week period ended January 31, 1998 primarily due to the increase in revenues. Gross profit as a percentage of revenues for retail operations for the 52- week period ended January 30, 1999 increased to 28.1% from 27.7% for the 52-week period ended January 31, 1998. The increase in gross profit as a percentage of revenues was primarily attributable to improvements in perishable margins and reduced distribution costs. Gross profit from wholesale operations for the 52-week period ended January 30, 1999 decreased 5.3% to $4.8 million from $5.0 million for the 52-week period ended January 31, 1998. Gross profit as a percentage of revenues for wholesale operations for the 52-week period ended January 30, 1999 increased to 7.7% from 7.4% for the 52-week period ended January 31, 1998, primarily due to improvement in product margins and reduced distribution costs. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses for the 52-week period ended January 30, 1999 increased by 4.7% to $237.5 million from $226.7 million for the 52- week period ended January 31, 1998. Operating and administrative expenses as a percentage of total revenues for the 52-week period ended January 30, 1999 increased to 22.3% from 21.9% for the 52-week period ended January 31, 1998. The increase in operating and administrative expenses as a percentage of total revenues was due to an increase in store labor attributable to new store formats with additional service intensive departments, an increase in rent associated with new locations and the sale-leaseback of three properties in March 1998 and an impairment loss resulting from the intended sale of an operating location. The increases were offset in part by reduced self-insurance expenses for worker's compensation and general liability resulting from improvements in claims management practices, and an adjustment to reduce the reserves recorded at the time of the Acquisition for worker's compensation and general liability. 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 January 30, 1999 and the 52-week period ended January 31, 1998. Non-Operating Expenses - ---------------------- Interest expense for the 52-week period ended January 30, 1999 decreased to $29.5 million from $30.2 million for the 52-week period ended January 31, 1998. The Company recorded state income tax expense of $0.4 million for the 52-week period ended January 30, 1999 and the 52-week period ended January 31, 1998. The Company did not record a federal or state tax benefit associated with the losses recorded in the 52-week period ended January 30, 1999 and the 52-week period ended January 31, 1998. Fiscal 1997 and Fiscal 1996 Revenues - -------- Revenues from retail operations for the 52-week period ended January 31, 1998 increased 10.0% to $965.8 million from $877.8 million for the 52-week period ended February 1, 1997. 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"), revenues increased by 0.5% from the prior period. Revenues from wholesale operations for the 52-week period ended January 31, 1998 declined 10.9% to $68.3 million from $76.7 million for the 52-week period ended February 1, 1997. The decrease in wholesale revenues was primarily due to the loss of certain wholesale accounts which ceased operations. Gross Profit - ------------ Gross profit from retail operations for the 52-week period ended January 31, 1998 increased 14.0% to $267.3 million from $234.5 million for the 52-week period ended February 1, 1997 primarily due to the increase in revenues. Gross profit as a percentage of revenues for retail operations for the 52- week period ended January 31, 1998 increased to 27.7% from 26.7% for the 52-week period ended February 1, 1997. The increase in gross profit as a percentage of revenues was primarily attributable to improvements in perishable margins and leveraged distribution costs. Gross profit from wholesale operations for the 52-week period ended January 31, 1998 increased 2.3% to $5.0 million from $4.9 million for the 52-week period ended February 1, 1997. Gross profit as a percentage of revenues for wholesale operations for the 52-week period ended January 31, 1998 increased to 7.4% from 6.4% for the 52-week period ended February 1, 1997, primarily due to an increase in non-perishable gross margin rates, as well as a decrease in distribution costs. Operating and Administrative Expenses - ------------------------------------- Operating and administrative expenses for the 52-week period ended January 31, 1998 increased by 14.9% to $226.7 million from $197.3 million for the 52-week period ended February 1, 1997. Operating and administrative expenses as a percentage of total revenues for the 52-week period ended January 31, 1998 increased to 21.9% from 20.7% for the 52-week period ended February 1, 1997. The increase in operating and administrative expenses as a percentage of total revenues was due to an increase in store labor attributable to new store formats with additional service intensive departments and an increase in rent including both rent for new locations and rent associated with the February, 1997 sale-leaseback of one operating location. 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 January 31, 1998 and the 52-week period ended February 1, 1997. Non-Operating Expenses - ---------------------- Interest expense for the 52-week period ended January 31, 1998 increased to $30.2 million from $28.9 million for the 52-week period ended February 1, 1997. The Company recorded state income tax expense of $0.4 million for the 52-week period ended January 31, 1998 and $0.4 million for the 52-week period ended February 1, 1997. The Company did not record a federal or state tax benefit associated with the losses recorded in the 52-week period ended January 31, 1998 and the 52-week period ended February 1, 1997. Liquidity and Capital Resources - ------------------------------- The Company's liquidity needs arise primarily from debt service on the indebtedness incurred in connection with the Acquisition, the funding of the Company's store acquisitions, capital expenditures and working capital requirements. The Company's total indebtedness as of April 20, 1999 was $254.9 million, which includes $110.0 million of Subordinated Notes due November 1, 2004, $142.7 million due under the Senior Credit Facility, and a $2.2 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 20, 1999, the Company had $7.2 million drawn under the letter of credit facilities of the Senior Credit Facility and $53.8 million drawn under the revolving credit portion of the Senior Credit Facility leaving an aggregate of $14.0 million of unused revolving credit availability under the Senior Credit Facility. The Company paid $19.6 million in aggregate principal amount in 1998. The Company will pay $1.1 million in aggregate principal amount in 1999. Capital expenditures for fiscal 1998 were $20.6 million as compared to $41.1 million in fiscal 1997 and $54.8 million in fiscal 1996. The Company's capital expenditures have been funded through cash flow from operations, proceeds from sale-leaseback transactions, proceeds from the sale of nonoperating properties, and borrowings under the revolving portion of its Senior Credit Facility. In February 1999, the Company completed the sale of one of its operating properties for a gross proceeds of $5.4 million. $5.1 million of such amount will be used to pay down the revolving credit facility and $0.3 million to pay transaction expenses. The Company currently anticipates making capital expenditures of approximately $14.7 million in fiscal 1999. Capital expenditures will include remodeling two existing stores and converting two conventional stores to superstores. Planned capital expenditures for fiscal 1999 include approximately $4.4 million for maintenance, systems, and distribution. The Company believes that funds generated from operations, proceeds from additional sale-leaseback transactions, sale of non-operating assets, and borrowings under the Senior Credit Facility will provide sufficient resources through fiscal 1999 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. Year 2000 - --------- During 1997, the Company began a review process to address the Year 2000 issue that encompasses the Company's operating and administrative areas. Information technology professionals are working to identify and resolve Year 2000 issues in a timely and effective manner. The Company's executive management monitors the status of the Year 2000 remediation plans as they relate to internally used software, computer hardware and use of computer applications. The Company will also be implementing notification of Year 2000 compliance requirements to key vendors. While management has not specifically determined the costs of its Year 2000 efforts, the total cost to obtain Year 2000 compliance is not expected to exceed $1.5 million. While the Company believes it is taking steps to assure Year 2000 compliance, it is also dependent on key vendor compliance. If the implementation is not completed on a timely basis, or key vendors fail to resolve all significant Year 2000 issues in a timely and effective manner, the Year 2000 issue could have a material adverse impact on the Company. The Company is in the process of establishing contingency plans that would minimize the impact to the Company in the event that the Company or its major vendors fail to implement a Year 2000 solution on a timely basis. The cost of implementing the contingency plans, while not specifically determined, is not expected to be material. 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.
Name Age Positions - ---- --- --------- Henry J. Nasella 52 Chairman of the Board of Directors, President and Chief Executive Officer Edward Albertian 46 Executive Vice President, Operations and Chief Operating Officer Carole O'Connor Gates 41 Executive Vice President, Marketing Stephen R. Winslow 39 Senior Vice President, Finance William P. Paul 52 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. 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. Stephen R. Winslow became Senior Vice President, Finance in October 1996. Prior to joining the Company, he served as Vice President, Finance/Controller, Contract and Commercial Division of Staples, Inc. from January 1996. Mr. Winslow served as Vice President, Planning, Analysis and Reporting and Chief Accounting Officer from 1995, and Vice President, Planning and Analysis from 1993 for Staples, Inc. 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 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 1998, 1997 and 1996. Summary Compensation Table
Long Term Compensation ---------------- Annual Compensation Awards -------------------------------------- Number of Shares Name and Principal Other Annual Underlying All Other Position Year Salary(2)($) Bonus(2)($) Compensation($) Options/SARs(#) Compensation(3)($) - ------------------------ ---- ------------ ----------- --------------- ---------------- ------------------ Henry J. Nasella 1998 325,000 390,000 0 0 11,069 Chairman, President and 1997 320,833 148,129 0 0 8,319 Chief Executive Officer 1996 300,000 0 0 0 12,046 - -------------------------------------------------------------------------------------------------------------------------- Edward Albertian 1998 270,833 130,000 0 19,587 8,116 Executive Vice President, 1997 220,833 88,333 0 0 6,375 Operations and Chief 1996 197,583 63,238 0 500 7,998 Operating Officer - -------------------------------------------------------------------------------------------------------------------------- Carole O'Connor Gates 1998 197,500 94,800 0 8,764 6,113 Executive Vice President, 1997 182,500 73,000 0 0 5,767 Marketing 1996 168,333 51,667 0 0 7,495 - -------------------------------------------------------------------------------------------------------------------------- Stephen R. Winslow 1998 176,253 74,026 0 2,860 4,781 Senior Vice President, 1997 168,334 58,917 0 0 1,004 Finance 1996(1) 46,667 56,000 0 1,500 118 - -------------------------------------------------------------------------------------------------------------------------- William P. Paul 1998 166,000 79,680 0 0 8,321 Executive Vice President, 1997 165,000 48,180 0 0 6,659 Merchandising 1996 159,167 32,142 0 0 8,381 - -------------------------------------------------------------------------------------------------------------------------- Date on which employment commenced was October 15, 1996 for Mr. Winslow. 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 1998 were as follows: $5,735 for Mr. Nasella, $5,735 for Mr. Albertian, $5,013 for Ms. O'Connor Gates, $4,151 for Mr. Winslow and $5,735 for Mr. Paul. Imputed income on the value of Company provided term life insurance in excess of $50,000 in fiscal 1998 was as follows: $5,334 for Mr. Nasella, $2,381 for Mr. Albertian, $1,100 for Ms. O'Connor Gates, $630 for Mr. Winslow and $2,586 for Mr. Paul. - - Company contributions under the 401(k) Savings Plan for fiscal 1997 were as follows: $5,100 for Mr. Nasella, $5,100 for Mr. Albertian, $5,100 for Ms. O'Connor Gates, $397 for Mr. Winslow and $5,100 for Mr. Paul. Imputed income on the value of Company provided term life insurance in excess of $50,000 in fiscal 1997 was as follows: $3,219 for Mr. Nasella, $1,275 for Mr. Albertian, $667 for Ms. O'Connor Gates, $607 for Mr. Winslow and $1,559 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. Albertian, $6,898 for Ms. O'Connor Gates, $0 for Mr. Winslow 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, $1,100 for Mr. Albertian, $597 for Ms. O'Connor Gates, $118 for Mr. Winslow and $1,483 for Mr. Paul. Option Grants The Company made stock option grants of 31,211 in respect of Class C Stock of Star Markets Holdings, Inc. ("Holdings") during the fiscal year ended January 30, 1999 to the executive officers named in the Summary Compensation Table. 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 January 30, 1999 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 January 30, 1999.
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 45,744 30,495 $1,429,500 $0 Edward Albertian 0 0 823 23,378 0 0 Carole O'Connor Gates 0 0 1,095 13,146 0 0 Stephen R. Winslow 0 0 0 4,360 0 0 William P. 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.
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 January 30, 1999 there were 5,000 shares of Holdings' Class D Stock issued and outstanding. Members of the Company's management own 38,374 shares, and have the right to acquire an additional 54,764 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.
