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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
___________
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Fee Required) for the fiscal year ended December 27, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required) for the transition period from __________ to __________
Commission File Number
1-6814
BIG V SUPERMARKETS, INC.
(Exact name of registrant as specified in its charter)
New York 14-1459448
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
176 North Main Street
Florida, New York 10921
(914) 651-4411
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
________
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
---
Aggregate market value of voting stock held by non-affiliates
as of March 27, 1998: $0
Common stock outstanding as of March 27, 1998: 1,000 shares
Indicate by checkmark 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 the 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]
This Annual Report on Form 10-K is being filed voluntarily and shall not be
deemed to be subject to Section 18 of the Securities Exchange Act of 1934.
A list of Exhibits to this Annual Report on Form 10-K is located on page II-1.
--------------------------------------
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BIG V SUPERMARKETS, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 27, 1997
INDEX
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Page
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PART I
ITEM 1. Business 1
ITEM 2. Properties 10
ITEM 3. Legal Proceedings 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 11
ITEM 6. Selected Consolidated Financial Information 12
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
ITEM 8. Financial Statements and Supplementary Data 21
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 21
PART III
ITEM 10. Directors and Executive Officers of the Registrant 22
ITEM 11. Executive Compensation 25
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 30
ITEM 13. Certain Relationships and Related Transactions 32
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. 35
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ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
Other than statements of historical fact, all statements included in this
Form 10-K, including the statements under "Business", and "Management's
Discussion and Analysis of Financial Condition and Results of Operations", are,
or may be considered "forward-looking statements" within the meaning of federal
securities law. The Company cautions the reader of this Form 10-K that there is
no assurance actual results or business conditions will not differ materially
from future results, whether expressed, suggested or implied by such forward-
looking statements. Such potential risks and uncertainties, include without
limitation, competitive pressures from the Company's operating environment, the
ability of the Company to maintain and improve its gross sales and margins, the
liquidity of the Company on a cash flow basis (including the Company's ability
to comply with the financial covenants of all applicable credit agreements), the
success of operating initiatives, year 2000 issues relating to computer
applications, and other risk factors detailed herein and in other filings of the
Company.
General
Big V Supermarkets, Inc. ("Big V" or the "Company") currently operates 31
supermarkets, principally under the ShopRite(R) name, in the Hudson River Valley
region of New York, northeastern Pennsylvania and northwestern New Jersey. Big
V's 29 New York supermarkets are located in the eight counties of Westchester,
Orange, Dutchess, Ulster, Columbia, Sullivan, Putnam and Greene. Big V has the
leading market share in its primary market, with an estimated market share of
32%, which is approximately double that of Big V's next largest competitor. The
Company's primary market consists of the seven counties north of Westchester
County, where 23 of its 29 New York stores are located. The Company's market
share in Westchester County is approximately 8%. The Company's thirty-second
store opened on January 3, 1998 in Mount Vernon, New York and as such had no
impact on the 1997 results of operations.
As the largest member of the Wakefern Food Corp., ("Wakefern") the largest
cooperative food wholesaler in the United States, the Company benefits from over
$4.6 billion in purchasing power, an industry leading private label program,
extensive advertising and promotion connected with the ShopRite(R) trademark and
one of the most popular and recognized supermarket names in the region. Big V
began operations in 1942 and had its stock listed on the American Stock Exchange
in 1971. The Company was taken private in a management-led buyout sponsored by
CS First Boston in 1987 and was acquired in December 1990 in a management-led
buyout sponsored by Thomas H. Lee Company ("THL").
Recapitalization
On December 17, 1993, Big V recapitalized its balance sheet (the
"Recapitalization") to enhance the Company's financial and operating flexibility
and to provide funds to implement its capital investment and expansion program.
The elements of the Recapitalization included (i)
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reducing the amount of near-term principal amortization payments; (ii) extending
the final maturity of long-term indebtedness; (iii) increasing the availability
under the Revolving Credit Facility, as defined in Item 7; (iv) repaying
existing debt containing covenants which restricted the Company's ability to
make certain capital expenditures; and (v) providing funds for the Company's
capital investment and expansion program.
On December 17, 1993, the Company completed the Recapitalization by
offering $80 million aggregate principal amount of 11% Senior Subordinated Notes
due 2004 (the "Initial Notes") under rule 144A of the Securities Act of 1933
(the "Act"). Proceeds from the Initial Notes, together with $40.0 million
borrowed pursuant to the B Term Loan (as defined in Item 7) have been used (i)
to repay $24.6 million under the Old Credit Agreement (as defined in Item 7);
(ii) to retire $30 million principal amount of 12.35% Senior Secured Notes due
1999 (the "Senior Notes"); (iii) to retire $30 million principal amount of
14.14% Subordinated Notes due 2001 (the "Subordinated Notes"), of which $50
million was outstanding; (iv) to purchase 270,000 shares of Holding's Class B
Common Stock (as defined herein) for $4.5 million, which shares were distributed
to Holding; (v) to finance capital expenditures in connection with the Company's
expansion program; (vi) to pay repayment premiums in connection with the Senior
Notes and the Subordinated Notes; (vii) to pay fees and expenses related to the
Recapitalization; and (viii) for other general corporate purposes.
Pursuant to a registration rights agreement entered into with the
Purchasers of the Initial Notes (the "Registration Rights Agreement"), the
Company agreed to offer to exchange up to $80 million aggregate principal amount
of 11% Series B Senior Subordinated Notes due 2004 (the "Exchange Notes") for
$80 million principal amount of Initial Notes (the "Exchange Offer"). The terms
of the Exchange Notes are substantially identical in all respects (including
principal amount, interest rate and maturity) to the terms of the Initial Notes,
except that the Exchange Notes are freely transferable by holders thereof (with
certain exceptions) and are not subject to any covenant upon the Company
regarding registration under the Securities Act of 1933, as amended. The
Company completed the Exchange Offer on May 12, 1994.
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Store Summary
Selected statistics on Big V's stores are presented below:
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Fiscal Year Ended
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December 27, December 28, December 30, December 31, December 25,
1997 1996 1995 1994 1993
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Average annual sales per store (in
millions) $ 24.6 $ 23.7 $ 24.0 $ 25.0* $ 24.4
Same store sales increase
(decrease) from prior year 2.9% 0.11% (0.8)% (0.1)% (2.6)%
Total store area in square feet (in
thousands) 1,429 1,358 1,439 1,436 1,220
Total store selling area in square feet
(in thousands) 1,054 999 1,054 1,052 891
Average total square feet per store
(in thousands) 46.1 43.8 45.0 44.9 42.1
Average square feet of selling area per
store (in thousands) 34.0 32.2 33.0 32.9 30.7
Annual sales per square foot of selling
area $ 724 $ 737 $ 729 $ 760* $ 796
Number of stores:
Stores remodeled (over $500,000) -- 4 5 -- 2
New stores opened -- 1 -- 4 2
Stores replaced/expanded 3 -- -- 2 2
Stores closed/divested (2) (2) -- (1) --
Number of stores by size
(total store area):
30,000 to 39,999 sq. ft. 10 13 12 12 13
40,000 to 49,999 sq. ft. 10 10 10 10 10
Greater than 50,000 sq. ft. 11 8 10 10 6
Total stores open at period end 31 31 32 32 29
_______________
*Calculated on a 53 week basis. A like 52 week comparison would be $24.5 million in average sales per store and $746 in
annual sales per square foot of selling area.
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By industry standards, Big V stores are large and productive,
averaging 46,100 square feet in size and generating high average sales volume of
$24.6 million per store ($724 per selling square foot) for the fifty-two weeks
ended December 27, 1997. Big V's average store square footage approximates the
industry average for super stores and its sales volume per store and per selling
square foot is larger than industry averages by 8% and 76%, respectively. Big
V's 31 operating stores at December 27, 1997 ranged from 30,000 to 60,000 total
square feet in size and included 21 supermarkets in excess of 40,000 total
square feet.
Big V's supermarkets offer a broad selection of grocery, meat,
poultry, seafood, dairy, fresh fruits, vegetables and frozen food products,
including an extensive variety of ShopRite(R) private label products. The
stores also offer an extended line of non-food products, health and beauty care
products, housewares, general merchandise and seven pharmacies. All Big V
stores offer service delicatessen departments and most stores offer floral,
bakery, prepared foods and service fish departments.
Wakefern Food Corp.
The Company is the largest member of Wakefern, with Big V owning
approximately 19% of Wakefern's outstanding stock. Wakefern is the nation's
largest cooperative food wholesaler. There are presently 42 individual member
companies and 195 supermarkets which comprise the Wakefern cooperative. Only
Wakefern and member companies are entitled to use the ShopRite(R) name and
trademark. Member companies can purchase their product requirements from
Wakefern and participate in ShopRite(R) advertising and promotional programs and
its computerized purchasing, warehousing and distribution services. The
principal benefits to the Company from its relationship with Wakefern are the
use of the ShopRite(R) name and trademark, volume purchasing, ShopRite(R)
private label products, distribution and warehousing on a cooperative basis,
ShopRite(R) advertising and promotional programs and state of the art systems
and technology. The Company believes the ShopRite(R) name is widely recognized
by its customers and favorably influences the customers' decision to shop in its
stores. These benefits are important to the Company's success.
Wakefern distributes as a patronage dividend to each of its
stockholder members a share of the earnings of each product department of
Wakefern in proportion to the dollar volume of business done by the stockholder
with that product department during each fiscal year. Big V's aggregate
patronage dividend was $8.8 million in fiscal 1997, $7.9 million in fiscal 1996
and $10.1 million in fiscal 1995.
Wakefern operates principally as a member cooperative. Senior
executives of the Company spend significant time working on various Wakefern
committees which oversee and direct Wakefern purchasing and other programs.
Each member's Wakefern stock (including the Company's) is pledged to Wakefern to
secure all the member's obligations to Wakefern. Wakefern does not own any
securities of the Company or its subsidiaries. Each Wakefern member is required
to make capital contributions to Wakefern based on the number of stores operated
by that member and sales volume generated by those stores. As additional stores
are opened or acquired by a member (including the Company), additional capital
must be contributed
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to Wakefern. On occasion, Wakefern has increased the per-store capital
contributions. Wakefern has in the past permitted the increased capital to be
paid in installments. At present, the maximum capital contribution per store is
$450,000, payable over seven years.
Purchasing and Distribution
As a Wakefern member, Big V benefits from economies of scale in
purchasing and distribution associated with chains of greater size and
geographic reach. The Company believes that the regional nature of its business
has permitted Big V to operate with greater flexibility and increased
responsiveness to the demographic characteristics of the communities served by
its stores than those of larger chains. Under an agreement among Wakefern and
all of its members, each member is obligated to purchase from Wakefern a minimum
of 85% of the products offered by Wakefern. While fulfilling this minimum
purchase requirement, Big V purchased approximately 80% of its total purchases
during fiscal 1997 from Wakefern. The remaining 20% of Big V's purchases were
delivered directly by vendors to Big V's stores. Wakefern operates five
warehouse and distribution facilities in Elizabeth, Dayton, Secaucus and South
Brunswick, New Jersey and Wallkill, New York. The proximity of these facilities
to Big V's stores, combined with Big V's efficient product acquisition system,
shortens the lead time between the placement of a merchandise order and receipt.
Business Strategy
Big V's management is implementing a strategy designed to maximize
operating profitability, increase market share, improve customer service and
satisfaction and pursue new store opportunities in existing trade areas and in
contiguous new markets. Two components of this strategy are the Company's price
and value leadership and its capital investment program.
Price and Value Leadership
High Value Image: Big V consistently has been ranked as number one in
value among its competitors in independent consumer surveys. Management
believes this high value image results from Big V's low price reputation, the
ShopRite(R) private label program, superior service departments, quality
perishables, courteous and efficient customer service, wide product assortment
and extensive advertising and promotional campaigns. The Company estimates it
typically promotes more than 2,000 sale priced items per week. The Company's
reputation for value enables it to increase market share and respond
aggressively to competitor expansion.
"One-Stop Shopping": Big V's stores, which appeal to a broad spectrum
of customers, offer one-stop shopping convenience with a variety of high quality
service departments such as meat, produce, fresh seafood, deli, bakery, prepared
foods and an extensive line of general merchandise, health and beauty care
products and pharmacy departments in seven stores. A typical Big V store offers
35,000 Stock Keeping Units, approximately 17% above the industry average. To
accommodate this large variety of products, Big V's 31 stores average 46,100
total square feet, which is approximately the same as the industry average for
super stores. All of Big V's stores exceed 30,000 total square feet.
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Quality Merchandising and Economies of Scale through Wakefern:
Wakefern is the nation's largest cooperative food wholesaler. Its members
operate 195 stores in the Northeast, principally under the ShopRite(R) name, and
generate annual retail sales exceeding $4.6 billion. ShopRite(R) supermarkets,
in aggregate, have the leading market share in the New York metropolitan region
and one of the most widely recognized supermarket names in the region.
Membership in Wakefern provides the Company economies of scale in its
merchandise purchasing, computerized warehousing and distribution efficiencies
and electronic media advertising presence. In addition, Wakefern provides its
members with year-end patronage dividends, financial incentives to open new
stores and the ShopRite(R) private label line. The ShopRite(R) private label
affords customers quality merchandise comparable to national brands at lower
prices, while typically generating margins exceeding nationally branded
merchandise. The Company's private label grocery sales represent 25% of total
annual grocery sales, well above the industry average of 16%.
Capital Investment and Expansion Program
Investment in Existing Stores: The Company believes aggressive
capital investment is a critical component of its operating strategy. The
Company has increased its total retail space approximately 27% from 1.1 million
square feet to over 1.4 million square feet during the last five years. Big V
expanded or remodeled nearly all of its existing store base, replaced seven
stores with new facilities, and opened five new stores (offset by the sale of
two Connecticut stores) during this period. Although Big V typically remodels
its stores every 7 to 10 years and replaces them every 15 to 20 years, the
Company continually renovates stores and equipment to maintain modern state-of-
the-art facilities. The time periods associated with these capital investments
vary depending upon certain factors, including site availability and competitive
conditions. Management believes that the Company's level of investment in its
existing store base will preserve the competitive advantage provided by Big V's
prime retail locations and continue to expand the Company's market share.
Although Wakefern does not prescribe geographical franchise areas to its
members, the specific locations at which the Company, other members of Wakefern
or Wakefern itself may open new stores under the ShopRite(R) name are subject to
the approval of Wakefern's Site Development Committee. This committee is
composed of persons who are not current or past employees or members of Wakefern
and whose decision to deny a site application may be appealed to the Wakefern
Board of Directors. Wakefern assists its members in their site selection by
providing appropriate site analysis, demographic data, volume projections and
projections of the developmental impact on existing member supermarkets in the
area.
New Store Openings: The Company anticipates opening, replacing or
expanding nine supermarkets, each averaging 55,000 total square feet, over the
next four years. All new stores will be the "Fresh Market" prototype, which is
a state-of-the-art format that includes a wide array of specialty service
departments. Management believes this expansion will generate incremental store
contribution within its existing overhead and distribution cost structure,
increase market share in its existing trade area and exploit "under-stored"
contiguous new markets. Management estimates that the total costs of equipment,
fixtures and leasehold improvements associated with opening, replacing or
expanding the planned nine supermarkets will be $3 million per supermarket.
Equipment financing for each store is expected to provide $2 million and $1
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million is expected to be provided by the Company's operating cash flow and its
Revolving Credit Facility. For a new store, the Company typically purchases
approximately $1.2 million of beginning inventory. The Company generally
finances its initial inventory requirements through accounts payable with terms
which are often longer than the Company's inventory turnover. The locations at
which the Company may open new supermarkets under the name ShopRite(R) are
subject to the approval of Wakefern's Site Development Committee, which could
impact the Company's expansion strategy.
Advertising and Promotion
Big V's advertising strategy emphasizes price, variety, high quality
perishables, broad selection of nationally advertised brand name products and
extensive selection of ShopRite(R) private label merchandise. The Company's
retail operations are advertised primarily through newspaper, radio, television
and direct mail. Most of the Company's advertising is developed and placed by
Wakefern and tailored to the Company's specific needs. The Company spent
approximately 1.6% of total sales for advertising, promotion and coupon expense
for each of the last three fiscal years.
Technology
The Company considers automation and computerization important to its
operations and competitive position. The Company uses in-store minicomputers
linked to Wakefern's warehouse and distribution computer system. All Company
stores use IBM 4690 software for the scanning checkout systems to improve
pricing accuracy, enhance productivity and reduce checkout time for customers.
In addition, all Company stores utilize on-line payment systems that accept
either debit or credit transactions. Meat, seafood and delicatessen prices are
maintained on computers for automatic weighing and pricing. All Company stores
use computerized time and attendance and labor scheduling systems and most have
computerized energy management systems. Furthermore, all Company stores use
satellite communications, electronic marketing systems and computer generated
ordering systems. The Company also has a computerized direct store delivery
receiving and pricing system and a computerized pharmacy system.
As a result of numerous information technology inter-relationships
between the Company and Wakefern, both parties have undertaken individual and
joint projects to address all year 2000 issues. At this time the Company does
not believe the costs associated with the timely and successful completion of
the year 2000 projects are material to the Company's financial results.
Competition
The supermarket business is highly competitive. Industry profit
margins are narrow, consequently earnings are dependent on high sales volume and
operating efficiency. The Company is in direct competition with national,
regional and local chains as well as independent supermarkets, convenience
stores and club stores. The Company competes by using low pricing, courteous
and efficient customer service, high quality perishable offerings and consistent
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availability of a wide variety of merchandise including an increasing variety of
non-food items. The Company believes its regional focus and the quality of its
management team permit it to offer products addressing the demographics of the
communities it serves. The Company's principal competitors are Grand Union and
A&P. In certain markets, the Company competes with Pathmark, Price Chopper,
Stop & Shop, Hannaford Brothers and various independent operators, convenience
stores and warehouse clubs.
Employees
As of March 27, 1998, approximately 94% of Big V's 5,100 employees
were covered by collective bargaining agreements negotiated with five unions.
Three represent approximately 3,900 retail clerks (Local 1262--1,950 employees;
Local 1500--1,800 employees; and Local 72--150 employees). Two represent
approximately 850 meat, seafood and service deli department employees (Local
464--800 employees; and Local 1--50 employees). The Local 1262 contract expires
in April 2001. The Local 1500 and Local 464 contracts expire in September and
December 1998, respectively, and the Local 72 contract expires March 1999; and
the contract for the store in Pennsylvania expires on April 9, 2000. The Local
1 contract is effective through May 2002. As a result of the sale of the
Company's two Connecticut stores on January 28, 1996, the Company no longer
maintains a collective bargaining agreement with Local 371. The Company
believes its labor relations are good and does not anticipate any work stoppages
related to contract negotiations in 1998.
Regulatory and Environmental Matters
The Company must secure a variety of local, state and federal health
and food distribution permits for the conduct of its business. Such regulation
does not have a material impact on its operations. The Company's seven pharmacy
departments are subject to state and federal regulation, including licensed
pharmacists on duty at all times.
Soil and ground-water contamination was detected at one planned new
store site, the Baldwin Place Shopping Center, located in Somers, New York in
the late 1980's. Baldwin Place Shopping Center, a presently non-operating
center, is owned by a wholly-owned subsidiary of Big V. The New York State
Department of Environmental Conservation ("DEC") placed the Baldwin Place
Shopping Center on the DEC List of Inactive Hazardous Waste Disposal Sites in
1989 because of the suspected release of hazardous materials and petroleum
products.
Certain on-site residential and public water supply wells in the
vicinity of the Baldwin Place Shopping Center were found to be contaminated with
trichloroethene and tetrachloroethene and the contamination appeared to
originate from a previous dry cleaning operation in the shopping center. The
DEC entered into an Order of Consent in July 1992, with Big V and its
subsidiary, Somers Development Corporation, for the development and
implementation of a Remedial Investigation/Feasibility Study and implementation
of interim remedial measures, if appropriate, of the Baldwin Place Shopping
Center.
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In addition to the contamination described above, petroleum product
contamination of the groundwater in excess of drinking water standards was
discovered at the Baldwin Place Shopping Center site and in a number of private
residential wells. Four service stations, one of which is within the Baldwin
Place Shopping Center, have performed subsurface investigations under the
direction of DEC. The results indicated the groundwater is contaminated beneath
3 of the 4 stations. DEC directed these stations to install ground water
remediation systems. The service station within the shopping center has had a
groundwater remediation system in operation for several years.
Although the Baldwin Place Shopping Center is not on any United States
Environmental Protection Agency list of sites requiring investigation or
remediation, there can be no assurance that it will not be so listed in the
future. Big V also impleaded the prior owners of the Baldwin Place Shopping
Center as third party defendants since the Company believed that potential
responsibility arose from the actions of a former tenant in the shopping center.
In January 1994, the Company commenced an action against the prior owners of the
Baldwin Place Shopping Center seeking reimbursement under CERCLA for costs and
expenses incurred by the Company in connection with the environmental
remediation and testing of the Baldwin Place Shopping Center. The Company
entered into a settlement agreement with the prior owners pursuant to which the
prior owners have reimbursed the Company for approximately $1.2 million of the
costs and expenses incurred by the Company in connection with the environmental
remediation and testing. Further, Somers Development Corporation and Big V were
named as parties in lawsuits by area residents. During 1997 the Company settled
the lawsuits brought by area residents. The Company's share of the settlement
approximated $175,000 and was capitalized along with the other costs of
remediation.