Number of Voting Class D Voting Stock: 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. Number of Class C Non-Voting Stock: Shares(1) - ------------------------- --------- Henry J. Nasella 72,411(2) 625 Mount Auburn Street Cambridge, MA 02138 Edward Albertian 1,423(3) 625 Mount Auburn Street Cambridge, MA 02138 Carole O'Connor Gates 1,735(4) 625 Mount Auburn Street Cambridge, MA 02138 Stephen R. Winslow 600 625 Mount Auburn Street Cambridge, MA 02138 William P. Paul 1,266(5) 625 Mount Auburn Street Cambridge, MA 02138 ------ All directors and executive officers of the Company as a group (5) persons 77,435 ====== 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 45,744 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 - ------------------------------------------------------- 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, with the remaining two years due in quarterly installments. Upon consummation of the transaction contemplated by the Stock Purchase Agreement, International and the Company shall terminate the Management Agreement by mutual written consent. 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: 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 (filed as Exhibit 10(p) to the company's 1996 Form 10-K and incorporated herein by reference). 10(q) Third Amendment to Credit Agreement among the Company, Chase Manhattan, as Administrative Agent, and the lenders party thereto, dated as of April 21, 1997 (filed as Exhibit 10(q) to the company's 1996 Form 10-K and incorporated herein by reference). 10(r)** Fourth Amendment to Credit Agreement among the Company, Chase Manhattan, as Administrative Agent, and the lenders party thereto, dated as of August 17, 1998. 10(s)** Stock Purchase Agreement among Star Market Holdings, Inc., Star Market Company, Inc. and J Sainsbury plc, dated as of November 25, 1998. 27** Financial Data Schedule for the 52 weeks ended January 30, 1999. (b) No reports were filed on Form 8-K for the 13-week period ended January 30, 1999. [FN] 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: April 30, 1999 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 Chairman of the Board of Directors April 30, 1999 - -------------------- President and Chief Executive Henry J. Nasella Officer (Principal Executive Officer) Signature Title Date - --------- ----- ---- /s/ Stephen R. Winslow Senior Vice President, Finance April 30, 1999 - ---------------------- chief accounting officer Stephen R. Winslow 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 January 30, 1999 52 weeks ended January 31, 1998 52 weeks ended February 1, 1997 Star Markets Company, Inc. Cambridge, MA Form 10-K - Item 14 (a) 1. Star Markets Company, Inc. 52 weeks ended January 30, 1999 52 weeks ended January 31, 1998 52 weeks ended February 1, 1997 List of Financial Statements The following financial statements of Star Markets Company, Inc. ("The Company") are included herein: Balance sheets - January 30, 1999 and January 31, 1998 Statements of operations - 52 weeks ended January 30, 1999, 52 weeks ended January 31, 1998 and 52 weeks ended February 1, 1997 Statements of equity - 52 weeks ended January 30, 1999, 52 weeks ended January 31, 1998 and 52 weeks ended February 1, 1997 Statements of cash flows - 52 weeks ended January 30, 1999, 52 weeks ended January 31, 1998 and 52 weeks ended February 1, 1997 Notes to financial statements - January 30, 1999 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. (the "Company") as of January 30, 1999 and January 31, 1998 and the related statements of operations, equity, and cash flows for each of the three years in the period ended January 30, 1999. 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 January 30, 1999 and January 31, 1998 and the results of its operations and its cash flows for each of the three years in the period ended January 30, 1999 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts March 26, 1999 Star Markets Company, Inc. Balance Sheets (Amounts in thousands, except share data)
January 30, January 31, 1999 1998 ----------- ----------- Assets Current assets: Accounts receivable, net of reserve for doubtful accounts of $1,331 in 1999 and $1,391 in 1998 $ 18,277 $ 21,001 Inventory 64,914 71,524 Prepaid expenses 4,483 4,465 ------------------------ Total current assets 87,674 96,990 Property and equipment at cost: Land 15,256 21,287 Building 31,712 51,452 Equipment & fixtures 123,757 112,010 Leasehold improvements 69,675 61,644 ------------------------ Total property & equipment 240,400 246,393 Less accumulated depreciation and amortization 70,645 52,692 ------------------------ Net property and equipment 169,755 193,701 Other assets, net 28,537 31,287 Goodwill, net 127,005 130,564 ------------------------ Total Assets $412,971 $452,542 ======================== Liabilities and Shareholder's Equity Current liabilities: Accounts payable $ 38,246 $ 46,091 Accrued payroll & benefits 14,399 13,195 Current portion self-insurance 6,286 8,266 Accrued interest 5,762 6,092 Other current liabilities 14,585 16,503 ------------------------ Total current liabilities 79,278 90,147 Self-insurance reserves, less current portion 12,243 18,523 Other liabilities 7,454 5,687 Long-term debt 259,037 276,327 Redeemable preferred stock, redemption value $11,000 10,421 10,326 Shareholder's equity: Common stock, $.01 par value, 10,000 shares authorized and 5,000 shares outstanding 0 0 Additional paid-in-capital 82,606 83,924 Retained earnings (deficit) (38,069) (32,392) ------------------------ Total shareholder's equity 44,537 51,532 ------------------------ Total Liabilities and Shareholder's Equity $412,971 $452,542 ========================
See accompanying notes. Star Markets Company, Inc. Statements of Operations (Amounts in thousands)
52 Weeks 52 Weeks 52 Weeks Ended Ended Ended January 30, January 31, February 1, 1999 1998 1997 ----------- ----------- ----------- Total revenues $1,064,235 $1,034,188 $954,531 Cost of goods sold 777,842 761,798 715,090 ----------------------------------------- Gross profit 286,393 272,390 239,441 Operating and administrative expenses 237,460 226,708 197,314 Depreciation and amortization 24,837 23,792 22,178 ----------------------------------------- Operating profit 24,096 21,890 19,949 Interest expense 29,486 30,177 28,894 Other income (expenses), net 76 87 (13) ----------------------------------------- Loss before income taxes (5,314) (8,200) (8,958) Income taxes 363 365 378 ----------------------------------------- Net loss $ (5,677) $ (8,565) $ (9,336) =========================================
See accompanying notes. Star Markets Company, Inc. Statements of Equity (Amounts in thousands)
Additional Common Paid-In- Retained Stock Capital Earnings Total ------ ---------- -------- ----- 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 Net loss (8,565) (8,565) Accretion of preferred stock (97) (97) Preferred stock dividend (1,226) (1,226) Deferred compensation 340 340 ---------------------------------------------- Balance at January 31, 1998 0 83,924 (32,392) 51,532 Net loss (5,677) (5,677) Accretion of preferred stock (96) (96) Preferred stock dividend (1,222) (1,222) ---------------------------------------------- Balance at January 30, 1999 $ 0 $82,606 $(38,069) $44,537 ==============================================
Star Markets Company, Inc. Statements of Cash Flows (Amounts in thousands)
52 Weeks 52 Weeks 52 Weeks Ended Ended Ended January 30, January 31, February 1, 1999 1998 1997 ----------- ----------- ----------- Operating activities Net loss $ (5,677) $ (8,565) $ (9,336) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred financing costs 1,688 1,648 1,543 Depreciation and amortization 24,835 23,792 22,178 Impairment loss 2,700 Loss (gain) on sale or disposal of property and equipment (69) (87) 15 Changes in operating assets and liabilities: Accounts receivable 2,721 814 (8,271) Inventories 6,609 (5,974) (2,636) Prepaid expenses (16) 494 85 Accounts payable (7,846) (707) 7,028 Accrued payroll and benefits 1,205 353 333 Self-insurance reserves (8,254) (291) (571) Accrued interest (331) 89 870 Other current liabilities (1,925) 3,491 2,754 Other 1,822 1,267 524 ---------------------------------------- Net cash provided by operating activities 17,462 16,324 14,516 Investing activities Purchases of property and equipment (20,621) (41,058) (34,762) Proceeds from sale of property and equipment 21,658 22,381 4,365 Decrease in restricted cash 6,028 Acquisition of leasehold interests (20,064) ---------------------------------------- Net cash provided by ( used in) investing activities 1,037 (18,677) (44,433) Financing Activities Net proceeds from revolving credit facility 2,299 4,600 12,400 Proceeds from long-term debt 4,087 Repayment of long-term debt (19,576) (722) (1,340) Preferred dividends paid (1,222) (1,226) (1,230) Deposits refunded 500 4,000 Equity contribution 12,000 Deferred financing costs (799) ---------------------------------------- Net cash (used in) provided by financing activities (18,499) 2,353 29,917 Net increase in cash and cash equivalents 0 0 0 Cash and cash equivalents beginning of period 0 0 0 ---------------------------------------- Cash and cash equivalents end of period $ 0 $ 0 $ 0 ======================================== Supplemental disclosure of cash flow information: Cash paid for interest $ 27,124 $ 28,440 $ 26,374 Cash paid for taxes 362 365 370
See accompanying notes. Star Markets Company, Inc. Notes to Financial Statements January 30, 1999 1. Background Star Markets Company, Inc., a Massachusetts corporation (the "Company"), is a leading food retailer in the metropolitan Boston area and operated 53 stores as of January 30, 1999. 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. Sale of Stock Pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") by and among the Company, Holdings, and J Sainsbury plc ("Sainsbury") dated as of November 25, 1998, Sainsbury has agreed to acquire all of the issued and outstanding voting securities of Holdings. Pursuant to the Stock Purchase Agreement, all other shares of capital stock of Holdings will also be either purchased or redeemed. The value of the transaction is approximately $490.0 million (including assumed debt), subject to adjustment. The transaction has been approved by the boards of directors of the Company, Holdings and Sainsbury. Consummation of the transaction is subject to customary conditions including regulatory approvals. 3. Acquisitions Star Market Company ("Predecessor") was operated as a division of Jewel Food Stores, Inc. ("Jewel"), a wholly-owned subsidiary of American Stores Company ("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 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 1998, the Company adjusted the self-insurance reserves for worker's compensation and general liability insurance recorded at the time of the Acquisition by $5.0 million. The $5.0 million, represents the excess reserve based on current actuarial estimates of unpaid claims related to losses incurred prior to the Acquisition. The adjustment was recorded in operating and administrative expenses as an increase to net income. 4. Significant Accounting Policies Reclassification Certain amounts in the historical financial statements of the Company 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 "1998", "1997" and "1996", mean the 52-week fiscal year ended January 30, 1999, 52-week fiscal year ended January 31, 1998 and the 52-week fiscal year ended February 1, 1997, respectively. Revenue Recognition Revenue from retail operations is recognized at the point of sale. The Company allows for merchandise to be returned under most circumstances. The Company does not provide for a reserve for estimated returns, as the amount does not have a material impact on the financial statements. Revenue from wholesale operations is recognized upon shipment of merchandise to wholesale customers. Sales to wholesale customers are considered final upon acceptance of delivery, however, the Company does allow merchandise returns under certain circumstances. The Company does not provide for a reserve for estimated returns, as occurrence is infrequent and the amount does not have a material impact on the financial statements. 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 January 30, 1999 and January 31, 1998 was $15.4 million and $11.8 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 January 30, 1999 and January 31, 1998 was $7.0 million and $5.3 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. The useful lives of owned assets for purposes of computing depreciation are:
Years ----- Building 39 Equipment and fixtures 3 - 8 Leasehold improvements Minimum of lease term or 20 years
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 During 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("Statement 130"). The Company adopted the provisions of Statement 130 during Fiscal 1998. Comprehensive income is generally defined as all changes in stockholder's equity exclusive of transactions with owners such as capital investments and dividends. The adoption of Statement 130 had no impact on the Company's financial statement disclosures. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("Statement 131"), which is required to be adopted for years beginning after December 15, 1997. The Company adopted the provisions of Statement 131 during 1998. The adoption of Statement 131 had no impact on the Company's financial statement disclosures. Advertising Expense Total advertising expense amounted to $10.7 million, $11.8 million and $10.5 million in 1998, 1997 and 1996, respectively. The Company expenses all advertising costs as incurred. 5. Financial Instruments The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments: 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):
January 30, 1999 January 31, 1998 ----------------------- ----------------------- Carrying Carrying Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- Long-term debt $260,147 $272,247 $277,427 $291,727
6. Long-term Debt Long-term debt consists of the following (in thousands):
January 30, 1999 January 31, 1998 ---------------- ---------------- Senior Credit Facility: Term Loan: Tranche B $ 32,824 $ 39,750 Tranche C 24,588 29,750 Additional Tranche C 31,789 38,500 Revolving credit facility 58,700 56,400 ----------------------------- Total Senior Credit Facility 147,901 164,400 13% Senior subordinated notes 110,000 110,000 8% Note Payable 2,246 3,027 ----------------------------- Total 260,147 277,427 Less current maturities 1,109 1,100 ----------------------------- $259,038 $276,327 =============================
The following table presents the maturities of the long-term debt for the next five fiscal years and thereafter (in thousands) as of January 30, 1999: Fiscal 1999 1,109 2000 9,333 2001 83,968 2002 24,465 2003 and thereafter 141,272 -------- Total $260,147 ========
Senior Credit Facility The Senior Credit Facility provides for a total of $183.0 million of term and revolving loan credit (the "loans"). In order to reflect the impact of the sale/leaseback of three properties completed in March, 1998, certain financial covenants of the Senior Credit Facility were amended on August 17, 1998. 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 January 30, 1999, the Company had outstanding letters of credit totaling $7.2 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 0.5%, 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 January 30, 1999, the interest rates on the term loan facility ranged from 8.13% to 8.75% and the weighted average interest rate on amounts outstanding under the revolving credit facility at January 30, 1999 and January 31, 1998 were 7.93% and 8.40%, respectively. 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. 8% Note Payable The Company issued a $4.0 million note payable in connection with the store locations acquired in 1996. The note payable bears interest at 8.00% per annum and requires quarterly payments of principal and interest through July 2001. Capitalized interest totaled $130,165, $161,000 and $55,000 for 1998, 1997 and 1996, respectively. 7. Preferred Stock The Company is authorized to issue 10,000 shares of preferred stock, par value $.01 per share. In connection with the 1994 Acquisition, 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 therefor, 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 January 30, 1999. 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. 8. Leases The Company leases retail stores and equipment. The store leases have an average life of approximately 34 years until final expiration. The store leases generally have renewal options and provide for contingent rent based on sales levels in excess of specified levels. In March 1998, the Company entered into a three property sale-leaseback transaction. The Company sold two of its stores and its distribution complex in Norwood, MA for a gross selling price of $21.6 million. Concurrent with the sale, the Company leased the properties back for an initial term of 25 years. No gain or loss was recognized as a result of the transaction. The summary below shows the aggregate future minimum lease commitments at January 30, 1999. Operating leases are shown net of an aggregate $8.8 million of minimum rental income under noncancelable subleases.
Operating Leases -------------- (In thousands) 1999 30,602 2000 28,788 2001 29,436 2002 28,725 2003 28,175 Thereafter 365,330 ------- Total minimum rent commitments 511,056 =======
Rent expense for real property was as follows:
Minimum Sublease Contingent Total Rent Rent Net Rent Rent ---------------------------------------------------------- (In thousands) 1998 $27,349 $(1,475) $25,874 $203 $26,077 1997 $22,284 $(1,298) $20,986 $329 $21,315 1996 $16,639 $ (970) $15,669 $338 $16,007
Additionally, rent expense for personal property totaled approximately $4.4 million, $3.5 million and $2.1 million, for 1998, 1997 and 1996, 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 January 30, 1999 was $2.2 million. 9. Income Taxes Federal and state income taxes charged to earnings are summarized below:
1998 1997 1996 ---------------------- Current: Federal $ 0 $ 0 $ 0 State 363 365 378 ---------------------- Income taxes $363 $365 $378 ======================
The effective income tax rate differs from the statutory federal income tax rate as follows:
1998 1997 1996 ------------------------------ Statutory federal income tax rate (34.0%) (34.0%) (34.0%) State income taxes, net of federal income tax effect 6.4 4.5 4.2 Unbenefitted Losses / Loss Carryforward 34.0 34.0 34.0 ------------------------------ Effective income tax rate 6.4% 4.5% 4.2% ==============================
Deferred tax assets and liabilities as of 1998 and 1997 related to the following temporary differences (in thousands):
January 30, January 31, 1999 1998 --------------------------- Deferred tax liabilities: Goodwill $ (7,670) $ (4,939) Basis in fixed assets (5,470) (4,548) Other, net (1,585) (1,327) ------------------------ Total deferred tax liabilities (14,725) (10,814) ------------------------ Deferred tax assets: Self-insurance reserves 7,684 10,605 Net operating loss carryforward 26,774 20,435 Compensation and benefits 2,021 2,088 Miscellaneous accruals 852 1,032 Other, net 3,299 2,239 ------------------------ Total deferred tax assets 40,630 36,399 Valuation allowance (25,905) (25,585) ------------------------ Net deferred tax assets 14,725 10,814 ------------------------ $ 0 $ 0 ========================
The Company has tax net operating loss carryforwards of $67.0 million that expire through 2018. 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 January 30, 1999. 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. 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):
1998 1997 1996 ---------------------------- Company-sponsored plans $2,345 $1,859 $2,685 Multi-employer plans 2,315 2,457 2,102 ---------------------------- $4,660 $4,316 $4,787 ============================
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 entered into an agreement for management advisory and consulting services (the "Management Agreement") with Investcorp International Inc. ("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, with the remaining two years due in quarterly installments. 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. 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. 13. Subsequent Event During 1998, the Company initiated a plan to dispose of one operating location. The sale of the assets was completed on February 11, 1999, subsequent to January 30, 1999. At January 30, 1999, in connection with the plan of disposal, the Company determined that the carrying value of the assets exceeded their fair values. Accordingly, a loss of $2,700,000, which is included as part of operating and administrative expenses, and represents the excess of the carrying value of $7,800,000 over the fair value of $5,100,000, has been charged to operations in 1998. The net proceeds of the sale were applied to the revolving credit facility in fiscal year 1999. EX-10 2 EX 10(R)-FOURTH AMENDMENT TO CREDIT AGREEMENT Exhibit 10(r) AMENDMENT, dated as of August 17, 1998 (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 amend the Credit Agreement to reflect the impact of a sale/leaseback transaction completed in March 1998, $18.4 million of the Net Proceeds of which were applied pro rata to the Term Loans; 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. Amendment of Subsection 10.8 (Consolidated EBITDA). Subsection 10.8 is hereby deleted in its entirety and the following is substituted in lieu thereof: 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 ---------- -------------- ------ 1998 Second $47,500,000 Third 48,800,000 Fourth 50,900,000 1999 First 50,900,000 Second 50,900,000 Third 53,400,000 Fourth 55,900,000