A Record of Decision (ROD) defining the environmental status of the
site and the remedial actions was issued by the DEC in December 1995 and allows
the Company to proceed with the site approval process. The costs of
remediation, as well as the area resident lawsuits related to such property, are
not likely to have a material adverse effect on the Company's results of
operation, financial condition or liquidity. Unreimbursed costs incurred by the
Company to obtain this Record of Decision, plus the cost associated with the
remaining studies and subsequent remediation, will approximate $2.0 million.
The Company will capitalize such costs in accordance with generally accepted
accounting principles as the property is currently held for sale. Excess
remediation costs will be expensed should their capitalization cause the
carrying value of the property to exceed its market value. Estimated future
monitoring costs, as required by the ROD, approximate $1.0 million and will be
funded through the sale of the property once site plan approval has been
obtained.
Trade Names, Service Marks and Trademarks
Big V uses a variety of trade names, service marks and trademarks.
Except for ShopRite(R), which is owned by Wakefern and licensed to Big V and the
other Wakefern members, Big V does not believe that any such trade names,
service marks or trademarks are material to its business.
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ITEM 2: PROPERTIES
The Company leases all of its supermarkets (containing approximately
1.4 million square feet of total space), with initial terms generally ranging
from 10 to 25 years, with renewal options. Twenty-six of these leased stores
are located in strip shopping centers and five are free-standing stores. The
total annual rent paid for all of the Company's leased facilities for fiscal
1997 was $15.3 million, including payments under capitalized leases. Lease
payments per square foot during fiscal 1997 ranged from $3 to $18, averaging $9,
which is 36% lower than current rates in the Company's markets. The Company is
obligated to pay for utilities and liability insurance on all properties and
real estate, maintenance and insurance on certain properties.
A wholly-owned subsidiary of the Company also owns the Baldwin Place
Shopping Center located in Somers, New York, which property currently is being
held for sale. See Item 1--"Regulatory and Environmental Matters."
ITEM 3: LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings in the
ordinary course of business. Management believes these proceedings will not, in
the aggregate, have a material adverse impact on the financial condition,
results of operations, liquidity or business of the Company. See Item 1--
"Regulatory and Environmental Matters."
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders through
solicitation of proxies or otherwise.
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
BV Holdings Corporation, a Delaware corporation ("BVH"), is the sole
stockholder of Big V. Big V Holding Corp., a Delaware corporation ("Holding"),
is the sole stockholder of BV Holdings Corporation. There is no established
trading market for the equity of Big V, BV Holdings Corporation or Big V Holding
Corp.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information of the Company for the 52
weeks ended December 25, 1993, for the 53 weeks ended December 31, 1994 and for
the 52 weeks ended December 30, 1995, December 28, 1996, and December 27, 1997
presented below should be read in conjunction with the historical consolidated
financial statements of the Company, including the notes thereto, included
elsewhere herein.
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52 53 52
Weeks Weeks Weeks
Ended Ended Ended
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Dec. 27, Dec. 28, Dec. 30, Dec. 31, Dec. 25,
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $762,880 $735,976 $786,682 $754,401 $674,969
Gross Profit 198,984 190,125 200,383 193,536 169,787
Selling, general and administrative 161,786 151,825 161,746 160,068 139,637
Special charges (1) -- 3,004 -- -- --
Depreciation and amortization 16,979 17,381 18,548 17,778 16,488
Operating income 20,219 17,915 20,089 15,690 13,662
Interest expense, net 24,586 24,382 27,277 24,621 20,251
Loss on sale leaseback transactions -- -- -- -- 3,704
Loss before income taxes and
extraordinary item (4,367) (6,467) (7,188) (8,931) (11,216)
Net loss (2) (2,742) (3,958) (5,078) (6,160) (18,961)
<CAPTION>
Dec. 27, Dec. 28, Dec. 30, Dec. 31, Dec. 25,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at end of period):
Working (deficiency) capital $(16,683) $ (8,685) $(11,196) $ (6,639) $ 7,844
Total assets 254,946 264,617 284,956 293,695 270,875
Total debt 200,153 213,610 226,952 231,166 211,385
Stockholder's deficit (27,186) (24,310) (20,213) (14,943) (8,673)
</TABLE>
________
(1) See discussion of special charges contained within the Management's
Discussion and Analysis of Financial Condition and Results of Operations.
(2) The net loss for the 52 weeks ended December 25, 1993 includes a $923 note
receivable write-down and an extraordinary loss of $11,485 (net of tax
benefit) due to the early extinguishment of debt in connection with the
Recapitalization.
12
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following discussion of the Company's consolidated results of
operations and financial position should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in this Form 10K.
References in the following discussion are to the fiscal years ended December
27, 1997 ("fiscal 1997"), December 28, 1996 ("fiscal 1996") and December 30,
1995 ("fiscal 1995").
The Company is the largest supermarket chain in its primary trading area of
the Hudson River Valley Region of New York. A combination of price and value
leadership, one-stop shopping convenience, and a focused capital investment
program has enabled the Company to sustain its leading market share. Earnings
Before Interest Expense, Depreciation and Amortization, Income Taxes and LIFO
Provision (EBITDA) was $39.5 million in 1995, $36.4 million in 1996 and $37.6
million in 1997.
The Company operates 23 of its 31 stores in the Hudson River Valley of New
York and 6 stores in Westchester County, New York. The Hudson River Valley's
population grew 3.9% for the period 1992 through 1997 and compares very
favorably to New York State's .7% growth rate for the same period. This market
area has rebounded from the early 1990's IBM downsizing and there continues to
be a growing migration of families from New York City. Westchester County
growth, while not as robust, exceeds the statewide growth rate.
The Company opened one store, replaced/expanded three stores, completed
nine remodels and closed four stores (two stores closed were replaced) during
the three years ended December 27, 1997. Management believes this capital
investment lessened the impact of competitive openings and contributed to the
same store sales growth of 2.9% in 1997.
13
<PAGE>
Basis of Presentation
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the financial statements and
notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
December 27, December 28, December 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income Statement Data (percentage of sales)
Sales 100.0% 100.0% 100.0%
Gross margin 26.1 25.8 26.1
Selling, general and administrative 21.2 20.6 21.0
Special charges -- 0.4 --
EBITDA (1) 4.9 4.9 5.1
Depreciation and amortization 2.2 2.4 2.4
Interest, net 3.2 3.3 3.6
Loss before income taxes (0.6) (0.9) (0.9)
Income tax benefit (0.2) (0.3) (0.3)
------ ------ ------
Net loss (0.4)% (0.5)% (0.6)%
====== ====== ======
Other Data (in millions):
EBITDA $ 37.6 $ 36.4 $ 39.5
====== ====== ======
Net cash provided by operating activities $ 16.9 $ 5.9 $ 11.4
====== ====== ======
Net cash used in investing activities $(10.2) $ (1.6) $(10.7)
====== ====== ======
Net cash used in financing activities $ (3.8) $ (5.4) $ (4.8)
====== ====== ======
</TABLE>
(1) EBITDA represents net earnings before interest expense, depreciation and
amortization, income taxes and LIFO provision. EBITDA is a widely accepted
financial indicator of a company's ability to service and/or incur debt,
and is also used for calculating compliance with the Company's debt
covenants. Minimum annual EBITDA levels for debt compliance covering the
years 1995 through 1997 ranged from $35.0 million to $41.5 million.
Noncompliance with this covenant would represent a default under the
Company's debt agreements which could subject the Company to debt
acceleration if not waived or amended. EBITDA should not be construed as
an alternative to, or a better indicator of, operating income (as
determined in accordance with generally accepted accounting principles) or
to cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) and should not be construed as an
indication of the Company's operating performance or as a measure of
liquidity.
As of October 5, 1996 and December 28, 1996, the Company was not in
compliance with the EBITDA and maximum levels of capital expenditure
covenants under the Bank Credit Agreement with Bankers Trust Company as
agent, and a syndicate of six additional institutions (Bank Credit
Agreement or Agreement). The Company obtained a waiver for such
noncompliance through January 31, 1997 and amended the covenants in January
1997. An amendment and consent, dated January 27, 1997, established revised
levels for fiscal 1997 EBITDA and capital expenditure requirements.
14
<PAGE>
At December 27, 1997, the Company was not in compliance with the capital
expenditure covenant under the amended Agreement. An amendment and waiver
dated April 8, 1998, waived the Company's noncompliance with the capital
expenditure covenant and amended the Agreement to revise the fiscal 1997
EBITDA requirement. The Company is confident that it will meet all 1998
covenants. Note additional information regarding 1998 covenants contained
in the Liquidity and Capital Resources heading of this section.
Results of Operations
Fiscal Year Ended December 27, 1997 Compared to Fiscal Year Ended December 28,
1996
Sales
Sales for 1997 were $762.9 million compared to $736.0 million in 1996
representing a 3.7% increase (2.9% for same store sales compared to .1% in
1996). The increases in total and same store sales are attributable to growth
in existing stores supplemented by the incremental impact of
replacement/expanded stores. Management estimates that inflation was generally
flat for the year. Total square footage grew marginally above 1.4 million.
Gross Margin
Gross Margin was 26.1% in 1997 compared to 25.8% in 1996. The .3% increase
was primarily due to improvements in stock loss and continued improvements in
perishables' product mix, partially offset by increased competitive activity.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percent of sales were
21.2% in 1997 compared to 20.6% in 1996. The increase was due principally to
increases in the workers' compensation insurance reserve ($1.9 million); general
liability premium calls for the 1992/1993 and 1993/1994 policy years ($1.2
million); higher than anticipated promotional expenses associated with a fourth
quarter holiday turkey promotion ($1 million); increased occupancy costs ($.3
million) and costs associated with an associate buy-out program ($.3 million).
EBITDA
EBITDA increased $1.2 million to $37.6 million in 1997. The increase was
primarily due to the elimination of special charges incurred in 1996 and
improved gross margin partially offset by increased selling, general and
administrative expenses.
Depreciation and Amortization
Depreciation and amortization was 2.2% of sales in 1997 compared to 2.4% in
1996. The reduction was primarily due to the full amortization of several
leasehold assets and the termination of a capital lease partially offset by the
disposal of NCR front-end equipment replaced with leased IBM front-end
equipment.
15
<PAGE>
Interest, net
Interest, net, increased to $24.6 million in 1997 from $24.4 million in
1996. The increase was primarily due to additional equipment financing for two
stores totaling $5 million, increased average daily borrowings under the senior
bank revolving loans, and the interest associated with a New York State income
tax audit. Partially offsetting the above were higher variable interest rates
applied to lower senior bank term loan balances.
Net Loss
Net loss was .4% of sales in 1997 compared to .5% in 1996. In absolute
terms, the net loss decreased $1.2 million compared to 1996. The reduction in
the loss was primarily due to the elimination of the Special Charges incurred in
1996, improved gross margin, partially offset by increased selling, general and
administrative expenses and a reduced income tax benefit.
Results of Operations
Fiscal Year Ended December 28, 1996 Compared to Fiscal Year Ended December 30,
1995
Sales
Sales for 1996 were $736.0 million compared to $768.7 million in 1995. The
4.3% decrease in sales was primarily attributable to the sale of the Company's
two Connecticut stores on January 28, 1996 and the conversion of one ShopRite
store to a warehouse format in late 1995. Connecticut store sales were $4.1
million and $44.5 million for the 1996 and 1995 fiscal years, respectively.
Same store sales increased .1% in 1996 and decreased .8% in 1995. Same store
sales increased as a result of increases in the average ticket sales per
customer and was driven by strong first quarter same store sales performance.
Management estimated inflation to be generally flat for the year. The company
opened one new store, and remodeled four during 1996. Total square footage
decreased to 1.4 million square feet as the result of the sale of the two
Connecticut stores.
Gross Margin
Gross Margin was 25.8% in 1996 versus 26.1% in 1995. The .3% decrease was
primarily attributable to the loss of Wakefern's incremental patronage dividend
for the two Connecticut stores sold on January 28, 1996. In addition, margin
was invested to drive sales and respond to competitive activity. Decreases in
margin were partially offset by continued improvements in the product mix,
particularly in the higher margin perishable departments and reduced levels of
stock loss.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 20.6% of sales in 1996
compared to 21.0% in 1995. In absolute terms, these expenses decreased 6.1% in
1996. These decreases were the result of on-going programs to improve labor
efficiency, reduce customer and employee accidents, improve front-end
efficiencies and contain store supply costs, repairs and maintenance
16
<PAGE>
and utility expenses. The savings were partially offset by increases in
marketing support, store occupancy, previous year premium call and sales tax
expense. General liability expense increased $.5 million in the third quarter of
1996 for an expected premium call on 1992-1993 policy year claims. Sales tax
expense increased $.4 million based on a New York State sales tax audit.
Special Charges
During 1996 the Company adjusted its reserves for certain items, explained
below, based on new facts and estimates. The special charges, approximately
$3.0 million, consist of an increase in reserves for and/or settlement of future
lease obligations on store leases assigned in 1988 to another supermarket chain
which declared bankruptcy during 1995. Such charges also include costs
associated with the abandonment of potential new store sites and incurred
expenses from closed store sites.
EBITDA
EBITDA decreased $3.1 million to $36.4 million in 1996. The EBITDA
decrease was the result of costs associated with increased competition in our
primary marketing area, special charges, general liability premium call and the
results of a New York State sales tax audit. The decreases discussed were
nearly mitigated by reduced selling, general and administrative expenses.
Depreciation and Amortization
Depreciation and amortization was 2.4% of sales in 1996 and 1995. The
depreciation from new capital investment was offset by the sale of the two
Connecticut stores on January 28, 1996.
Interest, net
Interest, net decreased from $27.3 million in 1995 to $24.4 million in
1996. The decrease was primarily a result of decreased variable interest rates
associated with senior bank term loans, paydowns of senior bank term loans and
lower average daily borrowings under the senior bank revolving loans.
Net Loss
Net loss was .5% of sales in 1996 compared to .6% in 1995. In absolute
terms, the net loss decreased by $1.1 million or 22% in 1996 with a reduced
sales and gross profit base. This improvement reflects reduced selling, general
and administrative expenses and decreased interest expense.
17
<PAGE>
Liquidity and Capital Resources
The Company's long-term debt (including current maturities and capital
lease obligations) as of December 27, 1997 was $200.2 million. All principal
payments required by the debt agreements were made during the year ended
December 27, 1997.
The Company had a working capital ratio of approximately .81:1 at December
27, 1997 and .88:1 at December 28, 1996. The Company typically requires small
amounts of working capital since inventory is generally sold before payment to
Wakefern and other suppliers.
Net cash provided by operating activities was $16.9 million in fiscal 1997
and $5.9 million in fiscal 1996. The increase in net cash provided by operating
activities during fiscal 1997 was due principally to a lower net loss
supplemented by increases in accounts payable, accrued liabilities and long-term
liabilities.
Net cash used in investing activities was $10.2 million for fiscal 1997
compared to $1.6 million for fiscal 1996. The increase in net cash used in
investing activities in 1997 was due primarily to the sale of the two
Connecticut stores in 1996.
Net cash used in financing activities was $3.8 million in 1997 compared to
$5.4 million in 1996. The principal activities in both years consisted of
payments of long-term debt and the receipt of proceeds from long-term
borrowings. The decrease in cash used in financing activities in 1997 compared
to 1996 resulted principally from increased equipment financing.
The Company's major uses of cash for the year ended December 27, 1997 were
as follows: (i) cash interest payments (including capitalized leases) of $23.7
million; (ii) capital expenditures of $10.2 million; and scheduled debt
payments of $8.9 million. During fiscal 1998 and early fiscal 1999, significant
principal payments are due on the A and B Term Loans. The A Term Loans mature
during 1998 with payments of $3.5 million in January, $1.7 million in April,
$1.7 million in July and the final payment of $6.6 million on October 31, 1998.
The B Term Loans require payments of $8.0 million in April 1999, $10.0 million
in October 1999, and a final payment of $22.0 million during March 2000. The
Company believes that it will be able to make the A Term Loan scheduled payments
using cash flows from operations, supplemented by the unused borrowing capacity
under the Revolving Credit Facility and the availability of equipment
financings. The Company expects that it will be necessary to refinance the B
Term Loans prior to the amortization of the first installment due April 1999.
The Bank Credit Agreement provides for a $26.0 million revolving credit
facility. There was $8.9 million outstanding under the revolving credit
facility as of December 27, 1997, of which $6.4 million was used for letters of
credit and bonding purposes. The Bank Credit Agreement requires that the
Company maintain minimum levels of consolidated net worth, EBITDA and fixed
charge coverage, and maximum levels of capital expenditures (each as defined in
the Bank Credit Agreement).
18
<PAGE>
A Fifth Amendment and Consent dated as of October 7, 1997 among Big V
Holding Corp., BV Holdings Corporation, Big V Supermarkets, Inc., the financial
institutions party to the Bank Credit Agreement and Bankers Trust Company
(agent) amended the Environmental Expenditure covenant and agreed to the sale of
Big V's entire equity interest as a limited partner in Columbia Hawkins Group,
L.P. The amendment stipulates that Big V will actually pay no more than $3.6
million (originally $1.75 million) for clean-up work related to the Somers
environmental remediation. The amendment further stipulates that Big V will
receive no less than $1.1 million in cash for the sale of its limited
partnership in Columbia Hawkins Group, L.P.. The Amendment also established
minimum levels of EBITDA, consolidated net worth, fixed charges and maximum
levels of capital expenditure. As of December 27, 1997, the Company was not in
compliance with the capital expenditure covenant under the amended Agreement.
A Sixth Amendment and Waiver dated April 8, 1998 among Big V Holding Corp.,
BV Holdings Corporation, Big V Supermarkets, Inc., the financial institutions
party to the Bank Agreement and Bankers Trust Company (agent) waived the
Company's non-compliance with the capital expenditure covenant and amended the
Agreement to revise fiscal 1997 EBITDA requirements.
The Company is confident that it will meet all 1998 covenants. Currently,
the Company is holding discussions with its lenders and other financial
institutions with respect to various refinancing opportunities. Management
believes that it will successfully refinance its debt, however, there can be no
assurances that the refinancing will occur or that the terms associated with any
new agreement will be more favorable to the Company.
Major uses of cash in fiscal 1998 will be as follows: (i) interest
payments (including capitalized leases) of $23.1 million; (ii) capital
expenditures of $12.9 million; and (iii) scheduled debt and capital lease
payments of $19.4 million (including the non-recourse demand note payable solely
from the sale proceeds of the Company's Baldwin Place Shopping Center located in
Somers, New York).
All of the Company's facilities are subject to long-term leases. The costs
to develop new stores consist of approximately $3 million for fixtures,
equipment and leasehold improvements and approximately $1.2 million for
beginning inventory. Fixtures, equipment and leasehold improvements are
generally funded using a combination of equipment financing (approximately $2
million) and Operating Cash Flow/Revolver Availability ($1 million). Inventory
requirements are generally financed through accounts payable with terms that
usually exceed the Company's inventory turnover.
The Company received a Record of Decision (ROD) from the New York State
Department of Environmental Conservation ( DEC) in December,1995 with respect to
the environmental status of the Baldwin Place Shopping Center located in Somers,
New York. The ROD defined the environmental status of the site, outlined the
remedial actions to be performed and allows the Company to proceed with the site
approval process. The costs of remediation are not likely to have a material
adverse effect on the Company's results of operations, financial condition and
liquidity. The costs incurred by the Company to obtain the ROD, plus the cost
associated with the remaining studies and subsequent remediation will be
approximately $2.0 million. The Company will capitalize such costs in
accordance with generally accepted accounting principles as the property is
currently held for sale. Estimated future monitoring
19
<PAGE>
costs required by the ROD approximate $1.0 million. These costs will be funded
through the sale of the property once site plan approval has been obtained. The
Company anticipates selling the property when site plan approval is obtained at
a price in excess of total capitalized costs and estimated future monitoring
costs. Management further believes costs capitalized in connection with the
Baldwin Place Shopping Center will be fully recoverable and the Company's $2.5
million note payable secured by this property will be paid in full.
The recoverability of goodwill is assessed by comparing the Company's
forecasts of cash flow from future operating results, on an undiscounted basis,
to the unamortized balance of goodwill at each balance sheet date. The Company
will recognize a charge to operations at any time this comparison indicates that
an impairment may be likely. Management continues to believe the carrying value
of goodwill and the estimated useful life is appropriate.
20
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is set forth in the Company's financial
statements and supplementary data contained in this report. Specific financial
data can be found at the pages listed in the following index.