Fiscal Year Fiscal Quarter Amount ----------- -------------- ------ 2000 First $55,900,000 Second 58,400,000 Third 60,900,000 Fourth 65,900,000 2001 First 65,900,000 Second 68,400,000 Third 70,900,000 Fourth 75,900,000 2002 First 75,900,000 Second 78,400,000 Third 80,900,000 Fourth 83,400,000 2003 First 83,400,000 Second 85,900,000 Third 88,400,000
Section 3. Amendment of Subsection 10.10(a) (Interest Coverage). The Third and Fourth Fiscal Quarter of 1998 is hereby deleted and the following is substituted in lieu thereof:
Fiscal Year Fiscal Quarter Amount ----------- -------------- ------ 1998 Third 1.35 to 1 Fourth 1.35 to 1
Section 4. Representation and Warranties. To induce the Lenders to enter into this Amendment, the Company hereby represents and warrants to the Lenders as of the date first above written 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 date first above written, after giving effect to the effectiveness of this Amendment, as if made on and as of the date first above written 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 5. 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: ERSTE BANK DER OSTERREICHISCHEN STARKASSEN AG By: -------------------------------- Title: KZH HOLDING CORPORATION III 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: THE FLOATING RATE PORTFOLIO 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: KZH-SOLEIL CORPORATION By: ------------------------------- Title: KZH-IV CORPORATION By: ------------------------------- Title: PAMCO CAYMAN LTD. By: ------------------------------- Title: SPS SWAPS By: ------------------------------- Title: Consented to by: ---------------- STAR MARKETS HOLDINGS, INC. By: -------------------------------- Title: EX-10 3 EX 10(S) STOCK PURCHASE AGREEMENT Exhibit 10(s) EXECUTION COPY =========================================================================== STOCK PURCHASE AGREEMENT by and among STAR MARKETS COMPANY, INC., STAR MARKETS HOLDINGS, INC., Certain Other Stockholders of Star Markets Holdings, Inc. Listed on the Signature Pages Hereto and J SAINSBURY PLC As of November 25, 1998 =========================================================================== TABLE OF CONTENTS Page ARTICLE I DEFINITIONS ----------- Definitions 1 ARTICLE II PURCHASE AND REDEMPTION OF SHARES --------------------------------- 2.1. Purchase and Sale of the Shares 6 2.2. Holdings Stock Options 2.3. Share Redemption 2.4. Closing Date ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE COMPANY ------------------------------------------- 3.1. Corporate Organization 8 3.2. Capital Stock 3.3. Subsidiaries 3.4. Corporate Authority 3.5. Financial Statements 3.6. Operations Since January 31, 1998 3.7. No Undisclosed Liabilities 3.8. Taxes 3.9. Governmental Permits 3.10. Real Property 3.11. Real Property Leases 3.12. Intellectual Property 3.13. Labor Relations 3.14. Employee Benefit Plans 3.15. Contracts 3.16. No Violation, Litigation or Regulatory Action 3.17. Insurance 3.18. Certain Transactions or Arrangements 3.19. Finders ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS --------------------------------------------- 4.1. Authority and Related Matters 4.2. No Finder ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER ------------------------------------------- 5.1. Organization of Purchaser 5.2. Authority of Purchaser 5.3. No Finder 5.4. Investment Intent 5.5. Status as Accredited Investor 5.6. Financial Capability 5.7. Governmental Consents ARTICLE VI ADDITIONAL COVENANTS -------------------- 6.1. Investigation of Holdings and the Company by Purchaser 6.2. Confidentiality 6.3. Certain Agreements 6.4. Operations Prior to the Closing Date 6.5. No Public Announcement 6.6. Governmental Filings; Consents 6.7. Directors' and Officers' Indemnification 6.8. Employee Benefits 6.9. Acquisition Proposals 6.10. Notices and Consents 6.11. Balance Sheet 6.12. Termination of Agreements 6.13. Information Technology ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER ------------------------------------------------ 7.1. No Misrepresentation or Breach of Covenants and Warranties 7.2. Resignations of Directors 7.3. Litigation 7.4. Governmental Approvals 7.5. FIRPTA Affidavit 7.6. Transaction Expenses ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF HOLDINGS, THE COMPANY AND THE SELLERS ------------------------------------------------ 8.1. No Misrepresentation or Breach of Covenants and Warranties 8.2. Litigation 8.3. Governmental Approvals ARTICLE IX TERMINATION ----------- 9.1. Termination 9.2. Effect of Termination 9.3. No Liability Upon Termination ARTICLE X GENERAL PROVISIONS ------------------ 10.1. Non-survival of Representations, Warranties and Agreements 10.2. Notices 10.3. Partial Invalidity 10.4. Execution in Counterparts 10.5. Governing Law 10.6. Assignment; Successors and Assigns 10.7. Titles and Headings 10.8. Schedules and Exhibits 10.9. Knowledge 10.10. Entire Agreement; Amendments 10.11. Waivers 10.12. Waiver of Jury Trial 10.13. Expenses Exhibit and Schedules Exhibit A Sellers Schedule 3.2(b) Capital Stock -- Star Markets Holdings, Inc. Schedule 3.4 Corporate Authority Schedule 3.5 Financial Statements Schedule 3.5(b) Holdings Liabilities Schedule 3.6 Operations Since January 1, 1998 Schedule 3.8 Taxes Schedule 3.10 Owned Real Property Schedule 3.11 Scheduled Leases Schedule 3.12 Intellectual Property Schedule 3.14 Employee Benefits Schedule 3.15 Contracts Schedule 3.16 No Violation, Litigation or Regulatory Action Schedule 3.17 Insurance Schedule 3.18 Transactions With Affiliates Schedule 6.4(b)(viii) Long Range Growth Plan Schedule 10.9 Persons Having Knowledge STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT is dated as of November 25, 1998, by and among those Persons listed on Exhibit A hereto (each individually, a "Seller", collectively, the "Sellers"), Star Markets Company, Inc., a Massachusetts corporation (the "Company"), Star Markets Holdings, Inc., a Massachusetts corporation ("Holdings") and J Sainsbury plc, a company organized under the laws of England and Wales (the "Purchaser"). W I T N E S S E T H - - - - - - - - - - WHEREAS, Holdings will, immediately prior to the Closing Date, be the owner of 100% of the issued and outstanding capital stock of the Company; WHEREAS, the Sellers are the owners of that number of shares of Class D Stock of Holdings, par value of $.01 per share, set forth next to each such Seller's name on Exhibit A attached hereto; WHEREAS, pursuant to the Certificate of Designations of Holdings as filed with the Secretary of State of the Commonwealth of Massachusetts (the "Certificate of Designations"), holders of Class A Stock and Class C Stock of Holdings are entitled to participate in any proposed sale of Class D Stock by holders thereof; and WHEREAS, the Sellers desire to sell to Purchaser that number of shares of Class D Stock identified next to each such Seller's name on Exhibit A attached hereto and Purchaser (i) desires to purchase for the amounts provided herein, and on the terms and subject to the conditions set forth in this Agreement, the Class D Stock offered for sale hereby as well as those shares of Class A Stock and Class C Stock for which holders thereof make a valid tag-along election pursuant to the terms hereof and of the Certificate of Designations, and (ii) has agreed to provide the funds necessary for Holdings to redeem those shares of Class A Stock and Class C Stock that are not offered for sale to Purchaser pursuant to Section 2.1 herein below. NOW, THEREFORE, in consideration of the mutual terms, conditions and other covenants and agreements set forth herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS In addition to the other words and terms defined elsewhere in the Agreement, as used in this Agreement, the following words and terms have the meanings specified or referred to below: "Acquisition Proposal" has the meaning specified in Section 6.9. "Additional Shares" has the meaning specified in Section 2.1(b). "Affiliate" means, with respect to any Person, any other Person who, directly or indirectly, controls, is controlled by or is under common control with such Person. "Aggregate Option Exercise Price" means an amount equal to the aggregate dollar amount of the exercise price of all Holdings Options outstanding immediately prior to the Closing. "Aggregate Purchase Price" means an amount equal to (i) the Buyer Purchase Price, plus (ii) the Aggregate Option Exercise Price, plus (iii) $68,475, less (iv) the amount, if any, by which Transaction Expenses exceed $6,000,000, plus (v) interest on the Buyer Purchase Price at a per annum rate of 10% from April 1, 1999 until the Closing Date. "Buyer Purchase Price" means $220,800,000. "Certificate of Designations" has the meaning specified in the recitals to this Agreement. "Class A Stock" has the meaning specified in Section 3.2(b). "Class C Stock" has the meaning specified in Section 3.2(b). "Class D Sellers" shall mean all of the holders of Class D Stock. "Class D Stock" has the meaning specified in Section 3.2(b). "Closing" has the meaning specified in Section 2.4. "Closing Date" has the meaning specified in Section 2.4. "Code" means the Internal Revenue Code of 1986, as amended. "Common Stock" has the meaning specified in Section 3.2(b). "Company" has the meaning specified in the preamble to this Agreement. "Company Common Stock" has the meaning specified in Section 3.2(a). "Company Financial Statements" has the meaning specified in Section 3.5(d). "Company Group" has the meaning specified in Section 3.14(a). "Cumulative Preferred Stock" has the meaning specified in Section 3.2(a). "Defined Benefit Plan" has the meaning specified in Section 3.14(a). "DOL" has the meaning specified in Section 3.14(b)(4). "Electing Stockholders" has the meaning specified in Section 2.1(b). "Employee Benefit Plan" has the meaning specified in Section 3.14(a). "Employee Plan" has the meaning specified in Section 3.14(a). "Encumbrance" means any lien, claim, charge, security, interest, mortgage, pledge or encumbrance, including, with respect to real estate and interests therein, easements, rights of way, covenants, conditions, restrictions or other adverse rights. "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. [SECTION] 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. [SECTION]6901, the Federal Water Pollution Control Act, 33 U.S.C. [SECTION] 1201, the Clean Water Act, 33 U.S.C. [SECTION]1321, the Clean Air Act, 42 U.S.C. [SECTION] 7401 and the Toxic Substances Control Act, 15 U.S.C. [SECTION] 2601, the Massachusetts Oil and Hazardous Material Release, Prevention and Response Act (MGL Ch. 21E) and any other Laws, in each case, as amended from time to time, dealing with the protection of human health, natural resources and/or the environment including, without limitation, Laws relating to (i) the discharge, storage, handling, transportation or disposal of any Hazardous Substance, (ii) the release or threatened release of Hazardous Substances, and (iii) the discharge of pollutants or effluents into the water or air or any emissions which would require a permit. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Financial Statements" means the Company Financial Statements and the Holdings Balance Sheet. "Fully Diluted Number" means (i) the aggregate number of outstanding Shares (excluding treasury shares) plus (ii) the aggregate number of Shares issuable upon exercise of all outstanding Holdings Options as of the Closing Date plus (iii) 913. "Governmental Body" means any federal, state, local or foreign court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. "Governmental Permits" has the meaning specified in Section 3.9(a). "Hazardous Substance" means any substance in any concentration that is listed, classified or regulated pursuant to any Environmental Law including, without limitation, petroleum products, asbestos, lead products and polychlorinated biphenyls. "Holdings" has the meaning specified in the preamble for this Agreement. "Holdings Balance Sheet" has the meaning specified in Section 3.5(a). "Holdings Option Plan" has the meaning specified in Section 3.2(b). "Holdings Option" has the meaning specified in Section 3.2(b). "H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. "Indemnified Liabilities" has the meaning specified in Section 6.7(b). "Indemnified Parties" has the meaning specified in Section 6.7(b). "Intellectual Property" has the meaning specified in Section 3.12(a). "IRS" means the Internal Revenue Service. "Laws" means any foreign, federal, state or local law, ordinance, code, regulation, rule, order, arbitration award, judgment, ruling or decree and applicable common law. "Massachusetts Attorney General" has the meaning specified in Section 5.7. "Material Adverse Effect" means (i) with respect to Holdings or the Company, a material adverse effect on or change in the business, assets, condition (financial or otherwise), or results of operations of Holdings and the Company taken as a whole; and (ii) with respect to the Purchaser, a material adverse effect on or change in the business, assets, condition (financial or otherwise), or results of operations of the Purchaser and its Subsidiaries taken as a whole. "Multiemployer Plan" has the meaning specified in Section 3.14(a). "Owned Real Property" has the meaning specified in Section 3.10. "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, or any other governmental agency, department or instrumentality succeeding to the functions of said Corporation. "Permitted Encumbrance" means (i) only with respect to real estate and interests therein, easements, covenants, conditions, restrictions and other matters of record, and incidental mechanics' and other similar liens, none of which, individually or in the aggregate, has had or would result in a material adverse effect on the value of the property subject thereto or the ability to use such property as it is presently used and (ii) the Encumbrances arising from the Senior Credit Agreement. "Permitted Investments" has the meaning specified in Section 2.3(c). "Per Share Amount" has the meaning specified in Section 2.1(c). "Person" means and includes an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated organization and any governmental or regulatory body or other agency or authority. "Preferred Stock" has the meaning specified in Section 3.2(a). "Purchaser" has the meaning specified in the first paragraph of this Agreement. "Purchaser Contribution" has the meaning specified in Section 2.3(a). "Redeemed Shares" has the meaning specified in Section 2.3(a). "Redemption Agent" has the meaning specified in Section 2.3(a). "Redemption Fund" has the meaning specified in Section 2.3(a). "Redemption Price" has the meaning specified in Section 2.3(a). "Returns" has the meaning specified in Section 3.8(a). "Scheduled Leases" has the meaning specified in Section 3.11(a). "SEC" has the meaning specified in Section 3.5(d). "SEC Filings" has the meaning specified in Section 3.5(d). "Securities Act" means the Securities Act of 1933, as amended. "Sellers" means the Class D Sellers as well as, from and after identification thereof to Purchaser pursuant to the terms hereof, the Electing Stockholders. "Senior Credit Agreement" means the Credit Agreement dated as of September 8, 1994 by and among the Company, The Chase Manhattan Bank (formerly Chemical Bank) as Administrative Agent and the lenders party thereto, as amended from time to time. "Shares" means shares of Class A, Class C or Class D Stock, as applicable. "Subsidiary" shall mean, as of the applicable point in time, each corporation, partnership, joint venture or other entity, other than the Company, of which Holdings owns, directly or indirectly, more than 50% of the outstanding voting securities or equity interests. "Tax" or "Taxes" has the meaning specified in Section 3.8(a). "Transaction Expenses" means the legal, accounting, financial advisory and consulting expenses incurred by Holdings and the Company in connection with the transactions contemplated hereby. "Treasury Regulations" has the meaning specified in Section 3.8(e)(i). "USRPHC" has the meaning specified in Section 3.8(e)(i). ARTICLE II PURCHASE AND REDEMPTION OF SHARES 2.1. Purchase and Sale of the Shares (a) Subject to the terms and conditions hereof, on the Closing Date, the Sellers shall sell to the Purchaser, and the Purchaser shall purchase from each Seller the number of Shares of Class D Stock specified next to each such Seller's name on Exhibit A hereto, representing, in the aggregate, 100% of the voting capital stock of Holdings. (b) Not less than 10 days prior to the Closing, Holdings shall notify Purchaser of those holders of Class A Stock and Class C Stock who have made valid elections to participate in the sale of Shares to Purchaser pursuant to the terms of the Certificate of Designations (such persons, the "Electing Stockholders"), the number of shares of such Class A Stock and Class C Stock (collectively, the "Additional Shares") with respect to which each such Electing Stockholder has validly exercised such right and the Per Share Amount. In order to make a valid election to participate in the sale of Shares pursuant to this Agreement, each Electing Stockholder shall agree, in form reasonably satisfactory to and for the benefit of Purchaser, to be bound by the terms, conditions and other provisions of this Agreement as if a signatory hereto as of the date hereof and to waive any and all rights to the contrary under applicable Law or the Certificate of Designations. Subject to the terms and conditions hereof and the Certificate of Designations, on the Closing Date, Purchaser shall purchase from the Electing Stockholders, and the Electing Stockholders shall sell to the Purchaser, each Additional Share for the Per Share Amount as set forth in Section 2.1(c). (c) The purchase price to be paid to any Seller or Electing Stockholder for each Share to be sold pursuant to Section 2.1 shall be (1) the Aggregate Purchase Price divided by (2) the Fully Diluted Number, rounded to the nearest $0.01 (the "Per Share Amount"). At Closing, the Per Share Amount is payable in cash in immediately available funds for each Share against delivery of stock certificates representing such Shares, in proper form for transfer together with any necessary documentary or transfer tax stamps duly affixed and canceled and otherwise in form reasonably satisfactory to Purchaser. Payment shall be made by wire transfer to accounts designated by each Seller and Electing Shareholder by notice to Purchaser at least two business days prior to Closing. 2.2. Holdings Stock. Subject to the terms and conditions hereof, on the Closing Date or as soon as practicable thereafter, Holdings shall pay each holder of Holdings Options who surrenders such Holdings Options for cancellation (in consideration of such cancellation), for each Share covered by such Holdings Options, a cash amount equal to (1) the Per Share Amount less (2) the applicable exercise price of such Holdings Option and (3) any withholding taxes required by applicable law. On and after the Closing Date, Purchaser shall provide to Holdings all cash funds necessary to make such payments on a timely basis. Prior to Closing, Holdings and the Company shall use all reasonable efforts to take such actions as may be necessary to effectuate the foregoing, including without limitation, obtaining all applicable consents. The cancellation of a Holdings Option in accordance with the foregoing shall be deemed a release of any and all rights the holder of such Holdings Option had or may have had in respect of such Holdings Option and any required consents received from holders of Holdings Options shall so provide. 