BIG V SUPERMARKETS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 1995, 1996 AND 1997
<TABLE>
<S> <C>
Independent Auditors' Report....................... F-2
Consolidated Statements of Loss.................... F-3
Consolidated Balance Sheets........................ F-4
Consolidated Statements of Stockholder's Deficit... F-5
Consolidated Statements of Cash Flows.............. F-6 - F-7
Notes to Consolidated Financial Statements......... F-8 - F-23
</TABLE>
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT'S ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
21
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and present principal occupations of the directors and
executive officers of each of Big V and Holding are set forth below.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David G. Bronstein........... 68 Chairman of the Board of Directors
Joseph V. Fisher............. 55 Director, Chief Executive Officer and President
James A. Toopes, Jr.......... 50 Director, Executive Vice President-Finance,
Administration, Corporate Development and
Corporate Secretary
John W. Childs............... 56 Director
C. Hunter Boll............... 42 Director
Joseph S. Frelinghuysen, Jr.. 56 Director
Leo J. Kahn.................. 81 Director
Steven G. Segal.............. 37 Director
</TABLE>
Mr. Bronstein served as President of the Company from December 1986 to July
1993, as the Company's Chief Executive Officer from October 1987 to December
1995, as a Director since December 1986 and as Chairman of the Board since
December 1990. Mr. Bronstein joined the Company in 1985 as Executive Vice
President and Chief Operating Officer. From 1979 to 1985, he served as
Executive Vice President of Golub Corporation. From 1972 to 1979, Mr. Bronstein
worked for P&C Supermarkets, where he rose to the position of Senior Vice
President and General Manager.
Mr. Fisher served as Chief Executive Officer and President of the Company
since December 1995, as the Company's Executive Vice President-Marketing and
Operations and Chief Operating Officer of the Company from November 1994 to
December 1995 and as a Director since July 1993. From 1993 to 1994, Mr. Fisher
served as Senior Vice President-Marketing and Operations of the Company, and
from 1992 to 1993 he served as Vice President-Store Operations. Prior to joining
Big V, Mr. Fisher worked for Purity Supreme, Inc. from 1973 to 1991 in various
management positions, including Senior Vice
22
<PAGE>
President-Supermarkets from 1985 to 1991. Mr. Fisher serves as an Officer and
Director of Wakefern Food Corp. and ShopRite Supermarkets, Inc. He also serves
on the Board of Directors of the Food Industry Alliance of New York State.
Mr. Toopes has served as Executive Vice President-Finance, Administration,
Corporate Development, Corporate Secretary and Director since April 1996. Prior
to joining Big V, Mr. Toopes worked for Bi-Lo, Inc., a subsidiary of Royal
Ahold, as Executive Vice President-Finance and Administration from 1989 to 1996.
Mr. Toopes worked for Lucky Stores, Inc. from 1976 to 1989, serving as Vice
President-Controller.
Mr. Childs has served as a Director of the Company since December 1990. He
is President of J.W. Childs Associates. Until June 1995, Mr. Childs was Senior
Managing Director of Thomas H. Lee Company where he was employed since 1987.
Prior to joining THL, Mr. Childs was with the Prudential Insurance Company of
America where he held various executive positions in the investment area,
ultimately serving as Senior Managing Director in charge of the Capital Markets
Group. In that position, from 1984 through 1987, Mr. Childs was responsible for
Prudential's approximately $77 billion fixed income portfolio, including the
Capital Market Group's investment in leveraged acquisitions. Mr. Childs also is
a director of Personal Care Group, Inc., Central Tractor Farm and Country, Inc.,
Cinnabon, Select Beverage Corp., and the Edison Project. Mr. Childs is
President and a trustee of Thomas H. Lee Advisors I, the investment advisor to
ML-Lee Acquisition Fund, L.P., and President and a trustee of T.H. Lee Mezzanine
II, the administrative general partner of Thomas H. Lee Advisors II, L.P., the
investment advisor to ML-Lee Acquisition Fund II, L.P. and the ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P. Mr. Childs also is a trustee of
THL Equity Trust, the general partner of THL Equity Advisors Limited
Partnership, the general partner of Thomas H. Lee Equity Partners, L.P.
Mr. Boll has served as a Director of the Company since December 1990. Mr.
Boll is a Managing Director of THL and has been employed by THL since 1986. Mr.
Boll also is a Vice President of Thomas H. Lee Advisors I, the investment
advisor to ML-Lee Acquisition Fund, L.P., and a Vice President of T.H. Lee
Mezzanine II, the administrative general partner of Thomas H. Lee Advisors II,
L.P., the investment advisor to ML-Lee Acquisition Fund II, L.P. and the ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P. Mr. Boll also is a Vice
President of THL Equity Trust, the general partner of THL Equity Advisors
Limited Partnership, the general partner of Thomas H. Lee Equity Partners, L.P.
From 1984 to 1986, Mr. Boll worked as a consultant with The Boston Consulting
Group. From 1977 to 1982, Mr. Boll worked as a corporate lending officer in the
Energy & Minerals Group of Chemical Bank. Mr. Boll also serves as a Director of
Freedom Securities, Inc., Trans Western Publishing, Inc., New York Restaurant
Group, Stanley Furniture Company, Inc., and Select Beverages, Inc.
Mr. Frelinghuysen has served as a Director of the Company and Chairman of
its Audit and Compensation Committees since December, 1990. He is President of
J.S. Frelinghuysen & Co., Inc., an independent investment banking firm organized
in 1989. Mr. Frelinghuysen was previously a Managing Director of the First
Boston Corporation where he was employed as a member of the Investment Banking
Department from 1969-1988. He also serves as a Director of W.P. Stewart Co.,
Inc., an investment advisory firm, and MGI Pharma, Inc., a J. S.
23
<PAGE>
Frelinghuysen & Company, Inc., and also a Trustee of the Community Foundation of
New Jersey.
Mr. Kahn has been a Director of the Company since December 1990. Mr. Kahn
founded Purity Supreme, Inc., an operator of supermarkets, warehouse food
stores, drug stores, convenience stores and warehouse drug stores, which was
sold to Supermarkets General Corporation in 1984. Following the sale of Purity
Supreme, Inc., Mr. Kahn has been involved with a number of other business
ventures, including Staples, Inc., a retail office supply chain, Health
Development Corporation, an exercise and fitness enterprise. He is C.E.O. of
Nature's Heartland, a health food supermarket.
Mr. Segal has served as a Director of the Company since December 1994. Mr.
Segal as Senior Managing Director of J.W. Childs Associates, L.P. prior to July
1995. Mr. Segal was a Managing Director of THL, being employed by THL from 1987
to 1995. Mr. Segal also is a Vice President of Thomas H. Lee Advisors I, T.H.
Lee Mezzanine II, and THL Equity Trust, the general partner of THL Equity
Advisors Limited Partnership, the general partner of Thomas H. Lee Equity
Partners, L.P. Mr. Segal also serves as a Director of Cinnabon, Inc., Fitz and
Floyd, Inc., Central Tractor Farm & Country, Inc., Empire Kosher Poultry, Inc.,
International Diverse Foods, Inc., and Jillians Entertainment, Inc.
Mr. Childs is the sole Director of BVH. The Officers of BVH are the
following: (i) Mr. Fisher is President; (ii) Mr. Toopes is Treasurer and
Secretary.
Executive officers of each of Holding, BVH and Big V are appointed and
serve at the discretion of their respective Boards of Directors. Each director
of Holding, BVH and Big V is elected for a period of one year and serves until
his successor is duly elected and qualified.
24
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by Big V to
the Chief Executive Officer of the Company during the year ended December 27,
1997 and the most highly-compensated executive officers/senior management of the
Company who served in such capacities on or during the year ended December 27,
1997 for services rendered to the Company in all capacities during the fiscal
years ended December 30, 1995, December 28, 1996 and December 27, 1997. Officers
of Holding and BVH are not compensated for their services as such.
<TABLE>
<CAPTION> Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------------------------------------------------------------
Other
Annual Option All Other
Fiscal Compen- Shares Compensa-
Name and Principal Position Year Salary($) Bonus($) sation($)(1) Granted tion($)(2)
- ----------------------------- ---- ------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
David G. Bronstein 1997 152,885 -- 11,770 -- 5,045
Chairman of the Board 1996 150,000 -- 11,855 -- 5,105
1995 274,038 -- 12,380 -- 5,625
Joseph V. Fisher 1997 331,250 -- 5,270 3,000 5,200
Chief Executive Officer 1996 325,000 75,000 4,048 -- 5,105
and President 1995 245,998 25,000 11,382 17,000 5,375
James A. Toopes, Jr. 1997 244,616 -- 39,430 -- 2,427
Executive Vice President- 1996 170,769 -- 24,130 12,000 --
Finance, Administration,
Corporate Development and
Corporate Secretary
Stephen L. Hittman 1997 123,962 25,000 2,263 2,600 4,574
Vice President-Real Estate 1996 113,173 31,610 1,854 -- 4,654
and Assistant Secretary 1995 99,302 42,500 2,441 3,400 5,080
John Onufer, Jr. 1997 123,423 10,000 23,947 3,400 4,374
Vice President-Controller 1996 109,808 15,000 2,484 -- 568
and Assistant Treasurer 1995 28,846 -- 280 -- --
Donald J. Trella 1997 111,346 -- 6,536 -- 2,542
Vice President-Human 1996 82,809 -- 880 -- --
Resources
</TABLE>
___________
(1) This represents the taxable portion of the personal use of a company
automobile, life insurance and relocation expenses.
(2) This represents the annual Company profit-sharing contribution and 401(k)
matching funds.
25
<PAGE>
Employment Agreements
On May 1, 1996, the Company and BVH entered into an employment and
non-competition agreement with Mr. Toopes, which agreement is scheduled to
expire on April 30, 1999, subject to annual renewals thereafter. Pursuant to
this agreement, the Company has agreed to pay an annual base salary to Mr.
Toopes of $240,000. In addition to such base salary, Mr. Toopes is entitled to
receive certain other employment benefits, including cash bonuses based upon the
Company's attaining or surpassing profit targets established by the Company's
Board of Directors.
On December 19, 1995, the Company and BVH entered into an employment
and non-competition agreement with Mr. Fisher, which agreement is scheduled to
expire on December 31, 1998, subject to renewals thereafter. Pursuant to this
agreement, the Company has agreed to pay an annual base salary to Mr. Fisher of
$325,000. In addition to such base salary, Mr. Fisher is entitled to receive
certain other employment benefits, including cash bonuses based upon the
Company's attaining or surpassing profit targets established by the Company's
Board of Directors.
Pursuant to the employment agreement with Mr. Toopes, the Company and
BVH caused Holding to sell 8,000 shares of Holding's Class A Common Stock to Mr.
Toopes for an aggregate purchase price of $280,000 in exchange for a $75,000
payment in cash and a promissory note payable in the amount of $205,000. See
this Item 11--"Loans to Management." Also pursuant to such employment agreement,
the Company and BVH caused Holding to grant Mr. Toopes options to purchase
12,000 shares of Holding's Class A Common Stock under the Stock Option Plan.
See this Item 11-- "Management Stock Option Plan." In the event Mr. Toopes'
employment is terminated without cause, or upon his death or disability, his
salary (including an increase in base salary for at least a portion of the
period after termination without cause, death or disability) and other
employment benefits will, subject to certain adjustments and limitations,
continue until the end of his term of employment. In addition, the employment
agreement places certain restrictions upon the ability of Mr. Toopes to
communicate confidential information concerning the Company to third parties.
Pursuant to the non-competition provisions of this employment agreement, Mr.
Toopes will not, for one year following termination of his employment, engage in
certain specified activities relating to the Company or the Company's business.
Compensation Pursuant to 401(k) Plan
The Company has a discretionary profit-sharing retirement plan for
officers and non-union employees which includes a qualified cash or deferred
arrangement pursuant to Section 401(k) of the Internal Revenue Code. Under this
arrangement, officers and non-union employees may elect to forego the current
receipt of up to 10% of their cash compensation and have such amounts
contributed to the plan on their behalf. In addition, the Company matches 25%
of such elected amounts up to 5% of each individual employee's income. The
Company may also elect to make additional, discretionary contributions to the
plan. The amounts contributed for the benefit of executive officers in 1997
with respect to such plan are included in this Item 11 under the heading "All
Other Compensation."
Management Stock Option Plan
Holding's Time Accelerated Restricted Stock Plan (the "Stock Option
Plan"), adopted effective as of December 28, 1990, and as amended effective as
of February 1, 1995, provides for the granting of non-qualified stock options,
each in such amounts, on such terms and to such officers and other key employees
of the Company as the administrators of the Stock Option Plan, in accordance
with the terms of the Stock Option Plan, may select. The Stock Option Plan is
administered by the Compensation Committee of the Board of Directors of Holding,
subject to the supervision and control of the entire Board. A total of 111,111
shares of Common Stock are reserved for issuance pursuant to the Stock
26
<PAGE>
Option Plan. As of March 27, 1998, options to purchase 82,138 shares were
granted and outstanding, options to purchase 6,738 shares had vested and no
options had been exercised.
Pursuant to the Stock Option Plan, as amended, all of the performance
based options shall have a per share exercise price not less than the per share
fair market value of the Common Stock as of the date of the grant of such
options. All of the options granted through March 27, 1998 have 9 1/2 year
vesting schedules, subject to acceleration during the first four years following
the date of grant upon the attainment of certain performance criteria. During
1997 Mr.Bronstein forfeited all 16,304 non-vested options previously granted to
him.
With the exception of an option granted to Frelinghuysen, all options
granted through March 27, 1998 are non-transferable other than by will or the
laws of descent and distribution, and all options are exercisable only while the
optionee remains in the employ of the Company or for a short period of time
thereafter. If an optionee dies or becomes disabled while in the employ of the
Company, the option is exercisable prior to the 365th day following the date of
termination of employment. If an optionee's employment is terminated without
cause, the option is exercisable for 90 days following the date of termination
of employment. If an optionee leaves the employ of the Company for any other
reason, the option is exercisable for only five days following the date of
termination of employment. Options which are exercisable following termination
of employment are exercisable only to the extent that the optionee was entitled
to exercise such options on the date of such termination.
The right to exercise the option granted to Frelinghuysen is not
transferable, but such option may be assigned to any person or entity which
acquires all of the outstanding capital stock or substantially all of the assets
of Frelinghuysen. Additionally, such option may be assigned to any person or
entity which is controlled by, controlling or under common control with
Frelinghuysen.
Compensation of Directors
The Company does not pay an annual retainer or meeting attendance fee
to any Director other than Mr. Kahn who is paid $4,000 for each meeting he
attends; however, expenses incurred in connection with attending each Board
meeting and committee meeting are paid by the Company.
Incentive Compensation Plan
The Company maintains an incentive compensation plan for all non-union
management associates, pursuant to which the Company makes cash incentive awards
to such members of management in varying amounts based upon the achievement of
various budgeted operating targets established on an annual basis by the Board
of Directors.
Option Grants
During the fiscal year ended December 27, 1997, there were grants of
options to purchase 26,120 shares of Holding's Class A Common Stock while
forfeitures of same amounted to 18,384.
27
<PAGE>
Aggregated Option Values at Fiscal Year-End
The following information is furnished for the fiscal year ended
December 27, 1997 with respect to the stock options held by the Company's Chief
Executive Officer and each of the other individuals named in the Summary
Compensation Table. No stock options were exercised during the fiscal year ended
December 27, 1997.
<TABLE>
<CAPTION>
Aggregated Option Fiscal Year-End Option Values
Number of Value of Unexercised
Options at In-the-Money Options at
December 27, 1997 December 27, 1997 (1)
-------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
David G. Bronstein 5,435 -0- -0- -0-
Joseph V. Fisher -0- 20,000 -0- -0-
James A. Toopes, Jr. -0- 12,000 -0- -0-
Stephen L. Hittman -0- 6,000 -0- -0-
John Onufer, Jr. -0- 3,400 -0- -0-
Donald J. Trella -0- 4,000 -0- -0-
</TABLE>
- ---------------
(1) None of the options are in-the-money.
Loans to Management
Mr. Fisher borrowed from Holding a portion of the purchase price for
shares of Holding's Class A Common Stock purchased by him as of December 20,
1993. The principal amount of this note was $387,500, which note was cancelled
and replaced with a new note in the principal amount of $615,000. The payment
of this new note is secured by the 12,500 and 6,500 shares of Class A Common
Stock purchased by Mr. Fisher in December 1993 and December 1995, respectively.
Mr. Fisher's note matures on December 31, 2005 and bears interest at a rate
equal to the prime rate plus 1.5% per annum.
Mr. Madera borrowed $100,000 from Holding on May 25, 1994. The
principal amount of this note is secured by the shares of Class A Common Stock
owned by Mr. Madera, is payable on demand and bears interest at a rate equal to
the prime rate plus 1.5% per annum.
Mr. Toopes borrowed from Holding a portion of the purchase price for
shares of Holding's Class A Common Stock purchased by him as of December 14,
1996. The principal amount of his note was $205,000. The payment of this note
is secured by 8,000 shares of Class A Common Stock purchased by Mr. Toopes. Mr.
Toopes' note matures on December 31, 2005 and bears interest at a rate equal to
the prime rate plus 1.5% per annum.
Mr. Hittman borrowed from Holding a portion of the purchase price for
shares of Holding's Class A Common Stock purchased by him as of April 18, 1997.
The principal amount of his note was $67,000. The payment of this note is
secured by 2,200 shares of Class A Common Stock purchased by Mr. Hittman. Mr.
Hittman's note matures on December 31, 2005 and bears interest at a rate equal
to the prime rate plus 1.5% per annum.
Mr. Onufer borrowed from Holding a portion of the purchase price for
shares of Holding's Class A Common Stock purchased by him as of April 24, 1997.
The principal amount of his note was $71,402.50. The payment of this note is
secured by 2,200 shares of Class A Common Stock purchased by Mr. Onufer. Mr.
Onufer's note matures on December 31, 2005 and bears interest at a rate equal to
the prime rate plus 1.5% per annum.
28
<PAGE>
Mr. Trella borrowed from Holding the purchase price for shares of
Holding's Class A Common Stock purchased by him as of August 29, 1997. The
principal amount of his notes were $110,250. The payment of this note is
secured by 3,150 shares of Class A Common Stock purchased by Mr. Trella. Mr.
Trella's note matures on December 31, 2005 and bears interest at a rate equal to
the prime rate plus 1.5% per annum.
In addition, certain members of the Company's management (none of whom
is a named executive officer) borrowed from Holding and the Company a portion of
the purchase price for shares of Holding's Class A Common Stock purchased by
such individuals in connection with the Acquisition. Payment of obligations
under each of these management notes is secured by the shares of Class A Common
Stock purchased by the makers of these notes.
The aggregate principal amount of such management stock purchase loans
currently owed to Holding is equal to approximately $23,000. The amounts due
Holding for such loans are represented by secured a promissory note which bears
interest at the rate of 8.57% per annum.
Compensation Committee Interlocks and Insider Participation
Messrs. Frelinghuysen, Bronstein, Fisher and Childs served on the
Compensation Committee during fiscal 1997. Mr. Bronstein served as the
Company's Chairman of the Board during fiscal 1997. Mr. Fisher served as the
Company's Chief Executive Officer in fiscal 1997. None of the other members of
the Compensation Committee served as officers or employees of the Company or any
of its subsidiaries during fiscal 1997.
In connection with the Acquisition, THL, Thomas H. Lee Equity
Partners, L.P. (the "Lee Fund"), ML-Lee Acquisition Fund II, L.P., ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P. (collectively, the "ML-Lee
Funds") and their respective affiliates (together with THL, the Lee Fund and the
ML-Lee Funds, the "THL Companies"), Frelinghuysen, certain members of the
Company's senior management and Prudential made investments in Holding and the
Company. See "Certain Relationships and Related Transactions."
Also in connection with the Acquisition, the Company entered into
five-year management agreements with each of THL and Frelinghuysen. The
agreements call for payment to them of $150,000 and $100,000 per year,
respectively, for five years beginning January 1, 1991, for management and other
consulting services rendered to the Company, with annual renewals following the
scheduled expiration date of December 31, 1995. See Item 13.
29
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are 1,000 shares of Common Stock, $1.00 par value per share, of Big V
outstanding, all of which outstanding shares of Common Stock are beneficially
owned by BVH and 100 shares of common stock, $.01 par value per share, of BVH
all of which are beneficially owned by Holding. Holding has sole voting and
investment power with respect to all shares of common stock of BVH and BVH has
sole voting and investment power with respect to all shares of common stock of
Big V.
Security Ownership of Big V Holding Corp.
As of December 27, 1997, there were outstanding 706,702 shares of Holding
Class A Common Stock, par value $.01 per share. The information in the table
below presents the beneficial ownership of (i) each person known to Holding to
own beneficially more than five percent of the outstanding voting common stock
of Holding, (ii) each director and each executive officer of Holding named in
the Summary Compensation Table, and (iii) all directors and executive officers
of Holding, BVH and Big V, respectively as a group.