2.3. Share Redemption. (a) Subject to the terms and conditions hereof and the Certificate of Designations, on or before the Closing Date, Purchaser shall deposit in trust (the "Redemption Fund") on behalf of Holdings by wire transfer of immediately available funds (the "Purchaser Contribution") with Chase Manhattan Bank, N.A. (the "Redemption Agent") as are required to redeem, concurrently with the consummation of the stock purchases contemplated by Section 2.1, those shares of Class A Stock and Class C Stock that do not constitute Additional Shares for purposes of this Agreement (the "Redeemed Shares"). The price to be paid for each such share (the "Redemption Price") shall be the Per Share Amount less, in accordance with Section 5 of the Certificate of Designations, the pro rata share, based on the number of Shares so redeemed from such holder, of such holder of Redeemed Shares of the expenses of the purchase and sale of Shares pursuant to this Agreement to be borne by the Sellers, if any, including, without limitation, legal, accounting and investment banking fees and expenses to be borne by the Sellers, if any. Purchaser and Holdings shall cause the Redemption Agent to give notice of such redemption at least two business days prior to the Closing and, on and after the Closing Date, pay the Redemption Price per Redeemed Share to each holder of Redeemed Shares provided for in this Section 2.3 out of the Redemption Fund promptly after the surrender to the Redemption Agent by such holder of stock certificates representing such Redeemed Shares for cancellation. If for any reason (including losses) the Redemption Fund is inadequate to pay the amounts required under this Section 2.3, Purchaser shall in any event be liable for payment thereof. In accordance with Section 5 of the Certificate of Designations, all certificates representing Redeemed Shares, including all certificates not delivered or surrendered to the Redemption Agent for cancellation shall be deemed to be canceled by Holdings as of the Closing Date and shall thereafter no longer represent any equity interest in or other rights with respect to Holdings other than the right to receive the Redemption Price per Redeemed Share upon surrender to the Redemption Agent for cancellation. (b) Contemporaneously with the completion of such redemptions, in consideration of the funding provided for in Section 2.3(a), Holdings shall issue to Purchaser that number of shares of Common Stock representing the total number of shares of Class A Stock and Class C Stock so redeemed. (c) The Redemption Agent shall invest undistributed portions of the Redemption Fund as Purchaser directs in obligations of or guaranteed by the United States of America, in commercial paper obligations receiving an investment grade rating from both Moody's Investor Services, Inc. and Standard & Poor's Corporation, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $1,000,000,000 (collectively, "Permitted Investments"); provided, however, that the maturities of Permitted Investments shall be such as to permit the Redemption Agent to make prompt payment to holders of Class A Stock and Class C Stock entitled thereto as contemplated by this Section. The Redemption Fund shall not be used for any purpose except as expressly provided in this Agreement. Any cash, cash equivalents or Permitted Investments remaining in the Redemption Fund following the earlier of (i) the payment of the Redemption Price per Share to each holder of Redeemed Shares in respect of such holder's Redeemed Shares and (ii) the sixtieth day following the Closing Date shall be delivered to Purchaser or its designee by the Redemption Agent. Thereafter, the Redemption Agent's duties shall terminate and each holder of Redeemed Shares may surrender to Holdings the stock certificates representing such holder's Redeemed Shares (and subject to applicable abandoned property, escheat and similar laws), receive the Redemption Price per Redeemed Share in exchange therefor. Neither the Redemption Agent nor Holdings shall be liable to a holder of Redeemed Shares for any amounts delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. In no event shall Purchaser, Holdings or the Redemption Agent be required to pay interest on any amount payable to any Seller, Electing Stockholder or holder of Redeemed Shares pursuant to this Article II. 2.4. Closing Date. Subject to the terms and conditions hereof, the consummation of the transactions provided for in this Article II (the "Closing") shall take place as soon as practicable but in no event later than the third business day after the date on which each of the conditions set forth in Articles VII and VIII have been satisfied or waived by the party or parties entitled to the benefit of such conditions, or at such other place, at such other time or on such other date as Purchaser, the Sellers and Holdings may mutually agree. The date on which the Closing actually occurs is hereinafter referred to as the "Closing Date." The Closing shall take place at the offices of Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, New York 10166. ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND THE COMPANY ------------------------------ As an inducement to Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby, Holdings and the Company represent and warrant to Purchaser as follows: 3.1. Corporate Organization. Each of Holdings and the Company is a corporation duly organized, legally existing and in good standing under the laws of the Commonwealth of Massachusetts. The Company is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which the ownership or leasing of its properties or assets or the conduct of its business requires such qualification (except where, individually or in the aggregate, the failures to so qualify have not had and would not be reasonably likely to result in a Material Adverse Effect). Holdings and the Company each have all requisite corporate power to own or lease and to operate and use their properties and assets and to carry on their businesses as now conducted. Each of Holdings and the Company has delivered or made available to Purchaser complete and correct copies of its articles of organization, and bylaws, each as in effect on the date hereof. 3.2. Capital Stock. (a) The authorized capital stock of the Company consists of (i) 10,000 shares of common stock, par value $.01 per share (the "Company Common Stock") and (ii) 10,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"), of which 5,000 have been designated as Cumulative Preferred Stock (the "Cumulative Preferred Stock"). The only outstanding shares of capital stock of the Company are 5,000 shares of Company Common Stock and 5,000 shares of Cumulative Preferred Stock all of which are owned by Holdings. None of the issued and outstanding shares of capital stock issued by the Company has been issued in violation of, or is subject to, any preemptive or any subscription rights. Except as disclosed on Schedule 3.2(a), there are no agreements, arrangements, warrants, options, puts, calls, rights or other employee benefit plans or other commitments or understandings of any character to which Holdings or the Company is a party relating to the issuance, sale, purchase, redemption, conversion, exchange, registration, voting or transfer of any shares of Company Common Stock, Preferred Stock or other securities of the Company. All of the outstanding shares of Company Common Stock and Preferred Stock are duly and validly issued and fully paid and nonassessable, free of any preemptive or subscription rights. (b) As of the date hereof, the authorized capital stock of Holdings consists of (i) 1,555,000 shares of common stock, par value $.01 per share (the "Common Stock"), (ii) 1,045,000 shares of Class A stock, par value $.01 per share (the "Class A Stock"), (iii) 505,000 shares of Class C stock, par value $.01 per share (the "Class C Stock"), and (iv) 5,000 shares of Class D stock, par value $.01 per share (the "Class D Stock"). As of the date hereof, 1,015,603 Class A Shares are currently outstanding, 137,143 Class C Shares are currently outstanding, 5,000 Class D Shares are currently outstanding, and no Common Shares are currently outstanding. As of the date hereof, options to purchase 172,418 shares of Class C Stock (each a "Holdings Option") were outstanding pursuant to stock option agreements entered into between Holdings and certain of the Company's management and key employees pursuant to the 1994 Stock Incentive Plan of Holdings and the Amended and Restated Stock Incentive Plan (collectively, the "Holdings Option Plan"). None of the issued and outstanding Shares have been issued in violation of, or are subject to, any preemptive or any subscription rights. Except for this Agreement, the Holdings Option Plan and except as disclosed on Schedule 3.2(b), there are no agreements, arrangements, warrants, puts, calls, rights, options or other employee benefit plans or other commitments or understandings of any character to which Holdings is a party relating to the issuance, sale, purchase, redemption, conversion, exchange, registration, voting or transfer of any Shares or other securities of Holdings. The names of the record holders of all such warrants, options, puts, calls and rights, the number and class of shares of Holdings capital stock issuable upon exercise of all such warrants, options, puts, calls and rights, and the exercise price per share of Holdings capital stock of all such warrants, options, puts, calls and rights, are set forth on Schedule 3.2(b). All of the shares of Class C Stock subject to issuance pursuant to the Holdings Option Plan upon exercise of the Holdings Options shall, upon issuance on the terms and conditions specified in the instruments pursuant to which the Shares are issuable, be duly authorized, validly issued, fully paid and nonassessable. All of the outstanding Shares are duly and validly issued and fully paid and nonassessable, free of any preemptive or subscription rights (except as set forth in Schedule 3.2(b)), and upon delivery to Purchaser pursuant to Article II hereof the Shares will be duly and validly issued and fully paid and nonassessable, free of any preemptive or subscription rights and free and clear of all Encumbrances, other than those contained in the Certificate of Designations. Assuming all Holdings Options are canceled pursuant to Section 2.2 hereof, upon the Closing, including the redemption of the Redeemed Shares, there will be no shares of capital stock of Holdings outstanding other than the Shares purchased by or issued to Purchaser pursuant to this Agreement and the Certificate of Designations and there will not be any agreements, arrangements, warrants, puts, calls, rights, options or employee benefit plans or other commitments or understandings of any character to which Holdings is a party or by which Holdings is bound relating to the issuance, sale, purchase, redemption, conversion or exchange of any capital stock of Holdings or any other securities exercisable, convertible or exchangeable for capital stock of Holdings. 3.3. Subsidiaries. Holdings has no Subsidiaries other than the Company. The Company has no Subsidiaries. 3.4. Corporate Authority. (a) Each of Holdings and the Company has all requisite corporate power to execute and deliver this Agreement, to consummate the transactions, subject to the conditions set forth herein, contemplated hereby and to comply with the terms, conditions and provisions hereof. The execution, delivery and performance of this Agreement by Holdings and the Company have been duly authorized by all requisite corporate action. This Agreement has been duly executed and delivered by each of Holdings and the Company and constitutes, and each other instrument contemplated hereby, when executed and delivered by Holdings or the Company, as appropriate, will constitute the valid and binding obligation of Holdings or the Company, as the case may be, enforceable in accordance with its terms. (b) Except as set forth in Schedule 3.4, neither the execution and delivery by Holdings, the Company or any security holder thereof of this Agreement or of any of the other instruments contemplated hereby, nor the consummation by Holdings, the Company or any security holder thereof of any of the transactions contemplated hereby, nor compliance by Holdings, the Company or any security holder thereof with or fulfillment thereby of the terms, conditions and provisions hereof will: (i) conflict with or violate any provision of Holdings' or the Company's articles of organization or bylaws; (ii) result in the acceleration of, or entitle any party to accelerate (whether after the giving of notice or lapse of time or both), any debt obligation of Holdings or the Company in excess of $1,000,000 in the aggregate; (iii) conflict with or violate, or result with giving of notice or lapse of time or both in any conflict with or violation of, or result in the creation or imposition of, any Encumbrance upon any of the assets or properties of Holdings or the Company pursuant to any provision of, any mortgage, lien, lease, agreement, Governmental Permit, item of Intellectual Property, indenture, license, instrument or Law to which Holdings or the Company is a party or by which any of them or any of their properties or assets is bound, other than conflicts, violations, creations and impositions that would not result in new or additional monetary liability to Holdings or the Company in excess of $1,000,000 in the aggregate; (iv) constitute an event permitting modification, amendment or termination of a mortgage, lien, lease, agreement, Governmental Permit, item of Intellectual Property, indenture, license, instrument, order, arbitration award, judgment or decree to which Holdings or the Company is a party or by which any of them or any of their assets or properties is bound, other than modification(s), amendment(s) or termination(s) that would not result in new or additional monetary liability to Holdings or the Company in excess of $1,000,000 in the aggregate; or (v) require the approval, consent, authorization or act of, or the making by Holdings or the Company, of any declaration, filing or registration with any Governmental Body or other Person, except for such federal and state securities laws requirements as will be satisfied prior to the Closing Date, and except to the extent that the failure to obtain or make any of the foregoing, individually or in the aggregate, would not result in a Material Adverse Effect. 3.5. Financial Statements. (a) Schedule 3.5 contains a true and complete copy of the balance sheet of Holdings as of January 31, 1998. The balance sheet referred to in the preceding sentence is herein referred to as the "Holdings Balance Sheet". The Holdings Balance Sheet presents fairly the financial condition and results of operations of Holdings as of such date; such balance sheet and the notes thereto disclose all liabilities, direct or contingent, of Holdings as of the date thereof required to be disclosed by generally accepted accounting principles; and such balance sheet was prepared in accordance with generally accepted accounting principles applied on a consistent basis except as specified in the notes thereto. (b) Except as described in Schedule 3.5(b), the assets of Holdings consist solely of the capital stock of the Company and Holdings has no liabilities (direct or contingent) in excess of $100,000 in the aggregate. (c) As of September 26, 1998, indebtedness for borrowed money of Holdings and the Company on a consolidated basis did not exceed $270,000,000. (d) Since February 1, 1998, the Company has filed all forms, reports and documents with the Securities and Exchange Commission (the "SEC") required to be filed by it pursuant to the federal securities laws and the rules and regulations promulgated thereunder, and all such forms, reports and documents filed with the SEC have complied in all material respects with all applicable requirements of the federal securities laws and the rules and regulations promulgated thereunder. The Company has, prior to the date hereof, delivered or made available to Purchaser true and complete copies of all forms, reports, registration statements and other filings filed by the Company with the SEC since February 1, 1998 (such forms, reports, registration statements and other filings, together with any exhibits and any amendments thereto and any information incorporated by reference therein, collectively, the "SEC Filings"). As of their respective dates, the SEC Filings did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the balance sheets, statements of operations, statements of equity and statements of cash flow included in the SEC Filings on or prior to the date hereof (the "Company Financial Statements") were prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present, in all material respects, the financial position of the Company as of the dates thereof and the results of operations and changes in cash flows for the periods then ended. The Company shall deliver to Purchaser as soon as they become available true and complete copies of any form, report, registration statement or other document mailed by it to its securityholders or filed by it with the SEC subsequent to the date hereof. As of their respective dates, such forms, reports, registration statements and other documents filed with the SEC will not contain any untrue statement of material facts or omit to state material facts required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. Each of the balance sheets, statements of operations, statements of equity and statements of cash flow included in such SEC Filings after the date hereof will be prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present, in all material respects, the financial position of the Company as of the dates thereof and the results of operations and changes in cash flows for the periods then ended (subject in the case of any unaudited interim financial statements to normal year-end adjustments). 3.6. Operations Since January 31, 1998. (a) Except as set forth in the Financial Statements and except for changes resulting from general industry and economic conditions and changes that may result from the announcement of the transactions contemplated by this Agreement, since January 31, 1998 there have been no events that, individually or in the aggregate, have had or are reasonably likely to have a Material Adverse Effect. (b) Except as described in Schedule 3.6 and except for the transactions permitted by this Agreement, since January 31, 1998 each of Holdings and the Company has conducted its business in the ordinary course and in conformity with past practice and, without limiting the foregoing: (i) Holdings and the Company have not amended their articles of organization or bylaws and have not made any capital expenditures or commitments except in a manner not materially inconsistent with the Company's 1998 capital plan previously provided to the Purchaser; (ii) there has been no declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of Holdings or the Company, other than dividends on the Cumulative Preferred Stock paid in accordance with the terms thereof and no issuance of any capital stock of Holdings or the Company or of any securities convertible into or exchangeable or exercisable for, or otherwise representing any right to acquire, any such capital stock other than issuances of Class C Stock in connection with the exercise of Holdings Options; (iii) neither Holdings nor the Company has redeemed, repurchased, or otherwise acquired any of its capital stock or securities convertible into or exchangeable or exercisable for its capital stock or any other securities of Holdings or the Company, nor entered into any agreement, arrangement or other commitment to do so other than the acquisition from former employees of the Company or Holdings of shares of Class C Stock upon such employees' termination of employment and agreements providing for such acquisitions; (iv) neither Holdings nor the Company has adopted or amended any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation or other plan, agreement, trust fund or arrangement or other plan for the benefit of its employees other than any such adoptions or amendments as were in the ordinary course of business consistent with past practices and which do not have a Material Adverse Effect; (v) neither Holdings nor the Company has granted or agreed to grant any bonus or other special compensation or increased compensation or benefits payable or to become payable to any directors, officers or employees of the Company or Holdings except for increases, bonuses or special compensation payable to nonexecutive officers and employees in the ordinary course of business consistent with past compensation practice, or taken any action with respect to the grant or increase of severance or termination pay or entered into any employment, consulting or similar agreement; (vi) neither Holdings nor the Company has incurred any indebtedness for money borrowed except under the Senior Credit Agreement; (vii) neither Holdings nor the Company has been the subject of any change in accounting methods, principles or practice, except insofar as may have been required by a change in generally accepted accounting principles; (viii) there has been no damage, destruction, condemnation or similar loss to tangible assets or property which, individually or in the aggregate, have had or are reasonably likely to have a Material Adverse Effect; (ix) neither Holdings nor the Company has altered in any material respect its practices and policies relating to the payment and collection, as the case may be, of accounts payable and accounts receivable; (x) neither Holdings nor the Company has created, assumed or suffered to be incurred any Encumbrance of any kind on any of its properties or assets other than (A) Encumbrances in the ordinary course of business consistent with past practices and (B) Permitted Encumbrances; (xi) neither Holdings nor the Company has settled or compromised any claims, actions, proceedings or litigation involving material liability for money damages or placing any materially burdensome restrictions on the operations of the Company's businesses; or waived, released or assigned any material rights or claims under any material contracts except in the ordinary course of business consistent with past practices; (xii) neither Holdings nor the Company has made any material Tax election or made any material change in its insurance coverages; or (xiii) neither Holdings nor the Company has entered into any agreement, arrangement or understanding, or otherwise resolved or committed, to do any of the foregoing. (c) As of the date hereof, to the actual knowledge of the Company, there has been no damage, destruction, condemnation or similar loss to tangible assets or property which has resulted in a Material Adverse Effect or a material adverse effect on the value of any Owned Real Property or the real property subject to any Scheduled Lease or the ability to use any such real property as it is presently used. 3.7. No Undisclosed Liabilities. Except as set forth on the Financial Statements, neither Holdings nor the Company is subject to any claims, obligations or liabilities of any nature (whether accrued, absolute, contingent, inchoate or otherwise, including, without limitation, unasserted claims), other than (a) obligations pursuant to or in connection with this Agreement or the transactions contemplated hereby, (b) liabilities and obligations incurred in the ordinary course of business consistent with past practice after January 31, 1998, and (c) liabilities which individually or in the aggregate, have not had and are not reasonably likely to have a Material Adverse Effect. 