<TABLE>
<CAPTION>
Number of Shares Percent of
of Class A Common Outstanding
Stock Beneficially Shares of Class A
Beneficial Owner Owned (1)(2) Common Stock (1)
- ---------------- ------------------ ------------------
<S> <C> <C>
Thomas H. Lee Equity Partners, L.P. (3) 296,808 41.12
ML-Lee Acquisition Fund II, L.P. (4) 117,333 16.25
ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. (4) 62,667 8.68
Thomas H. Lee (5) 36,513 5.06
Gary S. Koppele (6) 32,973 4.57
Cornelius J. J. Madera, Jr. (6) 26,973 3.74
David G. Bronstein (7) 35,335 4.89
Joseph S. Frelinghuysen, Jr. (8) 10,543 1.46
C. Hunter Boll (9) 3,146 **
John W. Childs (10) (11) 11,883 1.65
Leo J. Kahn 5,317 **
Steven G. Segal (12) 1,258 **
Joseph V. Fisher 19,000 2.63
James A. Toopes, Jr. 8,000 1.11
Stephen L. Hittman 2,200 **
John Onufer, Jr. 2,200 **
All directors and executive officers of Holding
as a group (8 persons) (13) 94,482 13.09
</TABLE>
_________
** Represents less than l%
(1) For purposes of the computation of percentages of Holding presented in
this table, a holder is deemed to beneficially own all shares which may be
acquired by such holder upon exercise of options held by such holder,
which options are exercisable within 60 days. Such shares which may be
acquired by such holder (but no shares which may be acquired by any other
holder upon exercise of options held by such other holder) are deemed to
be outstanding.
(2) Share amounts are rounded to the nearest whole number.
30
<PAGE>
(3) Each of (i) THL Equity Advisors Limited Partnership, (ii) THL Equity
Trust, (iii) Thomas H. Lee, as Trustee of THL Equity Trust, (iv) John W.
Childs, as Trustee of THL Equity Trust, (v) C. Hunter Boll, as an officer
of THL Equity Trust, and (vi) Steven G. Segal, as an officer of THL Equity
Trust, may be deemed to be the beneficial owner of 296,808 shares held by
the Lee Fund. Such entities and Messrs. Lee, Boll, Childs and Segal
disclaim beneficial ownership of such shares. The foregoing entities and
Messrs. Lee and Boll maintain their principal business address c/o Thomas
H. Lee Company, 75 State Street, Boston, MA 02109. Messrs. Childs and
Segal maintain their principal business address c/o J.W. Childs
Associates, L.P., One Federal Street, Boston, MA 02110.
(4) Each of (i) Thomas H. Lee Advisors II, L.P. ("Advisors II"), the
Investment Advisor of each of the ML-Lee Funds, (ii) T.H. Lee Mezzanine II
("Mezzanine II"), a general partner of Advisors II, (iii) Thomas H. Lee,
as Trustee of Mezzanine II and an Individual General Partner of each of
the ML-Lee Funds, (iv) John W. Childs, as Trustee of Mezzanine II, (v) C.
Hunter Boll, as an officer of Mezzanine II, and (vi) Steven G. Segal, as
an officer of Mezzanine II, may be deemed to be the beneficial owners of
180,000 shares held, in the aggregate, by the ML-Lee Funds. Each of
Advisors II, Mezzanine II, Mr. Lee, Mr. Childs, Mr. Boll and Mr. Segal
disclaim ownership of such shares. Each of Advisors II and Mezzanine II
maintains their principal business address c/o Thomas H. Lee Company, 75
State Street, Boston, MA 02109. The ML-Lee Funds maintain principal
business addresses c/o Merrill Lynch, 225 Liberty Street, World Financial
Center, South Tower--23rd Floor, New York, New York 10080-6123.
(5) Represents 36,513 shares which may be deemed to be beneficially owned by
State Street Bank and Trust Company of Connecticut, N.A., as Trustee of
the 1989 Thomas H. Lee Nominee Trust (the "Lee Trust"). State Street Bank
and Trust Company of Connecticut, N.A. disclaims beneficial ownership of
such shares. Does not include 476,808 shares which may be deemed to be
beneficially owned by Mr. Lee as a result of his relationships with the
Lee Fund and the ML-Lee Funds. Mr. Lee disclaims beneficial ownership of
such shares. Mr. Lee maintains his principal business address c/o Thomas
H. Lee Company, 75 State Street, Boston, MA 02109.
(6) Includes options to purchase 380 shares. Also includes, solely with
respect to Mr. Koppele, 32,593 shares held of record by GSK, Inc., a
Delaware corporation wholly owned by Mr. Koppele. Mr. Koppele may be
deemed to beneficially own these shares as a result of his relationship
with GSK, Inc.
(7) Includes options to purchase 5,435 shares.
(8) Includes options to purchase 543 shares.
(9) Includes options to purchase 1,581 shares from Mr. Lee which are currently
exercisable. Does not include 476,808 shares which may be deemed to be
beneficially owned by Mr. Boll as a result of his relationship with the
Lee Fund and the ML-Lee Funds. Mr. Boll disclaims beneficial ownership of
such shares.
(10) Includes options to purchase 6,211 shares from Mr. Lee which are currently
exercisable. Does not include 476,808 shares which may be deemed to be
beneficially owned by Mr. Childs as a result of his relationship with the
Lee Fund and the ML-Lee Funds. Mr. Childs disclaims beneficial ownership
of such shares.
31
<PAGE>
(11) Does not include 426 shares which Mr. Childs may be deemed to own by
virtue of proxies he holds with respect to shares owned by his siblings.
Mr. Childs disclaims beneficial ownership of such shares.
(12) Includes options to purchase 632 shares from Mr. Lee which are currently
exercisable. Does not include 476,808 shares which may be deemed to be
beneficially owned by Mr. Segal as a result of his relationship with the
Lee Fund and the ML-Lee Funds. Mr. Segal disclaims beneficial ownership
of such shares.
(13) Does not include 513,320 shares which may be deemed to be beneficially
owned by certain directors as a result of their relationships with the Lee
Fund, the ML-Lee Funds and the Lee Trust, as beneficial ownership of such
shares is disclaimed. Includes options to purchase 14,402 shares.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and THL entered into an agreement dated December 28, 1990,
pursuant to which THL received a financial advisory fee of $1,250,000 from the
Company at the closing of the Acquisition and a strategic planning fee of
$250,000 on January 15, 1991. In addition, pursuant to such agreement, THL
received $150,000 per year for five years beginning January 1, 1991 for
management and other consulting services rendered to the Company. After the
initial five-year term, the management agreement with THL automatically renews
on an annual basis unless either party serves notice of termination at least 90
days prior to the renewal date. The Company believes that the terms of this
agreement are comparable to those that would have been obtainable from
unaffiliated sources.
The Company and Frelinghuysen entered into an agreement dated December 28,
1990, pursuant to which Frelinghuysen received a financial advisory fee of
$1,250,000 from the Company at the closing of the Acquisition (which was
comprised of $875,000 in cash and 10,714.286 shares of Holding's Class A Common
Stock) and a strategic planning fee of $250,000 on January 15, 1991. In
addition, pursuant to such agreement, Frelinghuysen received $100,000 per year
for five years beginning January 1, 1991 for management and other consulting
services rendered to the Company. After the initial five year term, the
management agreement with Frelinghuysen automatically renews on an annual basis
unless either party serves notice of termination at least 90 days prior to the
renewal date. The Company believes that the terms of this agreement are
comparable to those that would have been obtained from unaffiliated sources.
Each of the management and consulting agreements between the Company and
THL and the Company and Frelinghuysen provides that the Company will indemnify
THL and Frelinghuysen respectively for any liability arising from the
performance of management or consulting services under such agreement, unless
such liability is the result of gross negligence or willful misconduct.
The existing shareholders of Holding (the "Existing Shareholders") have
entered into a shareholders' agreement, dated as of December 28, 1990, as
amended and restated on December 17, 1993 (the "Shareholders' Agreement"), which
sets forth certain rights and obligations of the parties with respect to the
Common Stock and corporate governance of Holding, including
32
<PAGE>
certain transfer restrictions on shares of Common Stock, certain put and call
rights and obligations relating to the Common Stock, agreements relating to the
composition of the Board of Directors of Holding and registration rights.
The Shareholders' Agreement provides that the Existing Shareholders must,
subject to certain conditions, vote their shares to elect a Board of Directors
of Holding consisting of not more than five directors, subject to increase
pursuant to the Shareholders' Agreement, one director to be nominated by THL and
certain of its officers, employees, consultants and affiliates (collectively
with their permitted transferees, the "Lee Holders"), one director to be
nominated by the ML-Lee Funds, one director to be nominated by the Lee Fund, one
director to be nominated by Frelinghuysen and one director to be nominated by
the Chief Executive Officer of Big V. Notwithstanding the foregoing, the right
of any of the foregoing shareholders to designate directors will be eliminated
at such time as such shareholder no longer owns any of the shares of Common
Stock then outstanding.
In addition, the Shareholders' Agreement provides that the Existing
Shareholders are (i) in certain instances, subject to "come along" rights
allowing them to participate in private sales of Common Stock by certain
Existing Shareholders and (ii) in certain instances, subject to "take along"
rights allowing certain Existing Shareholders who are selling all of their
shares to require the other Existing Shareholders to sell all of their shares of
Common Stock to the same purchaser in the same transaction. The Shareholders'
Agreement requires Holding's Existing Shareholders to vote together as a group
on certain matters, including the nomination and election of the Board of
Directors, establishing the number of directors in accordance with the
Shareholders' Agreement and certain sales or mergers relating to the "take
along" rights contained in the Shareholders' Agreement.
The Shareholders' Agreement also provides certain registration rights to
the Existing Shareholders. If Holding receives a written request from any of
the ML-Lee Funds, the Lee Fund, the Lee Holders or Frelinghuysen or any of their
permitted transferees (collectively, the "Institutional Investors") that Holding
file a registration statement under the Securities Act covering the registration
of at least 10% of the Registrable Securities (as defined therein), then Holding
is required, on no more than two occasions, to (a) promptly give written notice
to all other Existing Stockholders of such request and (b) with reasonable
promptness, and generally within 120 days after receipt by Holding of a written
request for a demand registration, file a registration statement with the
Securities and Exchange Commission (the "Commission") relating to such
Registrable Securities as to which such request for a demand registration
relates and Holding shall use its best efforts to cause all Registrable
Securities of the same class that holders have requested be registered to be
registered under the Securities Act, subject to customary proportional
reductions if necessary to accommodate market conditions.
33
<PAGE>
The Shareholders' Agreement also provides that if Holding proposes to
register shares of Common Stock under the Securities Act, in connection with the
public offering of such securities solely for cash on a form that would also
permit the registration of any of the Registrable Securities, either for its own
account or for the account of others, then each Existing Shareholder has a
right, subject to certain restrictions, to request that Holding register its
shares of Common Stock.
34
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
See Financial Statements Index included in Item 8 of Part II of this Form
10-K.
(2) Financial Statement Schedules:
Schedules have been omitted as they are not applicable or the required
information is presented in the financial statements or related notes.
(3) Exhibits
See Index to Exhibits on Page II-I. A copy of the exhibits listed herein
can be obtained by writing:
James A. Toopes, Jr.
Executive Vice President-Finance,
Administration and Corporate Development
Big V Supermarkets, Inc.
176 North Main Street
Florida, New York 10921
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter for the year
ended December 27, 1997.
35
<PAGE>
BIG V SUPERMARKETS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED STATEMENTS OF LOSS F-3
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Big V Supermarkets, Inc.
Florida, New York
We have audited the accompanying consolidated balance sheets of Big V
Supermarkets, Inc. and subsidiaries (the "Company") as of December 27, 1997 and
December 28, 1996, and the related consolidated statements of loss,
stockholder's deficit and cash flows for each of the three fiscal years in the
period ended December 27, 1997. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Big V Supermarkets, Inc. and
subsidiaries as of December 27, 1997 and December 28, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 27, 1997 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Parsippany, New Jersey
March 27, 1998
(April 8, 1998 as to Note 5)
F-2
<PAGE>
BIG V SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF LOSS
FOR THE YEARS ENDED DECEMBER 27, 1997,
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 27, December 28, December 30,
1997 1996 1995
<S> <C> <C> <C>
SALES $ 762,880 $ 735,976 $ 768,682
--------- --------- ---------
COSTS AND EXPENSES:
Cost of sales (exclusive of depreciation and
amortization shown separately below) 563,896 545,851 568,299
Selling, general and administrative 161,786 151,825 161,746
Special charges -- 3,004 --
Depreciation and amortization 16,979 17,381 18,548
Interest expense, net of interest income
of $253 for 1997, $255 for 1996,
and $311 for 1995 24,586 24,382 27,277
--------- --------- ---------
Total costs and expenses 767,247 742,443 775,870
--------- --------- ---------
LOSS BEFORE INCOME TAXES (4,367) (6,467) (7,188)
INCOME TAX BENEFIT 1,625 2,509 2,110
--------- --------- ---------
NET LOSS $ (2,742) $ (3,958) $ (5,078)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BIG V SUPERMARKETS, INC.
w
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 13,498 $ 10,595
Accounts receivable 14,669 13,066
Inventories 36,851 35,437
Refundable income taxes 1,688 119
Prepaid expenses and other current assets 3,455 4,601
-------- --------
Total current assets 70,161 63,818
PROPERTY AND EQUIPMENT - At cost, less accumulated
depreciation and amortization of $73,653 at December 27, 1997 and
$70,005 at December 28, 1996 60,783 73,034
GOODWILL - Less accumulated amortization of $12,926 at
December 27, 1997 and $10,914 at December 28, 1996 66,383 68,395
INVESTMENT IN WAKEFERN FOOD CORP. 11,236 11,236
WAKEFERN WAREHOUSE AGREEMENT - Less accumulated amortization
of $7,239 at December 27, 1997 and $6,205 at December 28, 1996 34,129 35,163
OTHER ASSETS 12,254 12,971
-------- --------
TOTAL ASSETS $254,946 $264,617
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 43,257 $ 39,738
Accrued expenses and taxes other than income taxes 17,415 15,028
Income taxes payable -- 17
Deferred income taxes 6,152 6,314
Current portion of long-term debt 19,401 10,959
Current portion of capitalized lease obligations 619 447
-------- --------
Total current liabilities 86,844 72,503
-------- --------
OTHER LONG-TERM LIABILITIES 9,732 6,247
-------- --------
LONG-TERM DEBT - Less current portion 154,097 165,590
-------- --------
CAPITALIZED LEASE OBLIGATIONS - Less current portion 26,036 36,614
-------- --------
DEFERRED INCOME TAXES 5,423 7,973
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, par value, $1.00 per share; authorized, 1,000 shares;
issued, 1,000 shares 1 1
Paid-in capital 8,530 8,664
Accumulated deficit (35,717) (32,975)
-------- --------
Total stockholder's deficit (27,186) (24,310)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $254,946 $264,617
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BIG V SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 27, 1997,
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Total
----------------- Paid-in Accumulated Stockholder's
Shares Amount Capital Deficit Deficit
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 1,000 $ 1 $ 8,995 $(23,939) $(14,943)
Return of capital to Holding -- -- (976) -- (976)
Capital contribution from Holding -- -- 785 -- 785
Net loss -- -- -- (5,078) (5,078)
------ ---- -------- -------- --------
BALANCE, DECEMBER 30, 1995 1,000 1 8,804 (29,017) (20,212)
Return of capital to Holding -- -- (215) -- (215)
Capital contribution from Holding -- -- 75 -- 75
Net loss -- -- -- (3,958) (3,958)
------ ---- -------- -------- --------
BALANCE, DECEMBER 28, 1996 1,000 1 8,664 (32,975) (24,310)
Return of capital to Holding -- -- (149) -- (149)
Capital contribution from Holding -- -- 15 -- 15
Net loss -- -- -- (2,742) (2,742)
------ ---- -------- -------- --------
BALANCE, DECEMBER 27, 1997 1,000 $ 1 $ 8,530 $(35,717) $(27,186)
====== ==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BIG V SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 27, 1997,
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 27, December 28, December 30,
1997 1996 1995
<S> <C> <C> <C>
CASH BALANCE, BEGINNING OF PERIOD $ 10,595 $ 11,683 $ 15,736
-------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (2,742) (3,958) (5,078)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 15,904 17,381 18,548
Noncash loss on disposal of equipment and
leasehold interest 1,075 -- --
Amortization of deferred debt costs 1,157 1,166 1,196
Amortization of discount on debt 133 78 222
Deferred income taxes (2,712) (1,867) (2,255)
Noncash rent expense 1,100 723 985
Noncash gain from lease termination (1,170) (1,073) --
Noncash loss on sale of video equipment -- -- 17
Noncash gain on retirement of Wakefern notes -- -- (14)
Loss on sale of equity investment 596 -- --
Changes in assets and liabilities:
Increase in inventories (1,414) (3,063) (1,323)
Decrease (increase) in prepaid expenses 887 (1,612) 312
Increase in accounts receivable (1,603) (909) (358)
(Increase) decrease in refundable income taxes (1,569) 25 117
(Increase) decrease in other assets (1,010) 589 (3,094)
Increase (decrease) in accounts payable 3,519 (2,077) (391)
Increase (decrease) in accrued expenses and
taxes other than income taxes 2,387 (320) 2,473
(Decrease) increase in income taxes payable (17) 17 --
Increase in long-term liabilities 2,385 837 2
-------- ------- --------
Net cash provided by operating activities 16,906 5,937 11,359
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (10,242) (10,085) (10,690)
Sale of Connecticut stores -- 8,552 --
Sale of property and equipment 26 3 26
Increase in investment in Wakefern Food Corp. -- (40) --
-------- ------- --------
Net cash used in investing activities (10,216) (1,570) (10,664)
-------- ------- --------
(Continued)
</TABLE>
F-6
<PAGE>
BIG V SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 27, 1997,
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 27, December 28, December 30,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt $ (8,939) $ (8,771) $ (7,346)
Payments of capital lease obligations (444) (375) (315)
Proceeds of long-term borrowings 5,730 3,831 3,104
Return of capital to Holding (149) (215) (976)
Capital contribution from Holding 15 75 785
-------- -------- --------
Net cash used in financing activities (3,787) (5,455) (4,748)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 2,903 (1,088) (4,053)
-------- -------- --------
CASH BALANCE, END OF YEAR $ 13,498 $ 10,595 $ 11,683
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 23,687 $ 23,723 $ 25,815
======== ======== ========
Income taxes $ 2,671 $ 783 $ 129
======== ======== ========
</TABLE>
During the year ended December 30, 1995, notes payable to Wakefern for $512,000
were entered into which increased the investment in Wakefern.
During the year ended December 28, 1996, notes payable to Wakefern for $250,000
were entered into which increased the investment in Wakefern.
During the year ended December 27, 1997, a note receivable for $1,100,000 was
recorded in conjunction with the sale of an equity investment. The note was
collected in full during February 1998.
(Concluded)
See notes to consolidated financial statements.
F-7
<PAGE>
BIG V SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 27, 1997
DECEMBER 28, 1996 AND DECEMBER 30, 1995
- --------------------------------------------------------------------------------
1. BUSINESS
ORGANIZATION AND BASIS OF PRESENTATION - On December 28, 1990, Big V
Supermarkets, Inc. (the "Company") was purchased by Big V Holding Corp.
("Holding") through the merger of a wholly-owned subsidiary of Holding with
and into BV Holdings Corporation (the "Predecessor Company"), the owner of
all voting stock of the Company. The financial statements presented herein
are those of the Company, subsequent to the purchase by Holding. The Company
is a wholly-owned indirect subsidiary of Holding, whose principal
shareholders include Thomas H. Lee Equity Partners, L.P., ML-Lee Acquisition
Fund II, L.P., ML-Lee Acquisition Fund (Retirement Accounts) II, L.P., Thomas
H. Lee, and management of the Company. The consideration paid by Holding to
acquire the Company was approximately $210.2 million.
The acquisition by Holding was accounted for as a purchase, and accordingly,
Holding recorded the assets and liabilities of the Company at their fair
value at the date of the acquisition. The accompanying consolidated
financial statements of the Company reflect Holding's basis.
The Company operates a chain of 29 modern supermarkets under the ShopRite
trade name located primarily in the Hudson River Valley Region of New York
State. The Company also operates one supermarket under the "Big V Market"
trade name and one supermarket under the "CostRite" trade name. The Company
is the largest member of the Wakefern Food Corp. Cooperative ("Wakefern")
located in Elizabeth, New Jersey.
MANAGEMENT'S PLAN - The Company has incurred net losses in each of the three
fiscal years ended December 27, 1997 and current liabilities exceed current
assets by $16.7 million at December 27, 1997. During fiscal 1998 and early
fiscal 1999, significant principal payments are due on the A and B Term Loans
(see Note 5). The A Term Loans mature during 1998 with payments of $3.5
million in January, $1.7 million in April, $1.7 million in July and the final
payment of $6.6 million on October 31, 1998. The B Term Loans require
payments of $8.0 million in April 1999, $10.0 million in October 1999, and a
final payment of $22.0 million during March 2000. The Company believes that
it will be able to make the A Term Loan scheduled payments using cash flows
from operations, supplemented by the unused borrowing capacity under the
Revolving Credit Facility and the availability of equipment financings. The
Company expects that it will be necessary to refinance the B Term Loans prior
to the amortization of the first installment due April 1999.
The Company is currently holding discussions with its lenders and other
financial institutions with respect to various refinancing opportunities.