3.8. Taxes. (a) Except as set forth on Schedule 3.8, Holdings and the Company have timely filed or caused to be timely filed all material federal, state, foreign and local, tax returns, tax information returns, reports, and estimates ("Returns"), for all taxable or reporting periods ending on or before the Closing Date (taking into account applicable extension periods) to the extent required to be filed by Holdings and the Company under the applicable federal, foreign, state or local law, on or before the Closing Date; all Taxes due have been paid in full when due and adequate provision has been made on the Financial Statements for all Taxes not yet due and payable; all Returns are true, complete and accurate in all material respects; and there are no liens on any of the assets of Holdings or the Company that arose in connection with any failure (or alleged failure) to pay any Tax. As used in this Agreement, "Taxes" or "Tax" means all foreign, federal, state or local taxes of any kind and any interest or penalties related thereto, including, without limitation, net income, capital gains, gross receipts, franchise, employment, sales, use, license, property or withholding taxes validly imposed upon Holdings or the Company with respect to such taxes. (b) Schedule 3.8: (i) lists all material federal, state, local, and foreign Returns filed with respect to Holdings or the Company (or any former subsidiary of Holdings or the Company) for periods ended on or after January 1, 1994 and (ii) indicates those Returns that have been audited and those Returns that currently are the subject of an audit. Holdings and the Company have delivered or made available to Purchaser correct and complete copies of all Returns, examination reports and statements of deficiencies assessed against or agreed to by Holdings or the Company (or any former subsidiary of Holdings or the Company) since January 1, 1994. (c) Except as set forth in Schedule 3.8: (i) all deficiencies or assessments relating to Taxes have been paid in full; (ii) no waivers of statutes of limitation and no extensions of time have been given or requested with respect to any Taxes by Holdings or the Company; and (iii) no closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into or issued by any taxing authority with respect to Sellers, Holdings or the Company. (d) Holdings and the Company have each (i) withheld all material amounts required to be withheld from the wages of their respective employees (if any), with respect to tax withholding and taxes due from such employees under the Federal Insurance Contributions Act or any other foreign, federal, state, or local unemployment tax laws for payroll periods ending on or before the Closing Date, and (ii) filed all material foreign, federal, state or local returns and reports that were required by the applicable foreign, federal, state or local law to be filed on or before the Closing Date (taking into account applicable extension periods) with respect to such withholding for such periods. (e) (i) None of Holdings or the Company is a United States Real Property Holding Corporation (a "USRPHC") within the meaning of Section 897 of the Code nor was either Holdings or the Company a USRPHC on any "determination date" (as defined in [SECTION]1.897-2(c) of the regulations promulgated by the Treasury Department pursuant to the Code (the "Treasury Regulations")) that occurred in the five-year (or shorter applicable) period preceding the Closing Date. (ii) No amounts are required to be withheld pursuant to Section 1445 of the Code as a result of the transfer contemplated by this Agreement. (f) Neither Holdings nor the Company will be required, as a result of (A) a change in accounting method for a Tax period ending on or before the Closing Date, to include any adjustment under Section 481(c) of the Code (or any similar provision of state, local or foreign law) in taxable income for any Tax period ending after the Closing Date, or (B) any "closing agreement" as described in Section 7121 of the Code (or any similar provision of state, local or foreign Tax law), to include any item of income in or exclude any item of deduction from any Tax period ending after the Closing Date. (g) Neither Holdings nor the Company has ever been a member of an affiliated, combined, consolidated or unitary Tax group for purposes of filing any Return, other than a group of which Holdings was the common parent. 3.9. Governmental Permits. (a) Holdings and the Company own, hold or possess all governmental licenses, franchises, permits, privileges, immunities, approvals and other authorizations which are necessary for their ownership, leasing, operation and use of their respective assets and properties and which are required for their carrying on and conducting their respective businesses as currently conducted (herein collectively called "Governmental Permits"), except where the failure to own, hold or possess the same, individually or in the aggregate, have not had and would not be reasonably likely to result in a Material Adverse Effect. Each Governmental Permit is valid, and in full force and effect and, to the knowledge of Holdings and the Company, no suspension or cancellation of any of them is threatened, except for such suspensions or cancellations that, individually or in the aggregate, have not had and would not be reasonably likely to result in a Material Adverse Effect. No written notice of cancellation, of default or of any dispute concerning any Governmental Permit, or of any event, condition or state of facts which constitutes or, after notice or lapse of time or both, would constitute a breach or default under any Governmental Permit has been received by Holdings or the Company, except for those that, individually or in the aggregate, have not had and would not be reasonably likely to result in a Material Adverse Effect. To the knowledge of Holdings and the Company, there are no pending or proposed changes in permit requirements that would require Holdings or the Company to make additional monetary payments in order to obtain, renew or comply with any Governmental Permit, except for those that, individually or in the aggregate, have not had and would not be reasonably likely to result in a Material Adverse Effect. (b) As of the date hereof, the Company does not have actual knowledge that: (i) Holdings and the Company do not own, hold or possess all required Governmental Permits, except where the failure to own, hold or possess the same, individually or in the aggregate, have not had and would not be reasonably likely to result in a material adverse effect on the value of any Owned Real Property or the real property subject to any Scheduled Lease or the ability to use any such real property as it is presently used; (ii) any such Governmental Permit is not valid or in full force and effect and no suspension or cancellation of any such Governmental Permit has been threatened, except for matters that, individually or in the aggregate, have not had and would not be reasonably likely to result in a material adverse effect on the value of any Owned Real Property or the real property subject to any Scheduled Lease or the ability to use any such real property as it is presently used; and (iii) any written notice of cancellation, of default or of any dispute concerning any such Governmental Permit, or of any event, condition or state of facts which constitutes or, after notice or lapse of time or both, would constitute a breach or default under any such Governmental Permit has been received by Holdings or the Company, except for those that, individually or in the aggregate, have not had and would not be reasonably likely to result in a material adverse effect on the value of any Owned Real Property or the real property subject to any Scheduled Lease or the ability to use any such real property as it is presently used. 3.10. Real Property. (a) All real property of which Holdings or the Company is the record or beneficial owner is identified on Schedule 3.10 and is hereinafter referred to as the "Owned Real Property". Except as stated in the policies of title insurance with respect to such properties (copies of which have been delivered to Purchaser) or as disclosed on Schedule 3.10, Holdings or the Company, as the case may be, holds good, marketable fee title to the Owned Real Property, free of all Encumbrances other than Permitted Encumbrances. Neither Holdings nor the Company has heretofore made any title claims or has outstanding any title claims under any policy of title insurance respecting the Owned Real Property. All improvements on the Owned Real Property conform to applicable zoning and other land use ordinances and building codes and are in compliance with all applicable Laws except where the failure to conform or comply would not individually or in the aggregate have or be reasonably likely to have a Material Adverse Effect. (b) As of the date hereof, the Company does not have actual knowledge that any improvements on the Owned Real Property do not conform in any respect to applicable zoning and other land use ordinances and building codes are not in compliance with any applicable Laws except where the failure to conform or comply would not individually or in the aggregate have or would not be reasonably likely to result in a material adverse effect on the value of any Owned Real Property or the real property as it is presently used. As of the date hereof, to the actual knowledge of the Company, there are neither any pending nor any threatened condemnation, eminent domain or similar proceeding with respect to any of the Owned Real Property that would materially affect the real property as it is presently used. 3.11. Real Property Leases. (a) The leases, subleases and related agreements and documents with respect to real property leased by the Company, including, without limitation, all retail grocery stores and warehouse and distribution facilities are identified on Schedule 3.11 (the "Scheduled Leases"). Correct and complete copies of the Scheduled Leases have been made available to the Purchaser and all such Scheduled Leases are in full force and effect. Holdings or the Company, as the case may be, holds good and valid leasehold title to each of the properties which are the subject of the Scheduled Leases, in each case free of all Encumbrances, except for liens for (x) Taxes not yet due and payable or which are being contested in good faith, and (y) Permitted Encumbrances. To the knowledge of Holdings and the Company, except as identified on Schedule 3.11, there are no existing defaults under any Scheduled Lease, and no event has occurred which with notice or lapse of time, or both, could constitute an event of default under any Scheduled Lease, which, individually or in the aggregate, would result in or be reasonably likely to result in a Material Adverse Effect. The transactions contemplated by this Agreement will not result in a default under any Scheduled Lease (which, individually or in the aggregate, would have or be reasonably likely to have a Material Adverse Effect), except for Scheduled Leases requiring consent of the Landlord to the transactions contemplated by this Agreement, each of which is identified on Schedule 3.11. (b) As of the date hereof, except as identified on Schedule 3.11, neither Holdings nor the Company has actual knowledge of any existing default under any Scheduled Lease, or that any event has occurred which with notice or lapse of time, or both, would constitute an event of default under any Scheduled Lease, which, individually or in the aggregate, would result in a material adverse affect on the value of any real property subject to any Scheduled Lease or the ability to use any such real property as it is presently used. As of the date hereof, to the actual knowledge of the Company, there are neither any pending nor any threatened condemnation, eminent domain or similar proceeding with respect to any real property subject to any Scheduled Lease that would materially affect the real property as it is presently used. 3.12. Intellectual Property. (a) Schedule 3.12 contains a complete and correct list of all United States and foreign patents, patent applications, registered trademarks, trademark applications, registered service marks, service mark applications, trade names and registered copyrights which are material to the business of Holdings and the Company taken as a whole (the "Intellectual Property"). (b) Except as set forth in Schedule 3.12, the right, title or interest of Holdings and the Company in each item of Intellectual Property is free and clear of Encumbrances which would have a Material Adverse Effect. (c) Except as set forth in Schedule 3.12, neither Holdings nor the Company has received written notice that is still pending to the effect that Holdings or the Company has infringed upon any patent, trademark, service mark, trade name, copyright, brand name, logo, symbol or other intellectual property right of any third party; nor is there any action pending or, to Holdings' and the Company's knowledge, threatened, against Holdings or the Company claiming that Holdings or the Company has, whether directly, contributory or by inducement, infringed any trade secret or misappropriated any other intellectual property which infringement, notice, charge, claim, or assertion, as the case may be, would have a Material Adverse Effect. (d) Except as set forth in Schedule 3.12, neither Holdings nor the Company has sent or otherwise communicated to another person any notice, charge, claim or other assertion of, and neither Holdings nor the Company has any knowledge of, any present, impending or threatened patent, trademark or copyright infringement which infringement would have a Material Adverse Effect. 3.13. Labor Relations. There are no pending labor grievances or unfair labor practice claims or charges against Holdings or the Company which would have a Material Adverse Effect. To Holdings' and the Company's knowledge there are no organizing efforts by any union or other group seeking to represent any employees of Holdings or the Company. There is not pending any decertification which would result in withdrawal liability to any Multiemployer Plan, except such efforts, petitions or decertifications which would not have a Material Adverse Effect. 3.14. Employee Benefit Plans. (a) The term "Employee Plan" shall mean any pension, retirement, profit- sharing, thrift, savings, deferred compensation, stock purchase, stock option, restricted stock, bonus or incentive plan, any medical, vision, dental or other health plan, any life insurance plan, vacation, severance, disability or any other employee benefit, welfare benefit or fringe benefit plan, program, policy, or arrangement, whether written, unwritten, formal or informal (including, without limitation, any employment agreements and any "Employee Benefit Plan" as defined in Section 3(3) of ERISA) covering any employees of Holdings or the Company or any other entity which, together with Holdings or the Company constitutes a single employer within the meaning of Section 414 of the Code or Section 4001 of ERISA (hereinafter collectively referred to as the "Company Group") to which any member of the Company Group has any outstanding present or future obligations to make payments to or to contribute to, whether voluntary, contingent, or otherwise, is a party or is bound and under which any employees, consultants, or directors or former employees, consultants or directors of the Company Group are eligible to participate or derive a benefit, except any government-sponsored program or government-required benefit. Schedule 3.14 lists each Employee Plan, and identifies each Employee Plan which is a defined benefit plan as defined in Section 3(35) of ERISA (a "Defined Benefit Plan") or which is a multiemployer plan within the meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither the Company nor Holdings has any commitment to create any additional material Employee Plan or to modify or change any existing Employee Plan in any material respect, except as required by law or which would not result in any additional material liability or obligation to Holdings or the Company. (b) (i) Each of the Employee Plans that purports to be qualified under Section 401(a) of the Code and any trusts under such Employee Plans that purports to be exempt from income tax under Section 501(a) of the Code has received one or more favorable determination letters from the IRS for "TRA" (as defined in Rev. Proc. 93-39), or will file for such determination letter prior to the expiration of the remedial amendment period for such Employee Plan. Each Employee Plan intended to be qualified under Section 401(a) of the Code has been administered in all material respects according to its terms, and neither the Company Group, nor, to Holdings' or the Company's knowledge, any fiduciary of any Employee Plan has done anything which would adversely affect its qualified status or the qualified status of the related trusts and no member of the Company Group is aware of any circumstances likely to result in revocation of any favorable determination letter in effect for any Employee Plan or related trust. Each Employee Plan has been operated and administered in all material respects in accordance with its terms and with applicable law, including, but not limited to, ERISA and the Code, or any regulations or rules promulgated thereunder. All material reports and material disclosures relating to the Employee Plans required to be filed with or furnished to governmental agencies, participants, or beneficiaries prior to the Closing have been or will be filed or furnished in a timely manner and in accordance with applicable law. (ii) With respect to any Employee Plan, no transaction has occurred which could subject the Company Group to any material civil penalty assessed pursuant to Section 502(1) of ERISA or tax imposed by Section 4975 of the Code in an amount that would be material. Neither any member of the Company Group, nor, to the Company's knowledge, any administrator or fiduciary of any Employee Plan (or agent of any of the foregoing) has engaged in any transaction or acted or failed to act in a manner which is likely to subject any member of the Company Group to any material liability for a breach of fiduciary duty under ERISA. (iii) No Defined Benefit Plan has been terminated in the last six years, except as set forth on Schedule 3.14. Each Defined Benefit Plan listed as terminated on Schedule 3.14 has met in all material respects the requirements for standard termination of single-employer plans contained in Section 4041(b) of ERISA to the extent such requirements were applicable to such Defined Benefit Plans. (iv) Except as provided in Schedule 3.14, in the last six years, no member of the Company Group has completely or partially withdrawn from any Multiemployer Plan. In the last six years, no member of the Company Group has suffered a 70% decline in "contribution base units" (within the meaning