Management believes that it will successfully refinance its debt, however,
there can be no assurances that the refinancing will occur or that the terms
associated with any such new agreement will be more favorable to the Company.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR - The Company's fiscal year ends on the last Saturday in
December. The fiscal year ended December 27, 1997, December 28, 1996 and
December 30, 1995 were 52-week periods.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of the
Company include the accounts of Big V Supermarkets, Inc. and its nonoperating
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Since the Company is a wholly-owned
subsidiary, earnings per share information is not presented. The Company
operates in one industry segment, the selling of retail food and nonfood
products.
INVENTORIES - Inventories are valued using the last-in, first-out method.
Inventories are priced at prevailing selling prices and reduced to cost by
application of a cost complement factor.
At December 27, 1997 and December 28, 1996, inventories would have been
higher by $2,548,000 and $2,444,000, respectively, if the first-in, first-out
method of valuation had been used.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation and amortization, computed by the straight-line method for
financial statement purposes, are based on an estimated useful life of
between three and eight years for equipment, ten years or lease term,
whichever is less, for leasehold improvements and the related lease term for
leasehold interests and capitalized leases and twenty years for building.
Costs of major improvements to existing facilities are capitalized. Costs of
repairs, maintenance and replacements which do not significantly improve or
extend the life of the respective assets are charged to expense as incurred.
Leasehold interests represent an intangible value assigned to leased
properties resulting from a fair market determination made by independent
appraisers in connection with the purchase of the net assets of the Company.
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This Statement
establishes accounting standards for the measurement of the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets. This Statement requires that an asset to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company's long-lived assets are not impaired based on a
review of such assets.
GOODWILL - Goodwill is being amortized on the straight-line method over forty
years. Management assesses the recoverability of goodwill by comparing the
Company's forecasts of cash flows from future operating results, on an
undiscounted basis, to the unamortized balance of goodwill at each balance
sheet date. Cash flows from operating results represents net income
excluding depreciation and amortization expense. If the results of such
comparison indicate that an impairment may be likely, the Company will
recognize a charge to operations at that time based upon the difference
between the present value of the expected cash flows from future operating
results (utilizing a discount rate equal to the Company's average cost of
funds at the time), and the balance sheet value of goodwill as of such time.
The recoverability of goodwill is at risk to the extent the Company is unable
to achieve its forecast assumptions regarding cash flows from operating
results. Management believes, at this time, that the goodwill carrying value
and useful life continues to be appropriate.
INVESTMENT IN WAKEFERN FOOD CORP. - Represents the Company's stock ownership
in Wakefern. Such stock has been valued at its redemption value, which
represents cost, in accordance with the Wakefern by-laws and is obtained by
the Company upon payments made with respect to new store openings (see Note
10). The Wakefern by-laws specify that, such stock can be sold to Wakefern
at the greater of $100 per share or Wakefern's then book value. Since this
stock can only be sold to Wakefern at a
F-9
<PAGE>
specified amount in accordance with the Wakefern by-laws it is not
practicable to estimate the fair value of such stock.
WAKEFERN WAREHOUSE AGREEMENT - Represents the value assigned to the Company's
ability to participate in Wakefern as a member and its ability to share in
the annual patronage dividend (see Note 10). The value assigned resulted
from a fair market determination made by independent appraisers in connection
with the purchase of the net assets of the Company. The Wakefern Warehouse
Agreement contains an evergreen provision providing for a continual 10-year
renewal period. The Company's obligation to purchase from Wakefern may be
terminated only ten years following the approval of such termination by the
holders of at least 75% of the outstanding voting stock of Wakefern.
Accordingly, the cost of the Wakefern Warehouse Agreement is being amortized
on a straight-line basis over forty years.
DEBT ISSUANCE COSTS - Debt issuance costs represent costs associated with
borrowings and are amortized using the straight-line method over the terms of
the related debt.
SPECIAL CHARGES - During 1996 the Company adjusted its reserves for certain
items, explained below, based on new facts and estimates. The special
charges, approximating $3.0 million, consist of an increase in reserves for
and/or settlement of future lease obligations on store leases assigned in
1988 to another supermarket chain which declared bankruptcy during 1995.
Such charges also include costs associated with the abandonment of potential
new store sites and incurred expenses from closed store sites.
INCOME TAXES - The Company files a consolidated Federal income tax return
with its ultimate parent, Holding. Effective December 28, 1990, the Company
implemented the provisions of Statement of Financial Accounting Standards No.
109 (FAS 109), "Accounting for Income Taxes." Deferred taxes have been
recorded for the differences between the financial reporting basis and the
tax basis of the Company's assets and liabilities.
PREOPENING COSTS - Costs associated with new store openings are amortized in
the twelve-month period following such store opening.
SELF-INSURED LIABILITIES - The Company self-insures workers' compensation
claims. Such liability has been recorded at its present value utilizing a
risk free discount rate based on the projected payout of these claims. The
Company determines the required liability based upon various actuarial
assumptions which include, but are not limited to, the Company's historical
loss experience, industry loss standards, projected loss development factors,
projected payroll, employee headcount and interest rates. It is reasonably
possible that the final resolution of some of these workers' compensation
claims may require significant expenditures by the Company in excess of its
existing reserves, over an extended period of time and in a range of amounts
that cannot be reasonably estimated. As of December 27, 1997 and December
28, 1996, the accompanying balance sheets includes a liability of
approximately $4.8 and $2.9 million, respectively, related to these matters.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and assumptions
were used by the Company in estimating its fair value disclosures for
financial instruments:
. Cash and Cash Equivalents - The carrying amounts for these items
approximate their fair value because of the short maturity of these items.
. Investments - The fair values of investments are based on quoted market
prices.
F-10
<PAGE>
. Interest Rate Cap Agreements - The fair values represent the estimated
amounts at which the Company could settle these agreements, as quoted by
the counterparty.
. Long-Term Debt - The fair value of the Company's long-term debt is based
upon the market price of the Company's publicly traded debt securities at
December 27, 1997 and December 28, 1996, and for the debt instruments
which are not publicly traded, current incremental borrowing rates for
similar types of borrowing arrangements are utilized as a basis to
determine fair value of such debt instruments.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS - During June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement requires the disclosure of financial and descriptive information
about reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly in deciding how to allocate resources
and in assessing performance. The Company has not yet completed its
evaluation of this Statement. This Statement is effective for the Company's
fiscal 1998 year end financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior
years' consolidated financial statements to conform to the fiscal 1997
presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Land $ 834 $ 839
Building 161 161
Equipment and fixtures 64,036 62,164
Leasehold improvements 37,558 35,851
Leasehold interests 4,275 5,894
Construction-in-progress 172 730
Property and equipment under capital leases (see Note 7) 27,400 37,400
-------- --------
Property and equipment, at cost 134,436 143,039
Less accumulated depreciation and amortization,
including accumulated amortization of capitalized
leases of $9,931 at December 27, 1997 and
$9,409 at December 28, 1996 (73,653) (70,005)
-------- --------
Property and equipment, net $ 60,783 $ 73,034
======== ========
</TABLE>
F-11
<PAGE>
During September 1997, the Company terminated a capital lease with a cost and
accumulated amortization of $10,000,000 and $1,208,000, respectively, and a
lease obligation of $9,962,000. Such lease termination resulted in the
recognition of a gain of $1,170,000 which is included in selling, general and
administrative expenses.
On January 28, 1996, the Company sold the assets and assigned the leases of
its two Connecticut stores (West Haven and Milford) to Wakefern. This sale
approximated the Company's net book value of assets sold, including
inventory, and resulted in total proceeds of approximately $8.6 million which
was used primarily to reduce long-term debt.
4. OTHER ASSETS
Other assets consists of the following:
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Mutual aid fund $ 1,840 $ 1,594
Notes receivable 402 368
Property held for sale - Somers, N.Y. (a) 3,636 3,032
Deferred debt issuance costs 2,917 3,858
New store costs (b) 1,996 1,100
Noncurrent receivables 100 642
Insurance deposits 684 658
Investment in real estate partnership (c) - 1,289
Deposits 509 283
Other 170 147
------- -------
Total other assets $12,254 $12,971
======= =======
</TABLE>
(a) Soil and groundwater contamination was detected at this property. The
property is on the Department of Environmental Conservation's ("DEC") New
York State Inactive Hazardous Water Disposal Site List. Based on the
results of investigations made to date, in management's opinion, the
potential liability associated with this property is unlikely to have a
material adverse effect on the Company's results of operations, financial
condition or liquidity. Further with respect to this property, the
Company was named as a party in lawsuits by area residents. During
1997, the Company settled such lawsuits. The Company's share of the
settlement approximated $175,000 and was capitalized along with the other
costs of remediation. Also, the Company impleaded prior owners of the
Baldwin Place Shopping Center in Somers, N.Y. ("Somers location") as
third-party defendants since the Company believes that potential
responsibility only arises from the actions of a former tenant in the
Somers location. In January 1994, the Company commenced an action
against the prior owners of the Somers location seeking reimbursement for
costs and expenses incurred by the Company in connection with the
environmental remediation and testing of the Somers location.
The Company entered into a settlement agreement with the prior owners
pursuant to which the prior owners have reimbursed the Company for
approximately $1.2 million, less attorney fees of approximately $430,000,
of costs and expenses incurred by the Company in connection with the
environmental remediation and testing. The Company recorded the
settlement agreement as a reduction of the costs capitalized in
connection with the remediation of the contamination at the
F-12
<PAGE>
Somers location. A Record of Decision with respect to the environmental
status of this site was issued by the DEC in December 1995. Based upon
the results of investigations made in this Record of Decision, management
believes that the potential liability associated with the environmental
status of this property is not likely to have a material adverse effect
on the Company's results of operation, financial condition or liquidity.
Management estimates that the cost associated with the remaining studies
and subsequent remediation will approximate $1.8 million. The Company
will capitalize such costs and recover them upon the sale of this
property. Excess remediation costs will be expensed should their
capitalization cause the carrying value of the property to exceed its
market value.
(b) Such costs represent costs incurred in the planning, development and
construction of proposed and approved new store sites. Such costs are
third party fees for such items as architectural and engineering
services. Costs related to sites no longer under consideration for a
store are expensed. All costs at December 27, 1997 and December 28,
1996, are for stores under construction or in development.
(c) During the fourth quarter of fiscal 1994 the Company acquired a 50%
equity interest in a real estate partnership. The partnership owns a
strip mall which leases a retail store site to the Company. Such lease
between the Company and the partnership was terminated during September
1997. The Company accounted for its interest in the partnership in
accordance with the equity method.
During September 1997, the Company sold its 50% equity interest for $1.1
million. The Company received a $1.1 million note bearing interest at 8%
due January 1998. Such note was fully collected during February 1998.
The Company recognized a loss of $596,000 as a result of writing off its
investment and receivables due from the partnership.
F-13
<PAGE>
5. INDEBTEDNESS
Debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
(In Thousands)
<S> <C> <C>
Notes payable, bearing interest at rates of 7.15% to
10.99%, payable in installments through
October 30, 2003 (A) $ 12,748 $ 9,611
Notes payable for Wakefern stock subscriptions,
face amount of $1,211 in 1997 and $1,679
in 1996 due in installments through December 2002
(less unamortized discounts of $207 in 1997 and
$340 in 1996 based on imputed interest rates
of 9.25% to 12.5%) 1,004 1,339
Notes payable for deposit with Insure-Rite,
due in installments through December 1998 17 -
Mortgage bond payable for land, interest accruing at
11.24% and added to principal due February 28,
1999 in the amount of $1,400,000 1,229 1,099
Bank term loans (B) 53,500 59,500
Revolving loans (B) 2,500 2,500
Subordinated note due March 15, 2001 (C) 20,000 20,000
Secured nonrecourse note (D) 2,500 2,500
11% Series B Senior Subordinated Notes (E) 80,000 80,000
-------- --------
173,498 176,549
Less current portion 19,401 10,959
-------- --------
$154,097 $165,590
======== ========
</TABLE>
(A) The notes payable are secured by equipment with a net book value of
$10,802,000 at December 27, 1997 and $9,276,000 at December 28, 1996.
(B) The Company has a Credit Agreement ("Agreement") with Bankers Trust
Company as agent, and a syndicate of six additional institutions.
The Agreement includes $30.0 million in aggregate principal amount of A
Term Loans, $40.0 million in aggregate principal amount of B Term Loans
(the "A Term Loans" and the "B Term Loans," hereinafter referred to
collectively as the "Term Loans") and the Revolving Credit Facility, which
permits the Company to borrow up to $26.0 million to finance working
capital and letter of credit needs.
Indebtedness under the Agreement bears interest at a floating rate.
Indebtedness under the Revolving Credit Facility and the Term Loans bears
interest at a rate based (at the Company's option) upon (i) the Base Rate
(defined as the higher of (a) the applicable prime rate of Bankers Trust
Company or (b) the Federal Reserve reported certificate of deposit rate
plus 1/2 of 1%) plus 1-1/2% in respect of the A Term Loans and the loans
under the Revolving Credit Facility and 1-7/8% in respect of the B Term
Loans; or (ii) the Eurodollar Rate (as defined) for one, two, three, or
six months, plus 2-1/2% in respect of A Term Loans and Revolving Loans and
2-7/8% in respect of B Term Loans. The Company is required to maintain
specified levels of interest rate protection.
F-14
<PAGE>
The A Term Loans and the B Term Loans will mature on October 31, 1998 and
March 15, 2000, respectively, and such Term Loans are subject to quarterly
amortizations. The Revolving Credit Facility will mature on October 31,
1998. In addition, the Bank Credit Agreement provides for mandatory
repayments of the Term Loans (and after all Term Loans have been repaid,
certain commitment reductions under the Revolving Credit Facility) based
on certain asset sales outside the ordinary course of business of Holding
and its subsidiaries, the proceeds of certain debt and equity issuances
and 100% of Excess Cash Flow (as defined in the Agreement) per annum.
Loans under the Revolving Credit Facility may be repaid and reborrowed.
The Company is required to pay to the lenders under the Bank Credit
Agreement in the aggregate a commitment fee equal to 1/2 of 1% per annum,
payable on a quarterly basis, on the average unused portion of the
Revolving Credit Facility during such quarter. During 1995, 1996 and
1997, the Company paid $54,000, $77,000 and $65,000 in commitment fees,
respectively. As of December 27, 1997, the Company was utilizing
$8,890,000 available under the Revolving Credit Facility, $6,390,000 of
which was being utilized for issuances of letters of credit.
The Agreement, as amended, requires the Company to meet certain financial
covenants, including minimum levels of earnings before interest, taxes,
depreciation and amortization ("EBITDA"), minimum amounts of consolidated
net worth, maximum amounts of capital expenditures, and minimum fixed
charge coverage ratios. As of October 5, 1996, and December 28, 1996, the
Company was not in compliance with the EBITDA and maximum levels of
capital expenditure covenants under the Agreement. The Company obtained a
waiver for such noncompliance through January 31, 1997 and amended the
covenants in January 1997. An amendment and consent, dated January 27,
1997, established revised levels for fiscal 1997 EBITDA and capital
expenditure requirements.
At December 27, 1997, the Company was not in compliance with the capital
expenditure covenant under the amended Agreement. An amendment and waiver
dated April 8, 1998, waived the Company's noncompliance with the capital
expenditure covenant and amended the Agreement to revise fiscal 1997
EBITDA requirements. The Company is confident that it will meet all 1998
covenants.
The Agreement requires the Company to enter into Interest Rate Protection
Agreements. Accordingly, on December 23, 1993, the Company entered into
two Interest Rate Protection ("Cap") Agreements with Bankers Trust Company
commencing April 1, 1994 whereby for quarterly periods commencing April 1,
1994 and terminating December 31, 1995 interest on $40 million of
outstanding debt was capped at 6.5% and from January 1, 1996 to December
28, 1996 interest on $30 million of outstanding debt was capped at
7.5%. Under the Cap Agreements, if the three month rate rises above the
cap rate, Bankers Trust Company agrees to pay the Company the excess of
the calculated interest amount using actual LIBOR, over the protected
interest amount for each protected quarterly period. The Company paid
approximately $116,000 for such Cap Agreements. The Company amortized
costs of the Cap Agreements on a straight-line basis over the life of the
Cap Agreements. As of December 27, 1997 and December 28, 1996, the Cap
agreements have been completely amortized.
(C) The Company has $20 million Senior Subordinated Promissory Notes due
March 15, 2001 held by certain principal shareholders. Interest accrues
at the annual rate of 14.14%, payable in quarterly installments. The
Note Agreement contains various restrictive covenants similar to the
covenants contained in the Term Loan Agreement.
F-15
<PAGE>
(D) The Company has a noninterest-bearing note due to certain shareholders of
the Predecessor Company. The note is payable solely out of the net
proceeds (as defined) of the sale of the land and buildings comprising
the Baldwin Place Shopping Center in Somers, NY (see Note 4).
(E) On December 17, 1993, the Company recapitalized by issuing $80 million of
11% Series B Senior Subordinated Notes (the "Series B Notes"). Proceeds
from the recapitalization were used to repay $30 million of Senior
Secured Promissory Notes, $30 million of Senior Subordinated Promissory
Notes, $9 million of Term Loans, $15.6 million of Revolving Loans, to
repurchase 270,000 shares of Holding Class B Common Stock for $4.5
million and to pay premiums and fees in connection with the
recapitalization of $23.3 million. In addition, the Term Loans were
increased by $40 million (see B).
The Series B Notes are unsecured obligations of the Company, ranking
subordinated in right of payment to all other outstanding debt of the
Company. The Series B Notes mature on February 15, 2004. Interest
accrues at the rate of 11% per annum and is payable semiannually on each
February 15, and August 15 and commenced on February 15, 1994.
The Series B Notes will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after February 15, 1999
at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the twelve-month period commencing on
February 15 of the year set forth below, plus, in each case, accrued and
unpaid interest thereon to the date of redemption:
YEAR PERCENTAGE
1999 104.125%
2000 102.750
2001 101.375
2002 and thereafter 100.000
The Indenture (the "Indenture") that governs the Series B Notes imposes
certain limitations on the ability of the Company and its subsidiaries to,
among other things, pay dividends or make certain other restricted
payments, incur additional indebtedness, enter into certain transactions
with affiliates, incur liens, incur indebtedness which is subordinate in
right of payment to any senior debt and senior in right of payment to the
Series B Notes, impose restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company, issue preferred stock
of the Company's subsidiaries, merge or consolidate with any other person
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company, consummate certain asset
sales, or adopt a plan of liquidation. At December 27, 1997, the Company
was in compliance with all the terms and covenants of the Indenture.
F-16
<PAGE>
Aggregate maturities of long-term debt are as follows:
(IN THOUSANDS)
1998 $ 19,401
1999 23,756
2000 35,856
2001 12,477
2002 1,410
Thereafter 80,598
--------
$173,498
========
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
for which such amounts differ are as follows:
<TABLE>
<CAPTION>
December 27, 1997 December 28, 1996
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Investments (Note 4) $ -- $ 4 $ 91 $ 102
======== ======== ======== ========
Long-term debt (Note 5):
Bank term loans $ 53,500 $ 53,500 $ 59,500 $ 59,500
Revolving loan 2,500 2,500 2,500 2,500
11% Senior subordinated notes 80,000 84,800 80,000 75,200
Subordinated note due
March 15, 2001 20,000 17,706 20,000 20,000
Notes payable secured by
equipment 12,748 13,180 9,611 9,611
Notes payable for Wakefern
stock subscriptions 1,004 1,004 1,339 1,339
Notes payable, Insure-Rite 17 17 - -
Mortgage bond payable for land 1,229 1,229 1,099 1,099
Secured nonrecourse note 2,500 2,500 2,500 2,500
-------- -------- -------- --------
$173,498 $176,436 $176,549 $171,749
======== ======== ======== ========
</TABLE>
The fair values of investments are based on quoted market prices at December
27, 1997 and December 28, 1996. Similarly, the fair value of long-term debt
is based on quoted market prices on December 27, 1997 and December 28, 1996
or in the absence of such quoted market prices the latest available quoted
market price is used. The fair values of the Bank Term Loans at December 27,
1997 and December 28, 1996 approximated their carrying value due to their
floating interest rates. The fair values of the Subordinated note due March
15, 2001 and the Company's note payable secured by equipment are estimated
using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar type borrowings. The fair values of
the remaining notes payable and mortgage bond payable were assumed to
reasonably approximate their carrying value since the interest rates
associated with these borrowings approximate market and the remaining
maturities are
F-17
<PAGE>
relatively short-term. The fair value of the secured non-recourse note was
assumed to reasonably approximate its carrying value because it is payable
solely out of the net proceeds of the sale, exchange or development of the
Somers, NY location (see Note 4).
7. COMMITMENTS AND CONTINGENCIES
DESCRIPTION OF LEASING ARRANGEMENTS - The Company currently conducts all of
its operations from leased facilities. Store leases generally are entered
into for terms ranging from ten to twenty-five years. All of the Company's
leases expire over the next twenty-five years.
Most of the Company's leases contain renewal options of five or ten years
each. These options enable the Company to retain use of facilities in
desirable operating areas. Management expects that, in the normal course of
business, leases will be renewed or replaced by other leases. The Company is
obligated on all leases to pay for utilities and liability insurance and, in
accordance with the terms of certain store leases, to pay additional sums
related to real estate taxes, maintenance, insurance and additional rent
based upon a percentage of sales in excess of stipulated amounts. The
Company is also obligated to pay scheduled rent increases for certain stores.
During June 1995, the Company was notified that the sub-lessee at two
locations for which the Company is the primary lessee filed for bankruptcy
and subsequently vacated the leased premises. The Company is liable under
these leases for the minimum annual rentals over the remaining initial lease
term, certain common area maintenance expenses and property taxes. At
December 27, 1997, the lease for one location had been terminated and no
amounts are accrued as the remaining site is leased to a qualified sub-
tenant. The Company will continue to monitor and assess its exposure with
respect to this matter as the actual costs could differ from the Company's
current estimates.
A lease, for a currently nonproductive store site, was terminated as a result
of finding tenants acceptable to the landlord. The termination agreement
contains provisions which would reinstate a portion of the Company's original
obligation should certain events occur. At December 28, 1996, the
accompanying balance sheet included a liability approximating $290,000 which
represented the Company's obligation under the termination agreement. The
result of this transaction was the removal of capital lease obligations
approximating $2,173,000 and the recording of a noncash gain approximating
$1,073,000.
CAPITAL LEASES - The following is a schedule, by year, of future minimum
lease payments under capital leases, together with the present value of the
net minimum lease payments, as of December 27, 1997:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1998 $ 4,570
1999 4,643
2000 4,684
2001 4,710
2002 4,734
2003 and thereafter 39,086
-------
Net minimum lease payments 62,427
Less amount representing interest 35,772
-------
Present value of net minimum lease payments $26,655
=======
</TABLE>
No contingent lease payments were made under capital leases for the years
ended December 27, 1997, December 28, 1996 and December 30, 1995.
F-18
<PAGE>
OPERATING LEASES - The following is a schedule, by year, of future minimum
rental payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 27,
1997:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1998 $ 13,167
1999 13,297
2000 13,392
2001 13,539
2002 12,880
2003 and thereafter 194,031
--------
Total minimum payments $260,306
========
</TABLE>
RENTAL EXPENSE - The following schedule shows the composition of total rental
expense for all operating leases for the years ended December 27, 1997,
December 28, 1996 and December 30, 1995:
<TABLE>
<CAPTION>
December 27, December 28, December 30,
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Minimum rentals $7,711 $6,745 $7,193
Contingent rentals 59 58 58
Noncash rent expense 1,100 723 985
Reduction of noncash rent expense
due to sale of Connecticut stores - (229) -
------ ------ ------
Total rental expense $8,870 $7,297 $8,236
====== ====== ======
</TABLE>
LETTER OF CREDIT OBLIGATION TO WAKEFERN - In connection with the acquisition
of the Predecessor Company, the Company, the Predecessor Company and Holding
(collectively, the "Big V Companies") and certain members of the Company's
management entered into a letter agreement with Wakefern (the "Wakefern
Letter") as a condition to Wakefern's agreement not to deem the Big V
Companies to be an "Unqualified Successor" as defined in Wakefern's By-Laws
as a result of the consummation of the acquisition. In accordance with the
terms of the Wakefern Letter, the Big V Companies have agreed that if at any
time certain net worth tests are not met (a "Net Worth Event"), then the Big
V Companies are required to obtain an irrevocable letter of credit in favor
of Wakefern in an amount equal to two and one-half times the average weekly
purchases of the Company from Wakefern for the most recent calendar quarter
of Wakefern ended prior to such event. In addition, under the Wakefern
Letter the Big V Companies are required to obtain a letter of credit in favor
of Wakefern in the event the Company fails to pay any of its payables to
Wakefern within the time periods and in the manner prescribed by the Wakefern
By-Laws.
The Wakefern Letter further provides that if the Company defaults on its
obligations to Wakefern then due and payable and any letter of credit
required to be obtained pursuant to the Wakefern Letter is not obtained
within thirty days thereafter, then Wakefern has the right (the "Purchase
Right") to purchase all of the capital stock of Holding for an aggregate
purchase price equal to the fair value thereof. Upon the election to
exercise the Purchase Right, Wakefern has the right to assume control of the
management of the Big V Companies for a period of up to 120 days (the
"Management Period"), and to manage the Big V Companies for the account of
Holding. In the event that Wakefern assumes
F-19
<PAGE>
management of the Big V Companies, Wakefern will have all and may exercise
any of the rights, powers, privileges and remedies of the existing
shareholders in respect of the management, operation or conduct of the
business of the Big V Companies. On or prior to the expiration of the
Management Period, the existing shareholders have the right to resume control
of the management of the Big V Companies by bringing current all obligations
of the Big V Companies to Wakefern. If the Big V Companies do not bring such
obligations current at or prior to the expiration of the Management Period,
Wakefern is required, within 90 days thereafter, to effect the purchase of
Holding's capital stock from the existing shareholders and to pay such
shareholders the purchase price therefor as determined under the Wakefern
Letter.
INSURE-RITE PREMIUM CALLs - The Company's general liability insurer, Insure-
Rite, Ltd., can make additional premium calls up to a maximum of 45% of
premiums paid, for policy years 1993 and 1994. During fiscal 1997, Insure-
Rite, Ltd. called $922,000 and $806,000 relating to policy years 1993 and
1994, respectively. At December 27, 1997, the accompanying balance sheet
includes the above mentioned call premiums. The Company has no liability for
additional premium calls subsequent to the 1994 policy year.
The Company is a party to a number of legal proceedings in the ordinary
course of business. Management believes that the ultimate resolution of
these proceedings will not, in the aggregate, have a material adverse impact
on the financial condition, results of operations, liquidity or business of
the Company.
POSTEMPLOYMENT BENEFITS - During fiscal 1997, the Company created a Voluntary
Resignation and Separation Incentive Program (the Program). The Program was
offered to certain eligible union employees and acceptance of the Program
terms was required by December 31, 1997. At December 27, 1997, the Company
recorded a liability of $169,000 in accordance with the provision of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits."
8. INCOME TAXES
The benefit for income taxes at December 27, 1997, December 28, 1996 and
December 30, 1995 is comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Provision (benefit) for Federal income taxes:
Current $ 396 $ (642) $ 90
Deferred (1,090) (1,749) (1,657)
------- ------- -------
Total benefit for Federal income taxes (694) (2,391) (1,567)
------- ------- -------
Provision (benefit) for state income taxes:
Current 691 -- 55
Deferred (1,622) (118) (598)
------- ------- -------
Total benefit for state income taxes (931) (118) (543)
------- ------- -------
Total income tax benefit $(1,625) $(2,509) $(2,110)
======= ======= =======
</TABLE>
F-20
<PAGE>
The actual income tax benefit differs from the statutory tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Federal statutory tax rate of 34% $(1,485) $(2,198) $(2,444)
Goodwill amortization 674 684 674
State tax, net of Federal income
tax benefit 92 (311) (358)
Loss carrybacks taken at 46% rate -- (678) --
Refunds in excess of accrual (419) -- --
Adjustments to deferred taxes (435) -- --
Other (52) (6) 18
------- ------- -------
Total income tax benefit $(1,625) $(2,509) $(2,110)
======= ======= =======
</TABLE>
The net deferred income tax liabilities/(assets) of the Company for the years
ended December 27, 1997 and December 28, 1996 consist of the following:
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
(In Thousands)
<S> <C> <C>
Current deferred tax liabilities/(assets):
Prepaid expenses $ 696 $ 460
Receivables 2,070 1,324
Inventory 3,722 4,459
Accounts payable (336) 71
-------- --------
Total current deferred tax liabilities 6,152 6,314
-------- --------
Noncurrent deferred tax liabilities/(assets):
Property and equipment (including capital leases) 8,971 8,965
Wakefern Warehouse Agreement 13,976 14,399
Other long-term liabilities (976) 2,099
Other assets 911 (942)
Capital leases (10,915) (10,346)
Alternative minimum tax credit carryforward (2,194) (1,545)
Federal tax credit carryforward (120) --
Net operating loss carryforward - state (2,209) (1,719)
Net operating loss carryforward - federal (2,189) (2,938)
Valuation allowance 168 --
-------- --------
Total noncurrent deferred tax liabilities 5,423 7,973
-------- --------
Net deferred income tax liability $ 11,575 $ 14,287
======== ========
</TABLE>
The Company records the consolidated Holding Federal and State provision or
benefit. If the Company were to file its own Federal and State returns, such
amounts would not be materially different from the consolidated Holding
returns.
Realization of deferred tax assets associated with the NOL and credit
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration. Management believes that there is a risk
F-21
<PAGE>
that certain of these NOL and credit carryforwards may expire unused and,
accordingly, has established a valuation allowance against them.
The Company's net operating loss and credit carryforwards at December 27,
1997 expire as follows:
<TABLE>
<CAPTION>
FEDERAL STATE
OPERATING TAX OPERATING TAX
EXPIRATION DATES LOSSES CREDITS LOSSES CREDITS
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998 - 2000 - - 1,502 -
2001 - 2004 - - 101 -
2005 -2007 - - - -
2008 - thereafter 6,438 120 21,504 -
No expiration - 2,194 - -
</TABLE>
In August 1993, the U.S. Congress enacted the Omnibus Budget Reconciliation
Act of 1993 (the "Act") which, among other things, increased the Federal
Income tax rates to 35% from 34% for Corporations with taxable income in
excess of $10 million. Since the Company has not attained such level of
taxable income, nor projects such levels of income in the foreseeable future,
the Act has had no effect on the operating results and the deferred income
tax liability at December 27,1997 and December 28, 1996 continues to
represent the tax effect of temporary differences at a 34% rate.
9. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory discretionary profit-sharing retirement
plan for officers and nonunion employees and incentive programs for certain
management personnel and officers. The Company has amended the profit
sharing retirement plan to include a qualified cash or deferred arrangement
pursuant to Section 401(k) of the Internal Revenue Code. Under this
arrangement, officers and nonunion employees may elect to forego the current
receipt of up to 10% of their cash compensation and have such amounts
contributed to the plan on their behalf. In addition, the Company matches
25% of such elected amounts up to 5% of each individual employee's income.
The Company is also obligated for pension and welfare payments for pension
plans covering substantially all employees whose terms of employment are
covered under collective bargaining agreements. For the years ended December
27, 1997, December 28, 1996 and December 30, 1995 provisions for these plans
were as follows:
<TABLE>
<CAPTION>
COMPANY PROFIT-SHARING (INCLUDING UNIION PENSION
401(K) ARRANGEMENT) AND INCENTIVE PLANS AND WELFARE
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
1995 $1,616 $ 7,560
1996 913 7,284
1997 1,247 7,198
</TABLE>
10. RELATED PARTY TRANSACTIONS
INVESTMENT IN WAKEFERN FOOD CORP. - The Company is a stockholder of Wakefern
Food Corp. ("Wakefern"), a corporation operated on a cooperative basis for
its stockholder customers. The Company is restricted with regard to its
ability to dispose of its stock ownership of Wakefern. Such restrictions
include all sales, transfers, assignments, pledges, encumbrances or other
dispositions, except to Wakefern or as permitted by Wakefern or Wakefern's
By-Laws. The Company, along with other stockholder members, is obligated to
purchase at least 85% of its merchandise requirements from Wakefern under a
Warehouse Agreement which contains an evergreen provision providing for a
F-22
<PAGE>
continual 10-year expiration date for all members. The Company made
payments to Wakefern of approximately $548 million, $531 million and
$556 million for the years ended December 27, 1997, December 28, 1996 and
December 30, 1995, respectively. At December 27, 1997 and December 28, 1996,
the Company was indebted to Wakefern for approximately $30 million and $23
million, respectively, representing current charges in the ordinary course of
business, which have been included in accounts payable. The Company was
indebted to Wakefern for various notes payable approximating $17,000 at
December 27, 1997.
As required by Wakefern's By-Laws, all members of the cooperative are
required to make an investment in the common stock of Wakefern for each
supermarket owned, with the exact amount per store computed in accordance
with a formula based on the volume of each store's purchases from Wakefern.
The maximum required investment per store was $450,000 at December 27, 1997
and December 28, 1996. The Company's shares of stock in Wakefern are
assigned to and held by Wakefern as collateral security for any amounts owed.
The Company has Subscription Agreements to invest additional funds in
Wakefern and has remaining unfunded balances of $1,211,000 as of December 27,
1997 and $1,679,000 as of December 28, 1996 (see Note 5).
As a member of Wakefern, the Company is entitled to a share of an annual
Wakefern patronage dividend calculated after the close of Wakefern's fiscal
year ending the last Saturday in September, as the result of the distribution
of all operating profits to its members on a pro rata basis based on the
actual member purchases from each merchandising division. It is the
Company's policy to accrue monthly an estimate of the annual patronage
dividend. The patronage dividend was $8,838,000, $7,908,000 and $10,114,000
for fiscal years 1997, 1996 and 1995, respectively. The Company reflects
this patronage dividend as a reduction of cost of sales in the consolidated
statements of loss. At December 27, 1997 and December 28, 1996, accounts
receivable includes approximately $5,166,000 and $4,822,000, respectively,
for this aforementioned patronage dividend.
OTHER - Holding has agreements with certain of its stockholders which require
the annual payment of management consulting fees. Such fees approximated
$250,000 at December 27, 1997, December 28, 1996 and December 30, 1995.
At December 27, 1997 and December 28, 1996, certain executives and other key
employees of the Company held 82,138 and 74,402, respectively, stock options
to purchase Holding Class A common stock. The outstanding stock options at
December 27, 1997 have a weighted average contractual life of 8.1 years and
an exercise price of $35. Exerciseable options for each year equaled 6,738.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), which requires either the recognition of compensation expense for
stock options and other stock-based compensation or supplemental disclosure
of the impact such expense recognition would have had on the Company's
results of operations. The Company has elected to continue to account for
stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and to provide
the supplemental information required by SFAS No. 123. The Company believes
that the supplemental disclosures required by SFAS No. 123 are not material
as net loss would be increased by less than 1% had stock-based compensation
been recognized as expense under the provisions of this Statement.
******
F-23
<PAGE>
BIG V SUPERMARKETS, INC.
INDEX TO EXHIBITS
Exhibits Incorporated by Reference. Except as otherwise noted, the
following is a list of exhibits incorporated herein by reference to the
Company's Registration Statement No. 33-74132, as amended, filed with the
Securities and Exchange Commission (exhibit numbers indicated below correspond
to those used for exhibits originally filed with such Registration No. 33-
74132).
Exhibit Exhibit
No. Description
- ----- -----------
3.1 Certificate of Incorporation of Big V Supermarkets, Inc., as amended to
date.
3.2 Amended and Restated By-Laws of Big V Supermarkets, Inc.
4.1 Indenture dated December 17, 1993 between Big V Supermarkets, Inc. and
United States Trust Company of New York, as Trustee, relating to the
Notes (including form of Note).
4.2 Registration Rights Agreement dated December 10, 1993 between Big V
Supermarkets, Inc., BT Securities Corporation and CS First Boston
Corporation.
4.3 Amended and Restated Bank Credit Agreement dated December 17, 1993
between Big V Holding Corp., BV Holdings Corporation, Big V
Supermarkets, Inc., various banks, Union Bank of Switzerland as co-agent
and Bankers Trust Company as agent.
4.4 Note and Stock Purchase Agreement dated December 28, 1990 between Big V
Holdings Corporation, Big V Supermarkets, Inc., The Prudential
Reinsurance Company, ML-Lee Acquisition Fund II, L.P., and ML-Lee
Acquisition (Fund Retirement Accounts) II, L.P.
4.5 Amendment to Note and Stock Purchase Agreement dated as of December 17,
1993 between Big V Holding Corp., BV Holdings Corporation, Big V
Supermarkets, Inc., ML-Lee Acquisition Fund II, L.P. and ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P.
4.6 Stock Subscription Agreement and Promissory Note by Big V Supermarkets,
Inc. for stock of Wakefern Food Corp. dated March 8, 1988, including
Schedule of Similar Documents not included in Exhibits.
4.7 Loan and Security Agreement by and between Big V Supermarkets, Inc. and
The CIT /Group/Equipment Financing, Inc. dated as of July 20, 1993, as
amended.
II-1
<PAGE>
4.8 Loan and Security Agreement by and between Big V Supermarkets, Inc. and
The CIT Group/Equipment Financing, Inc. dated as of August 12, 1991.
4.9 Loan and Security Agreement, dated as of December 28, 1992 between Big V
Supermarkets, Inc. and Pitney Bowes Credit Corporation.
4.10 Loan and Security Agreement dated December 31, 1992 between Big V
Supermarkets, Inc. and MetLife Capital Corporation.
4.11 Promissory Note dated November 12, 1993 from Big V Supermarkets, Inc. to
Insure-Rite, Ltd.
4.12 Consent and Amendment dated December 13, 1993 to Loan and Security
Agreement by and between Big V Supermarkets and The CIT Group/Equipment
Financing, Inc. dated as of August 12, 1991.
4.13 Bond Purchase Agreement among Orange County Industrial Development
Agency, Big V Supermarkets, Inc. and The CIT Group/Equipment Financing,
Inc. dated as of December 22, 1993.
4.14 Second Consent and Amendment dated March 23, 1994 to Loan and Security
Agreement by and between Big V Supermarkets, Inc. and The CIT
Group/Equipment Financing, Inc. dated as of August 12, 1991.
4.15 Third Consent and Amendment dated May 9, 1994 to Loan and Security
Agreement by and between Big V Supermarkets, Inc. and The CIT
Group/Equipment Financing, Inc. dated as of August 12, 1991.
4.16 Fourth Consent and Amendment dated February 27, 1995 to Loan and
Security Agreement by and between Big V Supermarkets, Inc. and The CIT
Group/Equipment Financing, Inc. dated as of August 12, 1991.
4.17 Orange County Industrial Development Agency taxable industrial
development revenue bond in the aggregate principal amount of $2 million
dated June 3, 1994.
4.18 Orange County Industrial Development Agency taxable industrial
development revenue bond in the aggregate principal amount of $2 million
dated December 5, 1994.
4.19 Note and Security Agreement dated as of August 9, 1995 between Big V
Supermarkets, Inc. and El Camino Resources, Ltd.
4.20 Third Amendment dated as of January 9, 1996 to Amended and Restated Bank
Credit Agreement dated December 17, 1993 between Big V Holding Corp., BV
Holdings Corporation, Big V Supermarkets, Inc., various banks, and
Bankers Trust Company, as agent.
II-2
<PAGE>
4.21 Consent dated as of January 23, 1996 to Amended and Restated Bank Credit
Agreement dated December 17, 1993 between Big V Holding Corp., BV
Holdings Corporation, Big V Supermarkets, Inc., various banks, and
Bankers Trust Company, as agent.
4.22 Consent dated October 10, 1996 to Amended and Restated Bank Credit
Agreement dated December 17, 1993 between Big V Holding Corp., BV
Holdings Corporation, Big V Supermarkets, Inc., various banks, and
Bankers Trust Company, as agent, and MetLife Capital Corporation.
4.23 Consent and Waiver dated November 5, 1996 to Amended and Restated Bank
Credit Agreement dated December 17, 1993 between Big V Holding Corp., BV
Holdings Corporation, Big V Supermarkets, Inc., various banks, and
Bankers Trust Company, as agent, and MetLife Capital Corporation.
4.24 Fourth Amendment and Consent dated January 22, 1997 to Amended and
Restated Bank Credit Agreement dated December 17, 1993 between Big V
Holding Corp., BV Holdings Corporation, Big V Supermarkets, Inc.,
various banks, and Bankers Trust Company, as agent.
4.25 Term Promissory Note and Loan and Security Agreement dated as of October
30, 1996 between Big V Supermarkets, Inc. and MetLife Capital
Corporation.
4.26 UCC-3 Termination Statements on behalf of El Camino Resources, Ltd.
(reference to 4.19).
4.27* Partnership Interest Sale-Purchase Agreement between Big V Supermarkets,
Inc. and Columbia Hawkins Group.
4.28* Loan & Security Agreement, dated July 3, 1997 by and between Big V
Supermarkets, Inc. and FINOVA Capital Corporation.
4.29* Fifth Amendment and Consent dated October 1, 1997 to Amended and
Restated Bank Credit Agreement dated December 17, 1993 between Big V
Holding Corp., BV Holdings Corporation, Big V Supermarkets, Inc.,
various banks, and Bankers Trust Company, as agent.
4.30** Sixth Amendment and Waiver dated as of April 8, 1998 to Amended and
Restated Bank Credit Agreement dated December 17, 1993 between Big V
Holding Corp., BV Holdings Corporation, Big V Supermarkets, Inc.,
various banks, and Bankers Trust Company, as agent.
10.1 Letter Agreement dated as of October 10, 1990 among Big V Holding Corp.,
Big V Acquisition Corp., Thomas H. Lee Company, J. S. Frelinghuysen &
Company, Inc., BV Holdings Corporation and Big V Supermarkets, Inc.
regarding agreement with Wakefern Food Corporation.