of Section 4205(b) (1) (A) of ERISA). No termination liability to the PBGC or withdrawal liability to any Multiemployer Plan that is material has been or is expected to be incurred with respect to any Employee Plan by any member of the Company Group. The PBGC has not instituted, and, to the knowledge of Holdings or the Company, is not planning to institute, any proceedings to terminate any Employee Plan. No notice of a "reportable event", within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Employee Plan within the 12-month period ending on the date hereof, and no such notice will be required to be filed as a result of the transactions contemplated by this Agreement. To the knowledge of the Company, there is no pending investigation or enforcement action by the PBGC, the Department of Labor (the "DOL") or IRS or any other governmental agency with respect to any Employee Plan. Under each Employee Plan that is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan"), as of the date of the most recent actuarial valuation performed prior to the date hereof, the actuarially determined present value of all "benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions contained in such actuarial valuation of such Pension Plan), did not exceed the then current value of the assets of such Pension Plan in an amount that would be material and since such date there has been neither an adverse change in the financial condition of such Pension Plan nor any amendment or other change to such Pension Plan that would increase the amount of benefits thereunder which reasonably could be expected to result in any additional material unfunded liability. (c) No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists as of the date hereof with respect to any Employee Plan. Each member of the Company Group has made full and timely payment of, or has accrued pending full and timely payment, all amounts which are required under the terms of each Employee Plan to be paid as a contribution to each such Employee Plan through the date hereof. No member of the Company Group (x) has provided, or would reasonably be expected to be required to provide, security to any Pension Plan pursuant to Section 401(a)(29) of the Code, or (y) has taken any action, or omitted to take any action, that has resulted, or would reasonably be expected to result, in the imposition of a lien under Section 412(n) of the Code or pursuant to ERISA. (d) Each member of the Company Group has complied in all material respects with the continuation coverage requirements of Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (e) Except as disclosed in Schedule 3.14(e), the Company Group does not maintain any Employee Plans covering foreign Employees. All Employee Plans covering foreign Employees comply in all material respects with applicable local law. The Company Group has no material unfunded liabilities that have not been properly accrued or reserved with respect to any Employee Plan which covers foreign Employees. (f) With respect to each Employee Plan, if applicable, Holdings or the Company has provided, made available, or will make available upon request, to Purchaser, true and complete copies of existing: (A) Employee Plan documents and amendments thereto; (B) trust instruments and insurance contracts; (C) two most recent Forms 5500 filed with the IRS; (D) the most recent actuarial report and financial statement; (E) the most recent summary plan description; (F) forms filed with the PBGC (other than for premium payments); (G) the most recent determination letter issued by the IRS; (H) any Form 5310 or Form 5330 filed with the IRS; and (I) the most recent nondiscrimination tests performed under ERISA and the Code (including 401(k) and 401(m) tests). (g) There is no material pending or, to the knowledge of the Company or Holdings, threatened legal action, suit or claim relating to the Employee Plans that are reasonably likely to result in any material liability to Holdings or the Company, other than routine claims for benefits. (h) Except as disclosed on Schedule 3.14(h) or except as may be required by applicable law, the consummation of the transactions contemplated by this Agreement would not, directly or indirectly (including, without limitation, as a result of any termination of employment prior to or following the Closing Date) reasonably be expected to (A) entitle any employee, consultant or director to any material payment (other than severance pay or similar compensation) or any increase in compensation, (B) result in the vesting or acceleration of any benefits under any Employee Plan or (C) result in any material increase in benefits payable under any Employee Plan. (i) Except as set forth on Schedule 3.14(i), and assuming that the shareholder approval requirements of Code Section 280G are satisfied, as a result, directly or indirectly, of the transactions contemplated by this Agreement (including, without limitation, as a result of any termination of employment prior to or following the Closing Date), none of the Purchaser, Holdings, the Company or any of their respective subsidiaries will be obligated to make a payment that would be characterized as an "excess parachute payment" to an individual who is a "disqualified individual" (as such terms are defined in Section 280G of the Code). 3.15. Contracts. (a) Except as set forth in Schedule 3.15, neither Holdings nor the Company is a party to, nor bound by, nor are any of their respective properties subject to: (i) any agreement, contract or other commitment outside the ordinary course of business involving payments by or to Holdings or the Company of more than $1,000,000 per any twelve-month period; (ii) any contract for the employment of any officer or employee (other than, with respect to any employee, contracts which are terminable without liability upon notice of 30 days or less and do not provide for any further payments following such termination) or with a former officer, director or employee pursuant to which payments by Holdings or the Company may be required to be made at any time following the date hereof; (iii) any contract or obligation relating to any outstanding indebtedness for borrowed money by Holdings or the Company, other than borrowings less than $250,000 in the aggregate; (iv) except for guarantee of Company obligations by Holdings, any guarantee or other contingent liability in respect of any indebtedness or obligation of any Person outside of the ordinary course of business; or (v) any agreement or contract limiting the ability of the Company to engage in any line of business or to compete with any Person that has resulted in a Material Adverse Effect or a material adverse effect on the value of any Owned Real Property or the real property subject to any Scheduled Lease or the ability to use any such real property as it is presently used. (b) Complete and correct copies of all contracts, agreements and other instruments referred to in Schedule 3.15 have heretofore been made available to Purchaser by Holdings or the Company, as the case may be, except to the extent that disclosure of any of the foregoing is restricted by applicable confidentiality agreements. (c) Except as disclosed in Schedule 3.15, all such contracts, agreements and other instruments are in full force and effect and neither Holdings nor the Company is in default under, and no event has occurred which with notice or lapse of time, or both, could reasonably be expected to result in a default under, any contract, agreement or instrument, except for any such default which, individually or in the aggregate, has not had and would not be reasonably likely to have a Material Adverse Effect. 3.16. No Violation, Litigation or Regulatory Action. (a) Holdings and the Company have complied in the conduct of their respective businesses with all Laws, except failures to comply which would not individually or in the aggregate, have or be reasonably likely to have a Material Adverse Effect. Except as set forth in Schedule 3.16, neither Holdings nor the Company has been notified in writing that it may be a potentially responsible party under or otherwise in violation of or noncompliance with any Environmental Laws, and there are no events or facts known to Holdings or the Company that indicate that Holdings or the Company will be such a potentially responsible party or will be in violation of or not in compliance with any Environmental Laws, in each case except for such matters as, individually or in the aggregate, have not or are not reasonably likely to have a Material Adverse Effect. (b) Schedule 3.16 is a list of each action, suit, proceeding or investigation pending or, to Holdings' or the Company's knowledge, threatened against Holdings or the Company which could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. To the actual knowledge of Holdings and the Company, neither Holdings nor the Company is in default (or would be in default with the giving of notice or lapse of time or both) in respect of any judgment, order, writ, injunction or decree of any court or any Governmental Body except for any defaults that, individually or in the aggregate, have not had and are not reasonably likely to have a Material Adverse Effect or a material adverse affect on the value of any Owned Real Property or the real property subject to any Scheduled Lease or the ability to use any such real property as it is presently used. (c) Except as has not had and would not, individually or in the aggregate, be reasonably likely to result in a Material Adverse Effect, to the knowledge of the Company: (i) no real property currently or formerly owned, leased or operated by the Company or Holdings is contaminated with any Hazardous Substance; (ii) the Company and Holdings are not subject to liability under any Environmental Law for off-site disposal or contamination; (iii) neither the Company nor Holdings is subject to any order, decree, injunction or agreement with any Governmental Entity or any third party relating to any Environmental Law; and (iv) there are no other circumstances or conditions involving the Company or Holdings that could result in any claims, liabilities, costs or property restrictions relating to any Environmental Law. 3.17. Insurance. Schedule 3.17 is a complete and correct schedule of all currently effective material insurance policies or binders of insurance which relate to the business of Holdings and the Company (excluding insurance funding Employee Plans). 3.18. Certain Transactions or Arrangements. To Holdings' and the Company's knowledge, except as described on Schedule 3.18 and other than pursuant to employee benefit arrangements and employment agreements or arrangements, no securityholder, officer or director of Holdings or the Company (and no Person with whom any such securityholder, officer or director has any direct or indirect relation by blood, marriage or adoption) and no Affiliate or associate (as such term is defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended), of any of the foregoing is presently, directly or indirectly, a party to any agreement, arrangement or understanding with Holdings or the Company (other than arising out of the employment at will of that securityholder by the Company), including without limitation: (a) any contract, agreement, understanding, commitment or other arrangement providing for the furnishing of services or rental of real or personal property to or from, or otherwise relating to the business or operations of, Holdings or the Company; (b) any loans or advances to or from Holdings or the Company; (c) any arrangement pursuant to which Holdings or the Company may have any obligation or liability whatsoever; and (d) any transaction of a kind which would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the Securities and Exchange Commission. 3.19. Finders. Neither Holdings nor the Company is obligated to pay any fee or commission to any broker, finder or similar intermediary for or on account of the transactions contemplated by this Agreement, except Donaldson, Lufkin & Jenrette Securities Corporation, who have been retained by Holdings and the Company to serve as financial advisors in connection with the transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS --------------------------------------------- As an inducement to Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby, each Seller severally (as to himself, herself or itself and not as to any other Seller) hereby represents and warrants to Purchaser as follows: 4.1. Authority and Related Matters. (a) Except at disclosed on Schedule 4.1(a), such Seller has full legal right, power, capacity and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby and, for Sellers other than natural persons, such Seller is duly organized, legally existing and in good standing under the laws of its jurisdiction of organization and has taken all corporate action necessary to authorize the execution, delivery and performance by such Seller of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by such Seller and constitutes a valid and legally binding obligation of such Seller enforceable against such Seller in accordance with it terms. (b) Except as disclosed on Schedule 4.1(b), each Seller is the record and beneficial owner of the aggregate number of Shares listed beside its name on Exhibit A and such Shares are the only Shares owned by such Seller. Except for this Agreement and the transactions contemplated hereby, and except as provided in the Certificate of Designations or as disclosed on Schedule 4.1(b), there are no agreements, arrangements, warrants, options, puts, calls, or other rights, of any character to which such Seller is a party or by which any Shares owned by Seller are bound relating to the issuance, sale, purchase, redemption, conversion, exchange, registration, voting or transfer of any such Shares, other than those which, pursuant to their terms, will terminate immediately on the Closing Date. As of the Closing Date, the Shares to be sold by the Seller will be transferred to Purchaser free of any preemptive or subscription rights and free and clear of all Encumbrances. (c) The execution and delivery by such Seller of this Agreement and the consummation by such Seller of any of the transactions contemplated hereby will not: (i) violate, conflict with, result with the giving of notice or lapse of time or both in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, amendment, termination or cancellation or a loss of rights under, or result in the creation or imposition of any Encumbrance upon, any of the assets or properties of such Seller, Holdings or the Company, any articles of organization, bylaws, trust agreement, partnership agreement or certificate of partnership or other constitutive documents of the Seller, or, except as would not prevent or delay the consummation of the transactions contemplated hereby, any note, instrument, agreement, mortgage, lease, license, franchise, Governmental Permit or judgment, order, award or decree to which such Seller is a party or by which the Seller is bound, or any Law affecting such Seller; or (ii) except as set forth on Schedule 4.1(c), require the approval, consent, authorization or act of, or the making by such Seller of any declaration, filing or registration with, any Governmental Body or other Person. 4.2. No Finder. Such Seller has not made any arrangement which would obligate Purchaser, Holdings or the Company to pay any fee or commission (or reimburse expenses) to any broker, finder or similar intermediary for or on account of the transactions contemplated by this Agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER ------------------------------------------- As an inducement to Holdings, the Company and the Sellers to enter into this Agreement and to consummate the transactions contemplated hereby, Purchaser hereby represents and warrants to the Company and the Seller as follows: 5.1. Organization of Purchaser. Purchaser is a corporation duly organized, legally existing and in good standing under the laws of the jurisdiction of its formation and has full corporate power and authority to own or lease and to operate and use its properties and assets and to carry on its business as now conducted. 5.2. Authority of Purchaser. (a) Purchaser has the requisite power and authority to execute and deliver this Agreement and all of the other instruments contemplated hereby to be executed by it, to consummate the transactions contemplated hereby and to comply with the terms, conditions and provisions hereof. The execution, delivery and performance of this Agreement by Purchaser have been duly authorized and approved by all necessary corporate action on behalf of Purchaser and do not require any further authorization or consent of Purchaser or its stockholders. This Agreement is, and each other instrument of Purchaser contemplated hereby to be executed by it will be, the legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms. (b) Neither the execution and delivery of this Agreement by Purchaser or any of the other instruments contemplated hereby, the consummation by Purchaser of any of the transactions contemplated hereby nor compliance by Purchaser with or fulfillment by Purchaser of the terms, conditions and provisions hereof will: (i) violate, conflict with or result in the giving of notice or lapse of time or both in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, termination or cancellation or a loss of rights under the Memorandum and Articles of Association of the Purchaser, or any note, instrument, agreement, mortgage, lease, license, franchise, Governmental Permit or judgment, order, award or decree to which Purchaser is a party, to which any of its properties is subject, or by which Purchaser is bound except as would not prevent or delay consummation of the transactions contemplated hereby; or (ii) except as set forth on Schedule 3.4 or referenced in Section 5.7, require the approval, consent, authorization or act of, or the making by Purchaser of any declaration, filing or registration with, any Governmental Body or other Person. 5.3. No Finder. Neither Purchaser nor any party acting on its behalf has paid or become obligated to pay any fee or commission to any broker, finder or intermediary for or on account of the transactions contemplated by this Agreement, other than fees payable to Goldman, Sachs & Co. 5.4. Investment Intent. Purchaser is purchasing the Shares hereunder solely for its own account and with no intention of distributing or reselling the Shares or any part thereof, or interest therein, in any transaction that would be in violation of the Securities Act or any other securities laws of the United States of America or any state thereof. 5.5. Status as Accredited Investor. Purchaser is an "accredited investor" (as that term is defined in Rule 501 of Regulation D under the Securities Act). Purchaser has such knowledge and experience in business and financial matters so that Purchaser is capable of evaluating the merits and risks of an investment in the Shares. Purchaser understands the full nature and risk of an investment in the Shares. Purchaser further acknowledges that it has had access to the books and records of Holdings and the Company, is generally familiar with the business being conducted by the Company and has had an opportunity to ask questions concerning the Company and the Shares; provided, however, that nothing herein shall affect the representations and warranties of Holdings and the Company hereunder, any of the obligations of Holdings or the Company, or any of Purchaser's rights under Section 6.1 hereof. 5.6. Financial Capability. Purchaser has, or has entered into binding commitments to have and will have immediately prior to the Closing, funds sufficient to consummate the transactions contemplated hereby. Purchaser acknowledges and agrees that its obligations to consummate the transactions contemplated hereby are not contingent upon its ability to obtain any third party financing. 