II-3
<PAGE>
10.2 Letter Agreement dated as of December 28, 1990 between Big V
Supermarkets, Inc., BV Holdings Corporation, Big V Holding Corp., Big V
Acquisition Corp., ML-Lee Acquisition Fund II, L.P., ML-Lee Acquisition
Fund (Retirement Accounts) II, L.P., Thomas H. Lee Equity Partners,
L.P., Thomas H. Lee Advisors II, L.P., THL Equity Advisors Limited
Partnership, ML Mezzanine Investments II, L.P., Frelinghuysen Equity
Corp., THL-EP Equity Corporation, Thomas H. Lee Company and Wakefern
Food Corporation.
10.3 Letter Agreement dated as of December 28, 1990 between Big V
Supermarkets, Inc., BV Holdings Corporation, Big V Holding Corp., Big V
Acquisition Corp., ML-Lee Acquisition Fund II, L.P., ML-Lee Acquisition
Fund (Retirement Accounts) II, L.P., Thomas H. Lee Equity Partners,
L.P., THL Equity Advisors Limited Partnership, Mezzanine Investments II,
L.P., J. E. Frelinghuysen Equity Corp., 1987 Merchant Investment
Partnership, Merchant GP Inc., Merchant LBO, Inc. and Metropolitan Life
Insurance Company regarding obligations to Wakefern, as amended by an
amendment dated April 22, 1991.
10.4 Letter Agreement between Big V Supermarkets, Inc., BV Holdings
Corporation, Big V Holding Corp., Thomas H. Lee Equity Partners, L.P.,
Joseph S. Frelinghuysen, ML-Lee Acquisition Fund II, L.P., ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P., David G. Bronstein,
Gary S. Koppele, Cornelius J., J. Madera, Jr. and Wakefern Food
Corporation dated November 22, 1993.
10.5 By-Laws of Wakefern Food Corporation.
10.6 Stockholders Agreement dated as of August 20, 1987 by and among Wakefern
Food Corp., and each of the Member--Stockholders of Wakefern.
10.7 Amendment to Stockholders Agreement dated as of January, 1992 by and
among Wakefern Food Corp. and each of the Member-Stockholders of
Wakefern.
10.8 Order on Consent between the DEC, Big V Supermarkets, Inc. and Somers
Development Corp. regarding Baldwin Place Shopping Center dated July 27,
1992.
10.9 Trademark License Agreement between Big V Supermarkets, Inc. and
Wakefern Food Corporation.
10.10 Big V Supermarkets, Inc. Profit-Sharing Plan and Trust.
10.11 Somers Agreement dated as of December 28, 1990, by and among BV Holdings
Corporation, Big V Investment Corp., Big V Supermarkets, Inc., Somers
Development Corp. and Merchant GP, Inc., as agent and representative.
10.12 Employment and Non-Competition Agreement dated as of December 28, 1990
between David G. Bronstein, BV Holdings Corporation and Big V
Supermarkets, Inc.
II-4
<PAGE>
10.13 Employment and Non-Competition Agreement between Cornelius J. J.
Madera, Jr., BV Holdings Corporation and Big V Supermarkets, Inc. dated
December 28, 1990.
10.14 Employment and Non-Competition Agreement dated December 28, 1990
between Gary S. Koppele, BV Holdings Corporation and Big V
Supermarkets, Inc.
10.15 Employment and Non-Competition Agreement dated December 19, 1995
between BV Holdings Corporation, Big V Supermarkets, Inc. and Joseph
Fisher.
10.16 Employment and Non-Competition Agreement dated August 6, 1993 between
BV Holdings Corporation, Big V Supermarkets, Inc. and Stuart Rosenthal.
10.17 Management Agreement with BV Holdings Corporation dated December 28,
1990 between BV Holdings Corporation and Big V Supermarkets, Inc.
10.18 Management Agreement with Thomas H. Lee Company dated December 28, 1990
between Thomas H. Lee Company, Big V Holding Corp., Big V Acquisition
Corp., BV Holdings Corporation and Big V Supermarkets, Inc.
10.19 Management Agreement dated December 28, 1990 between J. S.
Frelinghuysen/Company, Inc., Big V Holding Corp., BV Holdings
Corporation, and Big V Supermarkets, Inc.
10.20 Agreement for the allocation of Federal Income Tax Liability and
Benefits among members of Big V Holding Corp. Consolidated Group dated
December 28, 1990 between Big V Holding Corp., BV Holdings Corporation,
Big V Supermarkets, Inc., Somers Development Corp., Dixx Mart, Inc. and
Big V Investment Corp.
10.21 Big V Holding Corp. 1990 Time Accelerated Restricted Stock Option Plan.
10.22 Employment and Non-Competition Agreement dated as of May 1, 1996
between James A. Toopes, Big V Holding Corp. and Big V Supermarkets,
Inc.
10.23 Employment Termination Agreement between Big V Supermarkets, Inc., Big
V Holding Corp. and Gary S. Koppele dated June 17, 1996.
10.24 Employment Termination Agreement between Big V Supermarkets, Inc., Big
V Holding Corp. and Cornelius J. J. Madera, Jr. dated June 17, 1996.
10.25* Management Stock Subscription Agreement between Big V Holding Corp. and
Stephen L. Hittman, dated April 18, 1997.
10.26* Stock Pledge Agreement between Big V Holding Corp., and Stephen L.
Hittman, dated April 18, 1997.
II-5
<PAGE>
10.27* Secured Promissory Note between Big V Holding Corp. and Stephen L.
Hittman, dated April 18, 1997.
10.28* Management Stock Subscription Agreement between Big V Holding Corp. and
John Onufer, Jr., dated April 24, 1997.
10.29* Stock Pledge Agreement between Big V Holding Corp. and John Onufer, Jr.,
dated April 24, 1997.
10.30* Secured Promissory Note between Big V Holding Corp. and John Onufer,
Jr., dated April 24, 1997.
10.31* Non-Qualified Time-Accelerated Restricted Stock Option Agreement with
John Onufer, Jr., dated April 24, 1997.
10.32* Management Stock Subscription Agreement between Big V Holding Corp. and
Donald J. Trella, dated August 29, 1997.
10.33* Stock Pledge Agreement between Big V Holding Corp. and Donald J. Trella,
dated August 29, 1997.
10.34* Secured Promissory Note between Big V Holding Corp. and Donald J.
Trella, dated August 29, 1997.
10.35* Secured Promissory Note between Big V Holding Corp. and Donald J.
Trella, dated August 29, 1997.
10.36** Non-Qualified Time Accelerated Restricted Stock Option Agreement with
Don Trella, dated October 8, 1997.
10.37** Non-Qualified Time Accelerated Restricted Stock Option Agreement with
Joseph V. Fisher, dated December 21, 1997.
10.38** Non-Qualified Time Accelerated Restricted Stock Option Agreement with
Stephen Hittman, dated December 21, 1997.
12.1** Statement re: computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of the Registrant.
_________________
* Incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended October 4, 1997.
** Included herein.
II-6
<PAGE>
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, in the Village of
Florida, State of New York, on April 10, 1998.
BIG V SUPERMARKETS, INC.
By: /s/ Joseph V. Fisher
_______________________________
Joseph V. Fisher,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ David G. Bronstein
____________________________ Director, Chairman of the April 10, 1998
David G. Bronstein Board
/s/ Joseph V. Fisher
____________________________ Director, Chief Executive April 10, 1998
Joseph V. Fisher Officer and President
(principal executive officer)
/s/ James A. Toopes, Jr.
____________________________ Director, Executive Vice April 10, 1998
James A. Toopes, Jr. President-Finance,
Administration, Corporate
Development and Corporate
Secretary
(principal financial officer)
/s/ John Onufer, Jr.
_____________________________ Vice President-Controller April 10, 1998
John Onufer, Jr. and Assistant Treasurer
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C> <C>
/s/ John W. Childs
__________________________ Director April 10, 1998
John W. Childs
/s/ C. Hunter Boll
__________________________ Director April 10, 1998
C. Hunter Boll
/s/ Joseph S. Frelinghuysen, Jr.
__________________________ Director April 10, 1998
Joseph S. Frelinghuysen, Jr.
/s/ Leo J. Kahn
__________________________ Director April 10, 1998
Leo J. Kahn
/s/ Steven G. Segal
__________________________ Director April 10, 1998
Steven G. Segal
</TABLE>
II-8
<PAGE>
EXHIBIT 4.30
SIXTH AMENDMENT AND WAIVER
--------------------------
SIXTH AMENDMENT AND WAIVER (this "Amendment"), dated as of April 8,
1998, among BIG V HOLDING CORP. ("Holdings"), BV HOLDINGS CORPORATION ("BV
Holdings"), BIG V SUPERMARKETS, INC. (the "Borrower"), the financial
institutions party to the Credit Agreement referred to below (the "Banks"), and
BANKERS TRUST COMPANY, as Agent (the "Agent"). Unless otherwise defined herein,
all capitalized terms used herein shall have the respective meanings provided
such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
-------------------
WHEREAS, Holdings, BV Holdings, the Borrower, the Banks and the Agent
are parties to an Amended and Restated Credit Agreement, dated as of December
28, 1990, and amended and restated as of November 1, 1993, and further amended
and restated as of December 17, 1993 (as further amended, modified or
supplemented to, but not including, the date hereof, the "Credit Agreement");
and
WHEREAS, subject to the terms and conditions set forth herein, the
parties hereto agree as follows;
NOW, THEREFORE, it is agreed:
I. Amendments:
----------
1. Section 6.01(a) of the Credit Agreement is hereby amended by
adding the parenthetical phrase "(other than a fiscal month ending at the close
of a fiscal quarter of Holdings)" immediately following the text "each fiscal
month" appearing therein.
2. Section 7.10 of the Credit Agreement is hereby amended by (i)
deleting the reference to "$42,000,000" appearing opposite the text "First day
of fiscal quarter beginning closest to January 1, 1998 through and including the
last day of the fiscal quarter ended closest to June 30, 1998" and inserting the
amount "$41,500,000" in lieu thereof and (ii) deleting the reference to
$41,000,000" appearing opposite the text "First day of fiscal quarter beginning
closest to July 1, 1997 through and including the last day of the fiscal quarter
ended closest to December 31, 1997" and inserting the amount "41,500,000" in
lieu thereof.
3. The definition of "EBITDA" appearing in Section 9.01 of the Credit
Agreement is hereby amended by (i) deleting the word "and" appearing immediately
before clause (iv) of said definition and inserting a comma in lieu thereof and
(ii) inserting the following new clause (v) immediately following the word
"Transaction" appearing at the end of clause (iv) thereof.
"(v) the amount of all charges set forth on Annex A to the Sixth Amendment
to the extent that same were incurred during Holdings' fiscal year ended
closest to December 31, 1997."
<PAGE>
4. Section 9.01 of the Credit Agreement is hereby further amended by
inserting the following new definition in the proper alphabetical order:
"Sixth Amendment" shall mean the Sixth Amendment and Waiver to this
Agreement, dated as of April 8, 1998, among Holdings, BV Holdings, the
Borrower, the Banks, and the Agent.
II. Waivers:
-------
1. The Banks hereby waive any Default or Event of Default that may
have arisen under the Credit Agreement solely as a result of the Parties failing
to comply with Section 6.01(a) of the Credit Agreement in respect of Holdings'
fiscal months ended closest to July 31, 1997 through and including Holdings'
fiscal month ended closest to February 28, 1998; it being understood and agreed,
however, that the Parties shall be required to deliver the financial statements
described in such Section 6.01(a) in respect of Holdings' fiscal months ended
closest to January 31, 1998 and February 28, 1998 by no later than April 30,
1998.
2. The Banks hereby waive any Default or Event of Default that may
have arisen under the Credit Agreement solely as a result of the failure of the
Parties to comply with Section 6.01(c) of the Credit Agreement in respect of
Holdings' fiscal year ended closest to December 31, 1997; it being understood
and agreed, however, that the Parties shall be required to deliver the financial
statements described in such Section 6.01(c) in respect of Holdings' fiscal
year ended closest to December 31, 1997 by no later than April 10, 1998.
3. The Banks hereby waive any Default or Event of Default that may
have arisen under the Credit Agreement solely as a result of the failure of the
Parties to comply with Section 7.08(a) of the Credit Agreement in respect of
Holdings' fiscal year ended closest to December 31, 1997 so long as the
aggregate amount of all Capital Expenditures for such fiscal year does not
exceed $11,300,000.
III. Miscellaneous:
-------------
1. In order to induce the Banks to enter into this Amendment,
Holdings, BV Holdings and the Borrower hereby represent and warrant that (x) no
Default or Event of Default exists on the Sixth Amendment Effective Date (as
defined below), after giving effect to this Amendment and (y) all of the
representations and warranties contained in the Credit Documents shall be true
and correct in all respects on the Sixth Amendment Effective Date, after giving
effect to this Amendment with the same effect as though such representations and
warranties had been made on and as of the Sixth Amendment Effective Date (it
being understood that any representation or warranty made as of a specified date
shall be true and correct in all material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and
-2-
<PAGE>
delivered shall be an original, but all of which shall together constitute one
and the same instrument. A complete set of counterparts shall be lodged with the
Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the "Sixth
Amendment Effective Date") when (i) Holdings, BV Holdings, the Borrower and the
Required Banks shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of
telecopier) the same to the Agent at the Notice Office and (ii) the Borrower
shall have paid to the Agent for distribution to each Bank which has signed a
counterpart of this Amendment on or prior to April 8, 1998, an amendment fee
equal to 1/10 of 1% of such Bank's Revolving Loan Commitment.
6. From and after the Sixth Amendment Effective Date, all references
in the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement after giving
effect to this Amendment.
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
BIG V HOLDING CORP.
By /s/ James A. Toopes
------------------------------------
Title: Executive Vice President
BV HOLDINGS CORPORATION
By /s/ James A. Toopes
------------------------------------
Title: Executive Vice President
BIG V SUPERMARKETS, INC.
By /s/ James A. Toopes
------------------------------------
Title: Executive Vice President
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ James Reilly
------------------------------------
Title: Vice President
BANQUE NATIONALE DE PARIS
By Serge Desrayaud
------------------------------------
Title: Vice President/ Team Leader
By Stepanie Rogers
------------------------------------
Title: Vice President
<PAGE>
BANKERS TRUST (DELAWARE)
By /s/ Donna Mitchell
------------------------------------
Title: Vice President
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.,
its Agent/Manager
By
------------------------------------
Title:
HELLER FINANCIAL, INC.
By /s/ Julia Maslanka
------------------------------------
Title: Vice President
MORGAN STANLEY SENIOR FUNDING, INC.
By /s/ Christopher A. Pucillo
------------------------------------
Title: Vice President
PAMCO CAYMAN, LTD.
By: Protective Asset Management Company,
as Collateral Manager
By James Dondero, CFA, CPA
------------------------------------
Title: President
<PAGE>
Exhibit 10.36
BIG V HOLDING CORP.
1990 TIME ACCELERATED RESTRICTED STOCK OPTION PLAN
--------------------------------------------------
NON-QUALIFIED TIME ACCELERATED
RESTRICTED STOCK OPTION AGREEMENT
with
DON TRELLA
<PAGE>
BIG V HOLDING CORP.
STOCK OPTION AGREEMENT
UNDER 1990 TIME ACCELERATED RESTRICTED STOCK OPTION PLAN
NON-QUALIFIED TIME ACCELERATED RESTRICTED STOCK OPTION
------------------------------------------------------
AGREEMENT entered into this 8th day of October, 1997 by and between Big V
Holding Corp., a Delaware corporation (the "Company"), and the undersigned
employee (the "Employee") of the Company (or one of its subsidiaries) (the
Company and its subsidiaries herein together referred to as the "Company").
1. The Company desires to grant the Employee a non-qualified stock option
under the Company's 1990 Time Accelerated Restricted Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock").
2. Section 6 of the Plan provides that each option is to be evidenced by
an option agreement, setting forth the terms and conditions of the option.
ACCORDINGLY, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Employee hereby agree as
follows:
1. Grant of Option. The Company hereby irrevocably grants to the
---------------
Employee a non-qualified stock option (the "Option") to purchase all or any part
of an aggregate of 4,000 shares of Common Stock (the "Shares") on the terms and
conditions hereinafter set forth. This option shall not be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price. The purchase price ("Purchase Price") for the Shares
--------------
covered by the Option shall be $35.00 per Share, which Purchase Price is not
less than the fair market value of the Shares on the date hereof.
3. Time of Exercise of Option; Exercisability. Except as provided below,
------------------------------------------
the Option shall not be exercisable prior to nine years and six months from the
date of grant of the Option at which time the Option shall become exercisable in
full. The Option shall become exercisable earlier, however, with respect to the
number of Shares and upon the attainment of certain performance goals on or
prior to the end of certain performance periods, all as shown on Schedule I
----------
attached hereto and incorporated herein.
2
<PAGE>
4. Term of Options; Exercisability.
-------------------------------
(a) Term.
----
(1) Each Option shall expire ten (10) years from the date of the
granting thereof, but shall be subject to earlier termination as provided in
subsections (2) through (4) below.
(2) If the Employee is terminated for Cause (as defined in the
Amended and Restated Shareholders' Agreement among the Company, and its
shareholders dated as of December 17, 1993) or voluntarily terminates his
employment with the Company, at any time, for any reason or for no reason, in
either such case, the option granted to the Employee shall terminate, with
respect to any Shares subject to options exercisable on the date of such
termination, on the fifth day following such termination and, with respect to
any Shares subject to options not exercisable on the date of such termination,
on the date of such termination.
(3) If the Employee is terminated by the Company without Cause, at
any time, the option granted to the Employee shall terminate, with respect to
any Shares subject to options exercisable on the date of such termination, on
the 90th day following such termination and, with respect to any Shares subject
to options not exercisable on the date of such termination, on the date of such
termination.
(4) In the event of the termination of the Employee's employment with
the Company or one of its subsidiaries due to the death or disability of the
Employee, the option granted to the Employee shall terminate, with respect to
any Shares subject to options exercisable on the date of such termination, on
the 365th day following such termination and, with respect to any Shares subject
to options not exercisable on the date of such termination, on the date of such
termination.
(b) Exercisability. If the Employee ceases to be an employee of the
--------------
Company, at any time, for any reason or for no reason, the Option granted to the
Employee hereunder shall be exercisable only to the extent that the right to
purchase Shares under such Option has accrued and is in effect on the date such
Employee ceases to be an employee of the Company or one of its subsidiaries.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued
and is in effect, the Option may be exercised in full or in part by giving
written notice to the Company stating the number of Shares exercised and
accompanied by payment in full for such Shares. Payment may be either wholly in
cash or by check payable to the Company. Upon such exercise, delivery of a
certificate for paid-up, non-assessable Shares shall be made at the principal
office of the Company to the person exercising the Option, not more than thirty
(30) days from the date of receipt of the notice by the Company.
3
<PAGE>
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of Shares of its common stock as will be
sufficient to satisfy the requirements of the Option.
(c) Notwithstanding the provision of Section 5(a) of this Agreement,
the Company may delay the issuance of Shares covered by the exercise of this
Option and the delivery of a certificate for such Shares until one of the
following conditions shall be satisfied:
(i) The Shares with respect to which such Option has been
exercised are at the time of the issue of such Shares effectively
registered or qualified under applicable federal and state securities
acts now in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such
Shares are exempt from registration and qualification under applicable
federal and state securities acts now in force or as hereafter amended.
6. Non-Transferability. The right of the Employee to exercise the Option
-------------------
shall not be assignable or transferable by the Employee otherwise than by will
or the laws of descent and distribution, and the Option may be exercised during
the lifetime of the Employee only by him or her. The Option shall be null and
void and without effect upon the bankruptcy of the Employee or upon any
attempted assignment or transfer, except as hereinabove provided, including
without limitation any purported assignment, whether voluntary or by operation
of law, pledge, hypothecation or other disposition contrary to the provisions
hereof, or levy of execution, attachment, trustee process or similar process,
whether legal or equitable, upon the Option.
7. Shares Subject to Restrictions; Representation Letter and Investment
--------------------------------------------------------------------
Legend.
------
(a) Each of the Shares shall be subject to the restrictions on
transfer imposed on, the terms and conditions requiring the sale or transfer of,
and the rights and the options of the Company and certain stockholders of the
Company to purchase, those shares of Common Stock held by Management Investors
under the terms of the Amended and Restated Shareholders' Agreement Dated as of
December 17, 1993 (the "Restrictions"). The Shares shall be subject to the
Restrictions and the Employee hereby agrees to be bound by and undertakes to
comply with the Restrictions, whether or not the Employee is a party to the
Shareholders' Agreement, in the same manner and to the same extent as a
Management Investor, and agrees and undertakes to execute and deliver any and
all such additional agreements, instruments and other documents deemed necessary
by the Company to effect the provisions of this subparagraph (a).
(b) In the event that for any reason the Shares to be issued upon
exercise of the Option shall not be effectively registered under the Securities
Act of 1933 (the "1933 Act"), upon any date on which the Option is exercised in
whole or in part, the
4
<PAGE>
person exercising the Option shall give a written representation to the Company
in the form attached hereto as Exhibit 1 and the Company shall place an
"investment legend", so-called, as described in Exhibit 1 hereto, upon any
certificate for the Shares issued by reason of such exercise.
(c) The Company shall be under no obligation to qualify Shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purposes of covering the issue of Shares.