5.7. Governmental Consents. No consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority (other than such as are required pursuant to the H-S-R Act and filings with the Attorney General's office for the Commonwealth of Massachusetts (the "Massachusetts Attorney General")) is required to be made or obtained by Purchaser in connection with the execution, delivery and performance of this Agreement. ARTICLE VI ADDITIONAL COVENANTS -------------------- The respective parties hereto covenant and agree to take, or to cause Holdings or the Company to take, the following actions between the date hereof and the Closing Date: 6.1. Investigation of Holdings and the Company by Purchaser. Holdings and the Company shall afford to the officers, employees and authorized representatives of Purchaser (including, without limitation, independent public accountants, attorneys, environmental consultants and engineers) and to the employees and authorized representatives of Purchaser's financing sources, reasonable access during normal business hours to the offices, properties, employees and business and financial records (including computer files, retrieval programs and similar documentation) of Holdings and the Company to the extent Purchaser shall reasonably deem necessary or desirable and shall furnish to Purchaser or its authorized representatives, such additional information concerning Holdings and the Company and their properties, assets, businesses and operations as shall be reasonably requested, including all such information as shall be necessary to enable Purchaser or its representatives to verify the accuracy of the representations and warranties contained in Article III, to verify that the covenants of Holdings and the Company in Section 6.3 have been complied with, and to determine whether the conditions set forth in Article VII have been satisfied; provided, however, that Holdings and the Company shall not be required to provide such access or information to the extent that it has been advised by outside counsel that the provision of such access or information could reasonably be deemed to violate antitrust laws, including, without limitation, the provision of information concerning prices charged by the Company at individual locations, how such prices are determined, or otherwise to communicate with Holdings or the Company concerning price or price related issues. Purchaser covenants that such investigation shall be conducted in such a manner as not to interfere unreasonably with the operations of Holdings or the Company. No investigation by Purchaser or its representatives hereunder shall affect the representations and warranties of Holdings or the Company. Nothing in this section shall be interpreted so as to grant Purchaser the right to perform invasive or subsurface investigations of the properties. 6.2. Confidentiality. Any information provided to Purchaser or its representatives or any information provided to Holdings, the Company or the Sellers or their respective representatives pursuant to this Agreement shall be held by such party and its representatives in accordance with, and shall be subject to the terms of, the Confidentiality Agreement, dated July 29, 1997 by and among Purchaser and Investcorp International Inc. 6.3. Certain Agreements. Each of the parties hereto shall use his, her or its reasonable best efforts to consummate the transactions contemplated by this Agreement. Each party shall promptly notify the others of any action suit or proceeding that shall be instituted or threatened against such party to restrain, prohibit, otherwise challenge the legality of or delay any transaction contemplated by this Agreement. Holdings and the Company shall promptly notify Purchaser of any lawsuit, claim, proceeding or investigation that may be threatened, brought, asserted or commenced after the date hereof against Holdings or the Company that would have been required to be included on Schedule 3.16, and, in the case of any of the foregoing pending on the date hereof, of any material development with respect thereto. Each of Holdings and the Company on the one hand, and Purchaser on the other, shall give prompt notice to the other parties of (a) any notice or other communication received by any such Person from any Governmental Body or third Person alleging that the consent of such Governmental Body or third Person is or may be required in connection with the transactions contemplated by this Agreement, (b) the occurrence of any event or circumstance which could have a Material Adverse Effect on the Company or Holdings or prevent or delay the consummation of the transactions contemplated hereby, and of which such party has knowledge, or (c) the breach of any material representation, warranty, covenant or other material agreement contained in this Agreement by such party. 6.4. Operations Prior to the Closing Date. (a) Subject to Section 6.4(b) hereof, Holdings and the Company shall operate and carry on their businesses only in the ordinary course, except as otherwise expressly contemplated by this Agreement. In furtherance and not in limitation of the foregoing, Holdings and the Company shall use reasonable efforts consistent with good business practice to (i) keep and maintain their respective assets and properties in normal operating condition and repair, (ii) maintain the business organization of Holdings and the Company intact and (iii) preserve the goodwill of the suppliers, employees, customers and others having business relations with them. (b) Except as contemplated by this Agreement, neither Holdings nor the Company shall without the express prior written approval of Purchaser (which shall not be unreasonably withheld): (i) amend its articles of organization or bylaws or the Certificate of Designations; (ii) issue or agree to issue any shares of its capital stock (by the issuance or granting of options, warrants or rights to purchase any shares of capital stock), or any securities exercisable or exchangeable for or convertible into such capital stock, or other securities, except in connection with the exercise of Holdings Options granted prior to the date hereof pursuant to the Holdings Option Plan; (iii) split, combine or reclassify any shares of capital stock or declare, set aside or pay any dividends or make any other distributions (whether in cash, stock or other property) in respect of such shares, except for the payment by the Company to Holdings of such dividends or the making of such other distributions by the Company to Holdings that are consistent with past practice; (iv) issue, transfer, sell or deliver any shares of its capital stock (or securities convertible into or exchangeable or exercisable for, with or without additional consideration, such capital stock) or any other interest therein, except (A) in connection with exercise of Holdings Options granted prior to the date hereof pursuant to the Holdings Option Plan and (B) in connection with the reallocation of Holdings Options, surrendered after the date hereof and prior to the Closing, or repurchased Shares, as determined by the Board of Directors of Holdings, not to exceed the amounts set forth in Section 3.2(b) hereof in either case; (v) redeem, purchase or otherwise acquire for any consideration (A) any outstanding shares of its capital stock or securities carrying the right to acquire, or which are convertible into or exchangeable or exercisable for, with or without additional consideration, such capital stock, (B) any other securities of Holdings or the Company, or (C) any interest in any of the foregoing, except as contemplated by this Agreement and the redemption or repurchase of shares of Class C Stock from employees of Holdings or the Company in connection with the termination of such employee's employment with Holdings or the Company; (vi) incur any indebtedness for borrowed money, except (A) borrowings in the ordinary course of business consistent with past practice under the Senior Credit Agreement and (B) other borrowings not in excess of $500,000; (vii) make any acquisition or disposition of stock or other securities or assets of any person outside of the ordinary course of business in excess of $250,000, excluding all purchases of inventory and equipment in the ordinary course of business consistent with past practice; (viii) incur capital expenditures materially in excess of those contemplated by the Company's spending plan attached as Schedule 6.4(b)(viii); (ix) merge or consolidate with any corporation or other entity; (x) enter into any employment or similar contract with, or materially increase the compensation payable to, any officer, director or employee, except increases in non-executive officer compensation in the ordinary course of business consistent with past practice; (xi) alter in any material respect its practices and policies relating to the payment and collection, as the case may be, of accounts payable and accounts receivable; (xii) except as contemplated by or described in this Agreement, adopt, amend in any material respect or terminate any Employee Plan, severance plan or collective bargaining agreement or make awards or distributions under any Employee Plan, except awards or distributions to any participant or employee other than directors and executive officers in the ordinary course consistent with past practice; (xiii) create, assume or suffer to be incurred any Encumbrance of any kind on any of its properties or assets other than (A) Encumbrances in the ordinary course of business consistent with past practices, as long as the creation, assumption or sufferance thereof does not interfere with, hinder or delay the transactions contemplated hereby and (B) Permitted Encumbrances; (xiv) amend, supplement or modify any material contract except in the ordinary course of business; (xv) settle or compromise any claims, actions, proceedings or litigation involving material liability for money damages or placing any restrictions on the operations of the Company's businesses; or waive, release or assign any material rights or claims under any material contracts outside of the ordinary course of business consistent with past practice; (xvi) make any material Tax election or make any material change in its insurance coverages; or (xvii) agree, commit or resolve to do or authorize any of the foregoing. 6.5. No Public Announcement. Prior to the Closing Date, neither Purchaser, Holdings, the Company nor any Seller shall, without the approval of Purchaser and Holdings (which shall not be unreasonably withheld), make any press release or other public announcement concerning the transactions contemplated by this Agreement, except as and to the extent that any such party shall be so obligated by law, in which case Purchaser and Holdings shall be advised, and Purchaser and Holdings shall use their reasonable efforts to cause mutually agreeable releases or announcements to be issued. On the date hereof and on the Closing Date, the parties shall issue press release(s) which shall be reasonably acceptable to both Holdings and Purchaser. 6.6. Governmental Filings; Consents. (a) The Sellers, Holdings, the Company and Purchaser shall cooperate with each other in filing any necessary applications, reports or other documents with any federal or state agencies, authorities or bodies (domestic or foreign) having jurisdiction with respect to the sale of the Shares and this Agreement and the transactions contemplated hereby, and in seeking necessary consultation with and prompt favorable action by, including required consents of, any such agencies, authorities or bodies. (b) Notwithstanding any provision of this Agreement to the contrary none of Purchaser, the Company or Holdings shall be required in connection with the receipt of any regulatory approval, to proffer to, or agree to sell, permanently hold separate or discontinue operations at retail grocery stores the loss of which would have a material and adverse impact on the economic benefits to Purchaser of the transactions contemplated by this Agreement (it being agreed that if Purchaser reasonably believes after consulting with outside counsel that representatives of any of the authorities or bodies referred to in Section 6.6(a) are reasonably certain to ultimately require such action in connection with the transactions contemplated by this Agreement which would result in such impact, Purchaser and Holdings shall each have the right to terminate this Agreement without liability to any of the other parties hereto); provided, however, that if any of the authorities or bodies referred to in Section 6.6(a) shall ultimately require Purchaser, the Company or Holdings to proffer to, or agree to sell, permanently hold separate or discontinue operations at retail grocery stores the loss of which would have a material and adverse impact on the Company, the Aggregate Purchase Price shall be reduced by $2.75 million per retail grocery store required to be sold, permanently held separate or discontinued in excess of the number of stores the loss of which would have a material and adverse impact on the Company. 6.7. Directors' and Officers' Indemnification. (a) With respect to the current members of Holdings' and the Company's Boards of Directors, Holdings and the Company shall not take any action to directly or indirectly disaffirm or adversely affect the provisions of their respective articles of organization and bylaws relating to indemnification of officers and directors. (b) The Company and Holdings shall indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Closing Date, an officer or director of Holdings or the Company (the "Indemnified Parties") against all losses, claims, damages, costs, expenses (including attorneys fees and expenses), liabilities or judgments or amounts that are paid in settlement with the approval of the indemnifying party (which approval shall not be unreasonably withheld) of or in connection with any threatened or actual claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director or officer of Holdings or the Company whether pertaining to any matter existing or occurring at or prior to the Closing Date and whether asserted or claimed prior to, or at or after, the Closing Date, (the "Indemnified Liabilities"), including all Indemnified Liabilities based in whole or in part on, or arising in whole or in part out of, or pertaining to this Agreement or the transactions contemplated hereby, in each case to the full extent a corporation is permitted under applicable law to indemnify its own directors or officers as the case may be (and, after the Closing Date, the Purchaser shall, or shall cause Holdings or the Company to pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the full extent permitted by applicable law provided such Indemnified Party undertakes to promptly repay such advances if such Indemnified Party is determined by a court of competent jurisdiction not to be entitled to indemnification). Without limiting the foregoing, in the event any such claim, action, suit, proceeding or investigation is brought against any Indemnified Parties (whether arising before or after the Closing Date), (i) the Company and Holdings shall have the right to assume the defense of any such claim, action, suit, proceeding or investigation brought against any Indemnified Party and shall not be liable to such Indemnified Parties for any legal expenses or other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof; and (ii) Purchaser, Holdings, the Company and each Indemnified Party will use all reasonable efforts to assist in the vigorous defense of any such matter, provided that neither Holdings, nor the Company nor the Purchaser shall be liable for any settlement effected without its prior written consent which consent shall not unreasonably be withheld. Any Indemnified Party wishing to claim indemnification under this Section 6.7 upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify the Purchaser (but the failure so to notify shall not relieve a party from any liability which it may have under this Section 6.7 except to the extent such failure prejudices such party). The Company and Holdings shall be required to retain only one law firm to represent themselves and the Indemnified Parties with respect to each such matter unless there is, under applicable standards of professional conduct, a conflict on any significant issue between the positions of any two or more Indemnified Parties. The parties hereto agree that all rights to indemnification, including provisions relating to advances of expenses incurred in defense of any such action or suit, existing in favor of the Indemnified Parties with respect to matters occurring through the Closing Date shall continue in full force and effect for a period of not less than six years from the Closing Date; provided, however, that all rights to indemnification in respect of any Indemnified Liabilities asserted or made within such period shall continue until the disposition of such Indemnified Liabilities. (c) For six years from the Closing Date, Holdings and the Company shall use their best efforts to maintain, if available, officers' and directors' liability insurance covering the persons who are presently covered by their officers' and directors' liability insurance policies (copies of which have heretofore been delivered to Purchaser) with respect to actions and omissions occurring prior to the Closing Date, on terms which are not materially less favorable than the terms of such current insurance in effect for Holdings and the Company on the date hereof; provided, however, that in no event shall Holdings or the Company be obligated to pay annual premiums greater than 200% of such premiums paid or payable as of the date hereof; provided, further, that if any annual premium for such coverage and amount of insurance would exceed 200% of such annual rate, Holdings and the Company shall provide the maximum coverage which shall then be available at an annual premium equal to 200% of such rate. Purchaser shall cause Holdings or the Company to pay such premiums. (d) Purchaser covenants for itself and its successors, and assigns, that they shall not institute any action or proceeding in any court or before any administrative agency or before any other tribunal against any of the current directors of Holdings or the Company, in their capacity as such, with respect to any liabilities, actions or causes of action, judgments, claims and demands of any nature or description (consequential, compensatory, punitive or otherwise), in each such case solely to the extent resulting from their approval of this Agreement or the transactions contemplated hereby. 6.8. Employee Benefits. From and after the Closing, Purchaser shall, and shall cause its subsidiaries to, honor all employee benefit obligations to current and former employees of the Company that have accrued or otherwise become due under the Employee Plans; provided, that except as specifically set forth in the Employee Plans, nothing shall prevent Purchaser from amending or terminating any Employee Plan. From and after the Closing, Holdings and the Company shall maintain and perform all obligations pursuant to employee benefit plans, policies and agreements that have accrued or otherwise become due on or before the Closing. 6.9. Acquisition Proposals. Until the earlier of the termination of this Agreement in accordance with its terms and the Closing, each of the Sellers, Holdings and the Company agrees that neither they, nor their respective officers, directors, employees, agents or representatives (including any investment banker, attorney or accountant) retained by the Company or Holdings shall solicit any inquiries or the making of any proposal or offer with respect to a merger, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securities of Holdings or the Company (any such offer or proposal being referred to as an "Acquisition Proposal"), or provide any confidential information or data to any Person relating to an Acquisition Proposal. Each of the Sellers, Holdings and the Company will promptly request the return or destruction of any information and data provided to any Person with whom discussions concerning an Acquisition Proposal have taken place in the prior 120 days. 6.10. Notices and Consents. The Company, Holdings and Sellers shall use reasonable efforts to give notices and use reasonable efforts to obtain the consent and/or waiver of covenants and defaults required from landlords under the Scheduled Leases and shall use reasonable efforts to give all required notices and use all reasonable efforts to obtain the consent and/or waiver of covenants and defaults required from any Persons under any Scheduled Leases or material contracts listed on the Schedules hereto. 6.11. Balance Sheet. Within 40 days of the date hereof, Holdings will provide Purchaser with the unqualified opinion of Ernst & Young LLP with respect to the Holdings Balance Sheet referred to in Section 3.5(a). 6.12. Termination of Agreements. The Company, Holdings and Sellers shall cause all contracts, agreements and other commitments between the Company or Holdings and any Seller or any Affiliate of Seller (other than Scheduled Leases and any notes or other evidences of indebtedness or employment, severance or benefit plans existing as of the date hereof copies of which were previously provided to Purchaser) to be terminated without any termination fee or penalty effective as of the Closing Date. 6.13. Information Technology. Holdings and the Company shall afford Purchaser's information technology consultants reasonable access during normal business hours to the Company's computer hardware, software and related equipment and facilities and will cooperate with Purchaser's information technology consultants in implementing the policies, procedures and other matters described on Schedule 6.4(b)(viii) hereto provided, however, that all costs and expenses associated with the foregoing shall be borne by Purchaser and neither Holdings nor the Company shall be required to take any action that would impair, prevent or materially delay Holdings or the Company's implementation of alternative policies and procedures. ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER ------------------------------------------------ The obligations of Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or prior to the Closing Date, of the following conditions: 7.1. No Misrepresentation or Breach of Covenants and Warranties. (a) (i) There shall have been no material breach by Holdings or the Company in the performance of any of their covenants, agreements and obligations herein; (ii) the representations and warranties set forth in Sections 3.1, 3.2, 3.4(a), 3.5(c) and 3.5(d)(as Section 3.5(d) relates to the Company Financial Statements) shall be true and correct on the date hereof and as of the Closing Date (except for such statements therein that address matters only as of a specific date which shall be true as of such specific date); and (iii) none of the other representations and warranties contained in Article III hereof shall fail to be true and correct on the date hereof or on the Closing Date as though made on the Closing Date, except for (A) representations and warranties that speak as of a specific date or time other than the Closing Date (which need only be true and correct, subject to clause (B) or (C) hereof as applicable, as of such date or time), (B) representations and warranties which are not qualified by Material Adverse Effect or otherwise by material adversity (which need be true and correct except for such inaccuracies as in the aggregate (together with the inaccuracies referred to in the following clause (C)) as would not have a Material Adverse Effect, (C) representations and warranties which are qualified by Material Adverse Effect or otherwise by material adversity (which need be true and correct without regard to such qualification except for such inaccuracies as in the aggregate (together with the inaccuracies referred to in the preceding clause (B)) as would not have a Material Adverse Effect), and (D) changes therein specifically permitted by this Agreement or resulting from any transaction expressly consented to in writing by Purchaser. (b) (i) There shall have been no material breach by the Sellers in the performance of any of their covenants, agreements and obligations herein; (ii) the representations and warranties set forth in Section 4.1(a) and (b) shall be true and correct on and as of the Closing Date; and (iii) none of the other representations and warranties of Sellers contained in Article IV shall fail to be true and correct in any material respect on the date hereof and on the Closing Date. 7.2. Resignations of Directors. Prior to the Closing, Purchaser shall notify Holdings and the Company of those directors of Holdings and the Company from whom it will require resignations. Holdings and the Company shall have furnished Purchaser with such signed resignations, effective as of the Closing. 7.3. Litigation. As of the Closing Date, there shall be no Law, injunction, restraining order or decree of any nature of any court or other Governmental Body of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions or other material obligations of the parties hereto as contemplated hereby and no proceeding seeking any such relief or seeking material damages with respect to the transactions contemplated hereby shall be pending by any Governmental Body of competent jurisdiction. 7.4. Governmental Approvals. All material authorizations, consents and approvals of (or filings with) any Governmental Body shall have been obtained or made and any waiting period under applicable federal or state antitrust laws shall have expired or been earlier terminated. 7.5. FIRPTA Affidavit. On or prior to the Closing Date, Holdings shall deliver a true and accurate certification satisfying the requirements of [SECTION]1.1445-2(c)(3) of the Treasury Regulations. In compliance with Section 1.897-2(h)(2) and Section 1.1445-2(c)(3) of the Treasury Regulations, notification that such certification has been given or shall be made to the Internal Revenue Service. 7.6. Transaction Expenses. On or prior to the Closing Date, Holdings and the Company shall provide evidence reasonably satisfactory to Purchaser that, upon payment by Holdings of invoices submitted by Ernst & Young LLP, Gibson, Dunn & Crutcher LLP and Donaldson, Lufkin & Jenrette Securities Corporation all amounts due by Holdings, the Sellers or the Company to each of such firms for services related to this Agreement have been paid in full and that none of Holdings, the Company nor Purchaser shall have any further liability or obligations in respect thereof. ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF HOLDINGS, THE COMPANY AND THE SELLERS ---------------------------------------- The obligations of Holdings, the Company and the Sellers to consummate the transactions contemplated by this Agreement shall, at their respective options, be subject to the satisfaction on or prior to the Closing Date, of the following conditions: 8.1. No Misrepresentation or Breach of Covenants and Warranties. There shall have been no material breach by Purchaser in the performance of any of its covenants and agreements herein; each of the representations and warranties of Purchaser contained or referred to in this Agreement shall be true and correct on the Closing Date as though made on the Closing Date, except for (a) representations and warranties that speak as of a specific date or time other than the Closing Date (which need only be true and correct as of such date or time), (b) representations and warranties which are not qualified by a material adverse effect (which need be true and correct except for such inaccuracies as in the aggregate would not have a Material Adverse Effect) and (c) changes therein specifically permitted by this Agreement or resulting from any transaction expressly consented to in writing by Holdings and the Company; and there shall have been delivered to Holdings a certificate to such effect, dated the Closing Date and signed by a Group Board Director of Purchaser. 8.2. Litigation. At the Closing Date, there shall be no Law, injunction, restraining order or decree of any nature of any court or other Governmental Body of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions or other material obligations of the parties hereto as contemplated hereby, and no proceeding seeking any such relief or seeking material damages with respect to the transactions contemplated hereby shall be pending by any Governmental Body of competent jurisdiction. 8.3. Governmental Approvals. All material authorizations, consents and approvals of (or filings with) any Governmental Body shall have been obtained or made and any waiting period under applicable federal or state antitrust laws shall have expired or been earlier terminated. ARTICLE IX TERMINATION ----------- 9.1. Termination. (A) Notwithstanding anything to the contrary in this Agreement, this Agreement may be terminated any time prior to the Closing Date: (a) by the mutual consent of Purchaser and Holdings (for and on behalf of itself, the Company and each Seller); (b) by Purchaser (i) in the event that on or prior to May 1, 1999, any condition set forth in Article VII other than the condition set forth in Section 7.4 with respect to applicable federal or state antitrust laws (the "Purchaser Antitrust Condition") shall not be satisfied and shall not be reasonably capable of being satisfied on or prior to May 1, 1999 and (ii) in the event that after May 1, 1999 but on or prior to July 1, 1999 any condition set forth in Article VII other than the Purchaser Antitrust Condition shall not be satisfied and shall not be capable of being satisfied on or prior to July 1, 1999; (c) by Holdings (for and on behalf of itself, the Company and Sellers) (i) in the event that any condition set forth in Article VIII other than the condition set forth in Section 8.3 relating to applicable federal or state antitrust laws shall not be satisfied and shall not be reasonably capable of being satisfied prior to the Closing Date and (ii) with effect as of May 1, 1999, in the event Holdings shall notify Purchaser in writing (the "Holdings Notice") on or prior to May 1, 1999 of its desire to terminate this Agreement and Purchaser, within three business days of receipt of such notice (but in no event earlier than May 1, 1999), shall not provide Holdings with written notice (the "Purchaser Notice") that it has entered into a written agreement with the staff of the relevant Federal regulatory authority (the "Staff Agreement") regarding the steps necessary to consummate the transactions contemplated by this Agreement provided, however, that if such Purchaser Notice is delivered the Agreement shall not terminate effective as of May 1, 1999 and the Holdings Notice shall be void and have no force or effect. A copy of the Staff Agreement shall be attached to the Purchaser Notice; (B) Except as agreed in writing by the Purchaser and Holdings (for and on behalf of itself, the Company and Sellers) this Agreement shall terminate on July 1, 1999, unless the Closing has occurred on or prior to such date; (C) No Party may terminate this Agreement pursuant to Sections 9.1(A)(b) or (A)(c) if the failure of the condition (or failure of the condition to be reasonably capable of being satisfied within the applicable time period) giving rise to the right to terminate results from the breach by such party of any of its covenants in this Agreement. 9.2. Effect of Termination. (A) In the event Purchaser terminates this Agreement pursuant to Section 9.1(A)(b)(ii) or Section 6.6(b), or this Agreement terminates pursuant to Section 9.1(B), in each case after Purchaser has given Holdings the Purchaser Notice in accordance with 9.1(A)(c)(ii). Upon such termination, Purchaser shall promptly pay Holdings $20 million by wire transfer of immediately available funds to an account designated by Holdings a reasonable amount of time in advance thereof. (B) In the event Purchaser terminates this Agreement pursuant to Section 9.1(A)(b)(ii) or Section 6.6(b) after May 1, 1999 or this Agreement terminates pursuant to Section 9.1(B), in either case without Holdings having given Purchaser the Holdings Notice in accordance with 9.1(A)(c)(ii). Upon such termination, Purchaser shall promptly pay Holdings $10 million in immediately available funds to an account designated by Holdings a reasonable amount of time in advance thereof. (C) Notwithstanding Sections 9.2(A) and (B), Purchaser shall not be required to make either the payment referred to in Section 9.2(A) or the payment referred to in Section 9.2(B) if Purchaser shall terminate this Agreement as a result of the failure of the condition (or failure of the condition to be reasonably capable of being satisfied within the applicable time period) set forth in Section 7.1(a)(i) or 7.1(b)(i). (D) Termination of this Agreement pursuant to this Article IX will not relieve any party from liability for breach of this Agreement prior to such termination. 9.3. No Liability Upon Termination. In the event that this Agreement shall be terminated pursuant to this Article IX, all obligations of the parties under this Agreement (other than under this Section 9.3, Section 6.2, Section 10.5, and Section 10.12) shall be terminated without liability or penalty on the part of any party or its officers, directors or general or limited partners to any other party, other than as may result from any breach by a party of this Agreement and unpaid payment obligations, if any, under Section 9.2. ARTICLE X GENERAL PROVISIONS ------------------ 10.1. Non-survival of Representations, Warranties and Agreements. All representations and warranties set forth in Article III of this Agreement shall terminate at Closing. All covenants and agreements set forth in this Agreement shall survive in accordance with their terms. 10.2. Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed to have been duly given or made (a) five business days after being sent by registered or certified mail, return receipt requested, (b) upon delivery, if hand delivered, (c) one business day after being sent by prepaid overnight carrier with guaranteed delivery, with a record of receipt, or (d) upon transmission with confirmed delivery if sent by cable, telegram, facsimile or telecopy (with a copy simultaneously sent by registered or certified mail, return receipt requested), to the parties at the following addresses (or at such other addresses as shall be specified by the parties by like notice): (a) if to Purchaser: J Sainsbury plc Stamford Street London, England SE1 9ll Attention: Deputy Group Chief Executive Telecopy: 0171-695 7610 with a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: Neil T. Anderson, Esq. Telecopy: (212) 558-3588 (b) if to the Company: Star Markets Company, Inc. 625 Mount Auburn Street Cambridge, Massachusetts 02138 Attention: President Telecopy: (617) 528-2321 with a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10016 Attention: E. Michael Greaney, Esq. Telecopy: (212) 351-4035 if to Sellers: c/o Investcorp Management Services Limited P.O. Box 5340 Manama, Bahrain Attention: H. Richard Lukens III Telecopy: 011-973-531-927 with a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10016 Attention: E. Michael Greaney, Esq. Telecopy: (212) 351-4035 (d if to Holdings: c/o Investcorp International, Inc. 280 Park Avenue New York, New York 10017 Attention: Christopher J. O'Brien Telecopy: 212-983-7073 with a copy to: Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166 Attention: E. Michael Greaney, Esq. Telecopy: 212-351-4035 10.3. Partial Invalidity. Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in the case that any provision contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable. 10.4. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement, and shall become binding when one or more counterparts have been signed by each of the parties and delivered to each of the Company, Holdings and Purchaser. 10.5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the Borough of Manhattan, the City of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement and the transactions contemplated hereby and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such courts. The parties consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 10.2 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. 10.6. Assignment; Successors and Assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties except that Purchaser may assign its rights (but not its obligations) under this Agreement to any direct or indirect Subsidiary of Purchaser. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors or assigns, heirs, legatees, distributees, executors, administrators and guardians. Nothing in this Agreement, expressed or implied, is intended or shall be construed upon any Person (other than the parties hereto and the successors and assigns permitted by this Section 10.6, the officers and directors of Holdings and the Company and their respective heirs, legatees and personal representatives with respect to Section 6.6) any right, remedy or claim under or by reason of this Agreement. 10.7. Titles and Headings. Titles and headings to sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 10.8. Schedules and Exhibits. The schedules and exhibits referred to in this Agreement shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Except as expressly set forth herein, disclosure of any fact or item in any schedule hereto shall, to the extent apparent from the face of such schedule and relevant to any other schedule or schedules, be deemed to be disclosed in such other schedule or schedules, notwithstanding the lack of a specific cross-reference. 10.9. Knowledge. In each provision of this Agreement in which a representation or warranty is qualified to the "knowledge" of a Person or to the "best of the knowledge" of a person, unless otherwise stated in such provision, each such phrase means that the Person does not have actual knowledge after due investigation thereof of any state of facts which is different from the facts described in the warranty or representation. With respect to Holdings and the Company, such knowledge shall refer solely to the "knowledge" of one or more of those Persons identified in Schedule 10.9. In Article III of this Agreement where a representation or warranty is qualified to the "actual knowledge" of a Person each such phrase means that the Person does not have actual knowledge of any state of facts which is different from the facts described in the warranty or representation. With respect to Holdings and the Company, such actual knowledge shall refer solely to the "actual knowledge" of one or more of those Persons identified in Schedule 10.9. 10.10. Entire Agreement; Amendments. This Agreement, including the schedules and exhibits, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. The parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement. Any such agreement shall be validly and sufficiently authorized for purposes of this Agreement if it is signed by Purchaser and Holdings, the Company and Sellers. Any purported amendment that does not comply with the foregoing shall be null and void. 10.11. Waivers. Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the party or parties entitled to the benefit thereof. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 10.12. Waiver of Jury Trial. Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each such party hereby irrevocably and unconditionally waives any right such party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each party certifies and acknowledges that (i) no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver, (ii) each party understands and has considered the implications of this waiver, (iii) each party makes this waiver voluntarily, and (iv) each party has been induced to enter into this agreement by, among other things, the mutual waivers and certifications in this Section 10.12. 10.13. Expenses. Each party hereto will bear all expenses incurred by it in connection with this Agreement and the transactions contemplated hereby. [Signatures on next page] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. J SAINSBURY PLC STAR MARKETS COMPANY, INC., a Massachusetts corporation By: /s/_____________________ By: /s/_____________________ - ---------------------------------- ------------------------------ Name: David Bremner Name: Title: Deputy Group Chief Executive Title: STAR MARKETS HOLDINGS, INC., a Massachusetts corporation By: /s/_____________________ ------------------------------ Name: Title: BALLET LIMITED, a Caymen Islands DENARY LIMITED, a Caymen Islands Company Company By: /s/___________________ By: /s/___________________ ------------------------------ ------------------------------ Name: Investcorp Management Name: Investcorp Management Services Limited Services Limited Title: Authorized Representative Title: Authorized Representative GLEAM LIMITED, a Caymen Islands HIGHLANDS LIMITED, a Caymen Islands Company Company By: /s/___________________ By: /s/___________________ ------------------------------ ------------------------------ Name: Investcorp Management Name: Investcorp Management Services Limited Services Limited Title: Authorized Representative Title: Authorized Representative NOBLE LIMITED, a Caymen Islands OUTRIGGER LIMITED, a Caymen Islands Company Company By: /s/___________________ By: /s/___________________ ------------------------------ ------------------------------ Name: Investcorp Management Name: Investcorp Management Services Limited Services Limited Title: Authorized Representative Title: Authorized Representative QUILL LIMITED, a Caymen Islands RADIAL LIMITED, a Caymen Islands Company Company By: /s/___________________ By: /s/___________________ ------------------------------ ----------------------------- Name: Investcorp Management Name: Investcorp Management Services Limited Services Limited Title: Authorized Representative Title: Authorized Representative SHORELINE LIMITED, a Caymen Islands ZINNIA LIMITED, a Caymen Islands Company Company By: /s/___________________ By: /s/___________________ ------------------------------ ------------------------------ Name: Investcorp Management Name: Investcorp Management Services Limited Services Limited Title: Authorized Representative Title: Authorized Representative INVESTCORP INVESTMENT EQUITY LIMITED, A Caymen Islands Company By: /s/___________________ ------------------------------ Name: The Director Ltd. Title: Director NA982850.067/25+ EX-27 4 FDS FOR FISCAL YEAR ENDED 01/30/99
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ACCOMPANYING BALANCE SHEET AS OF JANUARY 30, 1999 AND THE ACCOMPANYING STATEMENTS OF OPERATIONS, CHANGES IN EQUITY, AND CASH FLOWS FOR THE 52 WEEK PERIOD ENDED JANUARY 30, 1999 FOR STAR MARKETS COMPANY, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JAN-30-1999 JAN-30-1999 0 0 18,277 1,331 64,914 87,674 240,400 70,645 412,971 79,278 259,037 10,421 0 0 82,606 412,971 1,064,235 1,064,235 777,842 262,297 76 0 29,486 (5,314) 363 (5,677) 0 0 0 (5,677) (1,135.00) (1,135.00)
-----END PRIVACY-ENHANCED MESSAGE-----