8. Adjustments on Changes in Capitalization. Adjustments or changes in
----------------------------------------
capitalization and the like shall be made in accordance with Section 12 of the
Plan, as in effect on the date of this Agreement.
9. Recapitalizations, Reorganizations, Changes in Control and the Like.
-------------------------------------------------------------------
Adjustments and other matters relating to recapitalizations, reorganizations,
sale of the assets of the Company, changes in control and the like shall be made
and determined in accordance with Section 12 of the Plan, as in effect on the
date of this Agreement (including, but not limited to, the termination and
cancellation of options upon a sale of all or substantially all of the assets of
the Company or a change of control in the Company).
10. No Special Employment Rights. Nothing contained in the Plan or this
----------------------------
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment of the Employee for the period
within which this Option may be exercised. However, during the period of the
Employee's employment, the Employee shall render diligently and faithfully the
services which are assigned to the Employee from time to time by the Board of
Directors or by the executive officers of the Company and shall at no time take
any action which directly or indirectly would be inconsistent with the best
interests of the Company.
11. Rights as a Shareholder. The Employee shall have no rights as a
-----------------------
shareholder with respect to any Shares which may be purchased by exercise of
this Option unless and until a certificate or certificates representing such
Shares are duly issued and delivered to the Employee and the Employee has
executed and delivered to the Company any and all agreements, instruments and
other documents required by the Company pursuant to Section 7(a) hereof. Except
as otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
12. Withholding Taxes. Whenever Shares are to be issued upon exercise of
-----------------
this Option, the Company shall have the right to require the Employee to remit
to the Company an amount sufficient to satisfy all Federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Shares.
*******************************
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and its corporate seal to be hereto affixed by its officer thereunto duly
authorized, and the
5
<PAGE>
Employee has hereunto set his or her hand and seal, all as of the day and year
first above written.
BIG V HOLDING CORP.
By: /s/ James A. Toopes, Jr.
----------------------------------------
Name:
Title: Executive Vice President
EMPLOYEE
/s/ Don Trella
--------------------------------------------
Address: 10 Ridgewood Drive
W. Suffield, CT 06093
Social Security No.: ###-##-####
-----------------------
6
<PAGE>
SCHEDULE I
Option Vesting Schedule
-----------------------
(a) The Option will become exercisable with respect to all Shares
subject thereto (the "Performance Shares") in the manner provided below.
(b) If the Company's Cash Flow (as hereinafter defined) is greater than
the Target Cash Flow for the applicable Target Period, as specified in Schedule
--------
A below, then the Option shall become exercisable with respect to twenty-five
- -
percent (25%) of the Performance Shares. If the Company's Cash Flow is less
than the Target Cash Flow for the applicable Target Period but at least ninety
percent (90%) of the Target Cash Flow for the Target Period, then the Option
shall become exercisable with respect to two and one-half percent (2.5%) of the
Performance Shares for each one percent (1%) by which the Company's actual Cash
Flow exceeds ninety percent of the Target Cash Flow for the Target Period, up to
a maximum of twenty-five percent (25%) of the Performance Shares for any one
Target Period. An Option shall be so exercisable on or after the later of the
end of the applicable Target Period or the date that the Company's Cash Flow for
such Target Period is certified by the Chief Financial Officer of the Company.
For the purpose of this Agreement, Cash Flow shall mean the Company's
consolidated income without reduction for non-cash or deferred compensation
expense, interest (except as indicated below), income taxes, depreciation or
amortization but after deduction of: (i) all operating expenses (including up to
$250,000 in management fees payable to Thomas H. Lee Company and J.S.
Frelinghuysen & Co. pursuant to their respective Management Agreements with the
Company), and (ii) other reserves required in connection with the operation of
the Company's business in the ordinary course. The determination of Cash Flow
shall not take into account any income or expense attributable to LIFO reserves,
gains or losses on sales of assets or other extraordinary gains or losses or
non-cash rent expenses. Except as otherwise provided herein, Cash Flow shall be
determined in accordance with generally accepted accounting principles
consistently applied, all as reflected in the Company's most recently available
consolidated audited financial statements for the immediately preceding fiscal
year and as certified by the Chief Financial Officer of the Company.
(c) In addition to the vesting of the Options under paragraph (b) above,
upon the expiration of the four year period ended December 31, 1998, any of the
Options with respect to the Performance Shares which remain unexercisable (after
giving effect to paragraph (b) above) (the "Remaining Shares") may also become
exercisable as follows: (i) if the Company's cumulative Cash Flow for the four
year period ended December 31, 1998 (the "Cumulative Cash Flow") is equal to or
greater than $213 million, then the Option will become exercisable with respect
to all of the Remaining Shares; and (ii) if the Cumulative Cash Flow is greater
than $192 million but less than $213 million, then, the Option will become
exercisable with respect to a portion of the Remaining Shares equal to (x) four
and three-quarters percent (4.75%) of the Performance Shares for each additional
$1,000,000 of Cash Flow in excess of $192 million, less (y) the number of
----
Performance Shares which have vested under paragraph (b) above, such that the
Option
7
<PAGE>
will be exercisable in full if the Cumulative Cash Flow is equal to $213
million. The Option will be exercisable pursuant to this paragraph (c) on or
after the later of the end of the Total Target Period of the date that the
Company's Cumulative Cash Flow is certified by the Chief Financial Officer of
the Company.
(d) The Target Cash Flow levels set forth on Schedule A shall be
----------
adjusted in the manner and to the extent reasonably determined by the Board of
Directors in good faith to take into account (i) material changes in the
Company's method of accounting or (ii) the sale of substantial assets by the
Company or the acquisition of ongoing businesses, whether by merger,
consolidation or otherwise. Any such adjustment shall be made in good faith
with the intent that, after taking into account the nature of the cause of the
adjustment, the measure of the Company's performance established by the Target
Cash Flow levels before and after the adjustment will be as nearly equivalent as
is reasonably possible.
SCHEDULE A
----------
<TABLE>
<CAPTION>
Maximum Percentage
Target Target Cash Flows of Shares Eligible
Period (1,000's) for Early Vesting
- ------ ----------------- ------------------
<S> <C> <C>
1/1/95 to 12/31/95 $ 43,000 25%
1/1/96 to 12/31/96 $ 50,000 25%
1/1/97 to 12/31/97 $ 57,000 25%
1/1/98 to 12/31/98 $ 63,000 25%
Total Target Cash Flow
for Total Target Period $213,000
(1/1/95 to 12/31/98)
</TABLE>
(e) In the event of a Sale of the Company (as hereinafter defined),
then any as yet unvested Shares shall vest if and to the extent they would
otherwise vest hereunder based on the following formula: (i) the Cash Flow for
the Target Period in which the Sale takes place (the "Sale Target Period") shall
be annualized based on the Company's most recently available consolidated
audited financial statements for the portion of the Sale Target Period prior to
the Sale (or, if audited financial statements are not available, unaudited
financial statements prepared in accordance with generally accepted accounting
principles consistently applied subject to year end adjustments and the absence
of notes, as certified by the Chief Financial Officer of the Company) and after
taking into account seasonal adjustment as determined in good faith by the
Company's Board of Directors, and the Company will be deemed to have achieved
such annualized Cash Flow in the Sale Target Period and (ii) the Company will be
deemed to have achieved in any Target Periods occurring after the Sale Target
Period, the average of the percentages of the Target Cash Flows achieved in the
prior Target Periods (based on the annualized Cash Flow with respect to the Sale
Target Period). Any Shares that would have vested had the Company achieved such
deemed Cash Flows shall vest and become exercisable immediately prior to the
Sale of the Company. For the purposes hereof, a "Sale" of the Company shall
mean a sale of all or substantially all of the assets of the Company or the sale
or other transfer of fifty percent or more of the common stock of the Company
held by the Institutional Investors (as defined in the Shareholders' Agreement)
to an unaffiliated third party or parties.
8
<PAGE>
STOCK OPTION AGREEMENT
EXHIBIT 1
_________
Gentlemen:
In connection with the exercise by me as to 4,000 shares of common stock,
no par value per share, of BIG V HOLDING CORP. (the "Company") under the non-
qualified stock option dated August 29, 1997, granted to me under the 1990 Time
Accelerated Restricted Stock Option Plan, I hereby acknowledge that I have been
informed as follows:
1. The shares of common stock of the Company to be issued to me pursuant
to the exercise of said option have not been registered under the Securities Act
of 1933, as amended (the "Act"), and accordingly, must be held indefinitely
unless such shares are subsequently registered under the Act, or an exemption
from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Act can be made only after the holding period and in limited amounts in
accordance with the terms and conditions provided by that Rule, and in any sale
to which that Rule is not applicable, registration or compliance with some other
exemption under the Act will be required.
3. The Company is under no obligation to me to register the shares or to
comply with any such exemptions under the Act.
4. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the shares to me, I
hereby represent and warrant that I am acquiring such shares for my own account
for investment, and that I will not sell, pledge or transfer such shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Act. In view of this representation and warranty, I agree
that there may be affixed to the certificates for the shares to be issued to me,
and to all certificates issued hereafter representing such shares (until in the
opinion of counsel, which opinion must be reasonably satisfactory in form and
substance to counsel for the Company, it is no longer necessary or required) a
legend as follows:
"These securities have not been registered under the Securities Act of
1933 and may not be sold, transferred, offered for sale, pledged or
9
<PAGE>
hypothecated in the absence of an effective registration statement as to
the securities under said Act or an opinion of counsel satisfactory to
the Company, both as to opinion and counsel, that such registration is
not required."
"These securities are subject to the terms and conditions, including
restrictions on transfer, of an Amended and Restated Stockholders
Agreement dated as of December 17, 1993, as amended from time to time, a
copy of which is on file with the Secretary of the Company."
I further agree that the Company may place a stop order with its Transfer
Agent, prohibiting the transfer of such shares, so long as the legend remains on
the certificates representing the shares.
Very truly yours,
Don Trella
10
<PAGE>
Exhibit 10.37
BIG V HOLDING CORP.
1990 TIME ACCELERATED RESTRICTED STOCK OPTION PLAN
--------------------------------------------------
NON-QUALIFIED TIME ACCELERATED
RESTRICTED STOCK OPTION AGREEMENT
with
JOSEPH V. FISHER
<PAGE>
BIG V HOLDING CORP.
STOCK OPTION AGREEMENT
UNDER 1990 TIME ACCELERATED RESTRICTED STOCK OPTION PLAN
NON-QUALIFIED TIME ACCELERATED RESTRICTED STOCK OPTION
------------------------------------------------------
AGREEMENT entered into this 21st day of December, 1997 by and between Big V
Holding Corp., a Delaware corporation (the "Company"), and the undersigned
employee (the "Employee") of the Company (or one of its subsidiaries) (the
Company and its subsidiaries herein together referred to as the "Company").
1. The Company desires to grant the Employee a non-qualified stock option
under the Company's 1990 Time Accelerated Restricted Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock").
2. Section 6 of the Plan provides that each option is to be evidenced by an
option agreement, setting forth the terms and conditions of the option.
ACCORDINGLY, in consideration of the promises and of the mutual covenants
and agreements contained herein, the Company and the Employee hereby agree as
follows:
1. Grant of Option. The Company hereby irrevocably grants to the Employee
---------------
a non-qualified stock option (the "Option") to purchase all or any part of an
aggregate of 3,000 shares of Common Stock (the "Shares") on the terms and
conditions hereinafter set forth. This option shall not be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price. The purchase price ("Purchase Price") for the Shares
--------------
covered by the Option shall be $35.00 per Share, which Purchase Price is not
less than the fair market value of the Shares on the date hereof.
3. Time of Exercise of Option; Exercisability. Except as provided below,
------------------------------------------
the Option shall not be exercisable prior to nine years and six months from the
date of grant of the Option at which time the Option shall become exercisable in
full. The Option shall become exercisable earlier, however, with respect to the
number of Shares and upon the attainment of certain performance goals on or
prior to the end of certain performance periods, all as shown on Schedule I
----------
attached hereto and incorporated herein.
-2-
<PAGE>
4. Term of Options; Exercisability.
-------------------------------
(a) Term.
----
(1) Each Option shall expire ten (10) years from the date of the
granting thereof, but shall be subject to earlier termination as provided in
subsections (2) through (4) below.
(2) If the Employee is terminated for Cause (as defined below under
subparagraph [c] of this section) or voluntarily terminates his employment with
the Company, at any time, for any reason or for no reason, in either such case,
the option granted to the Employee shall terminate, with respect to any Shares
subject to options exercisable on the date of such termination, on the fifth day
following such termination and, with respect to any Shares subject to options
not exercisable on the date of such termination, on the date of such
termination.
(3) If the Employee is terminated by the Company without Cause, at
any time, the option granted to the Employee shall terminate, with respect to
any Shares subject to options exercisable on the date of such termination, on
the 90th day following such termination and, with respect to any Shares subject
to options not exercisable on the date of such termination, on the date of such
termination.
(4) In the event of the termination of the Employee's employment
with the Company or one of its subsidiaries due to the death or disability of
the Employee, the option granted to the Employee shall terminate, with respect
to any Shares subject to options exercisable on the date of such termination, on
the 365th day following such termination and, with respect to any Shares subject
to options not exercisable on the date of such termination, on the date of such
termination.
(b) Exercisability. If the Employee ceases to be an employee of the
--------------
Company, at any time, for any reason or for no reason, the Option granted to the
Employee hereunder shall be exercisable only to the extent that the right to
purchase Shares under such Option has accrued and is in effect on the date such
Employee ceases to be an employee of the Company or one of its subsidiaries.
(c) Cause. For purposes of this Agreement, "Cause" shall mean a
------
termination of employment of the Employee by Company due to
(1) the commission by the Employee of an act of fraud or
embezzlement (including the unauthorized disclosure of confidential or
proprietary information of the Company which results in, or which could be
reasonably expected to result in, a material injury to the Company);
(2) a felony conviction or guilty plea of the Employee;
(3) willful misconduct as an employee of the Company which results
in material injury to the Company; or
-3-
<PAGE>
(4) the willful failure of the Employee to render services to the
Company in accordance with his employment which failure amounts to a material
neglect of his duties to the Company as determined in each case in good faith by
the Board.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and
is in effect, the Option may be exercised in full or in part by giving written
notice to the Company stating the number of Shares exercised and accompanied by
payment in full for such Shares. Payment may be either wholly in cash or by
check payable to the Company. Upon such exercise, delivery of a certificate for
paid-up, non-assessable Shares shall be made at the principal office of the
Company to the person exercising the Option, not more than thirty (30) days from
the date of receipt of the notice by the Company.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of Shares of its common stock as will be
sufficient to satisfy the requirements of the Option.
(c) Notwithstanding the provision of Section 5(a) of this Agreement,
the Company may delay the issuance of Shares covered by the exercise of this
Option and the delivery of a certificate for such Shares until one of the
following conditions shall be satisfied:
(i) The Shares with respect to which such Option has been
exercised are at the time of the issue of such Shares effectively
registered or qualified under applicable federal and state securities
acts now in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such
Shares are exempt from registration and qualification under applicable
federal and state securities acts now in force or as hereafter amended.
6. Non-Transferability. The right of the Employee to exercise the Option
-------------------
shall not be assignable or transferable by the Employee otherwise than by will
or the laws of descent and distribution, and the Option may be exercised during
the lifetime of the Employee only by him or her. The Option shall be null and
void and without effect upon the bankruptcy of the Employee or upon any
attempted assignment or transfer, except as hereinabove provided, including
without limitation any purported assignment, whether voluntary or by operation
of law, pledge, hypothecation or other disposition contrary to the provisions
hereof, or levy of execution, attachment, trustee process or similar process,
whether legal or equitable, upon the Option.
7. Shares Subject to Restrictions; Representation Letter and Investment
--------------------------------------------------------------------
Legend.
------
(a) Each of the Shares shall be subject to the restrictions on transfer
imposed on, the terms and conditions requiring the sale or transfer of, and the
rights and the options of the
-4-
<PAGE>
Company and certain stockholders of the Company to purchase, those shares of
Common Stock held by Management Investors under the terms of the Amended and
Restated Shareholders' Agreement Dated as of December 17, 1993 (the
"Restrictions"). The Shares shall be subject to the Restrictions and the
Employee hereby agrees to be bound by and undertakes to comply with the
Restrictions, whether or not the Employee is a party to the Shareholders'
Agreement, in the same manner and to the same extent as a Management Investor,
and agrees and undertakes to execute and deliver any and all such additional
agreements, instruments and other documents deemed necessary by the Company to
effect the provisions of this subparagraph (a).
(b) In the event that for any reason the Shares to be issued upon
exercise of the Option shall not be effectively registered under the Securities
Act of 1933 (the "1933 Act"), upon any date on which the Option is exercised in
whole or in part, the person exercising the Option shall give a written
representation to the Company in the form attached hereto as Exhibit 1 and the
Company shall place an "investment legend", so-called, as described in Exhibit 1
hereto, upon any certificate for the Shares issued by reason of such exercise.
(c) The Company shall be under no obligation to qualify Shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purposes of covering the issue of Shares.
8. Adjustments on Changes in Capitalization. Adjustments or changes in
----------------------------------------
capitalization and the like shall be made in accordance with Section 12 of the
Plan, as in effect on the date of this Agreement.
9. Recapitalizations, Reorganizations, Changes in Control and the Like.
-------------------------------------------------------------------
Adjustments and other matters relating to recapitalizations, reorganizations,
sale of the assets of the Company, changes in control and the like shall be made
and determined in accordance with Section 12 of the Plan, as in effect on the
date of this Agreement (including, but not limited to, the termination and
cancellation of options upon a sale of all or substantially all of the assets of
the Company or a change of control in the Company).
10. No Special Employment Rights. Nothing contained in the Plan or this
----------------------------
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment of the Employee for the period
within which this Option may be exercised. However, during the period of the
Employee's employment, the Employee shall render diligently and faithfully the
services which are assigned to the Employee from time to time by the Board of
Directors or by the executive officers of the Company and shall at no time take
any action which directly or indirectly would be inconsistent with the best
interests of the Company.
11. Rights as a Shareholder. The Employee shall have no rights as a
-----------------------
shareholder with respect to any Shares which may be purchased by exercise of
this Option unless and until a certificate or certificates representing such
Shares are duly issued and delivered to the Employee and the Employee has
executed and delivered to the Company any and all agreements, instruments and
other documents required by the Company pursuant to Section 7(a) hereof.
-5-
<PAGE>
Except as otherwise expressly provided in the Plan, no adjustment shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
12. Withholding Taxes. Whenever Shares are to be issued upon exercise of
-----------------
this Option, the Company shall have the right to require the Employee to remit
to the Company an amount sufficient to satisfy all Federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Shares.
*******************************
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and
its corporate seal to be hereto affixed by its officer thereunto duly
authorized, and the Employee has hereunto set his or her hand and seal, all as
of the day and year first above written.
BIG V HOLDING CORP.
By: /s/ James A. Toopes, Jr.
--------------------------------------
Name: James A. Toopes, Jr.
Title: Executive Vice President
EMPLOYEE
/s/ Joseph V. Fisher
-------------------------------------------------
Joseph V. Fisher
Address:
227 Sheridan Ave.
Ho-Ho-Kus, NJ 07423
Social Security
No.: ###-##-####
---------------------------------------------
-6-
<PAGE>
SCHEDULE I
Option Vesting Schedule
-----------------------
(a) The Option will become exercisable with respect to all Shares
subject thereto (the "Performance Shares") in the manner provided below.
(b) If the Company's Cash Flow (as hereinafter defined) is greater
than the Target Cash Flow for the applicable Target Period, as specified in
Schedule A below, then the Option shall become exercisable with respect
- ----------
to twenty-five-percent (25%) of the Performance Shares. If the Company's Cash
Flow is less than the Target Cash Flow for the applicable Target Period but at
least ninety percent (90%) of the Target Cash Flow for the Target Period, then
the Option shall become exercisable with respect to two and one-half percent
(2.5%) of the Performance Shares for each one percent (1%) by which the
Company's actual Cash Flow exceeds ninety percent of the Target Cash Flow for
the Target Period, up to a maximum of twenty-five percent (25%) of the
Performance Shares for any one Target Period. An Option shall be so exercisable
on or after the later of the end of the applicable Target Period or the date
that the Company's Cash Flow for such Target Period is certified by the Chief
Financial Officer of the Company.
For the purpose of this Agreement, Cash Flow shall mean the Company's
consolidated income without reduction for non-cash or deferred compensation
expense, interest (except as indicated below), income taxes, depreciation or
amortization but after deduction of: (i) all operating expenses (including up to
$250,000 in management fees payable to Thomas H. Lee Company and J.S.
Frelinghuysen & Co. pursuant to their respective Management Agreements with the
Company), and (ii) other reserves required in connection with the operation of
the Company's business in the ordinary course. The determination of Cash Flow
shall not take into account any income or expense attributable to LIFO reserves,
gains or losses on sales of assets or other extraordinary gains or losses or
non-cash rent expenses. Except as otherwise provided herein, Cash Flow shall be
determined in accordance with generally accepted accounting principles
consistently applied, all as reflected in the Company's most recently available
consolidated audited financial statements for the immediately preceding fiscal
year and as certified by the Chief Financial Officer of the Company.
(c) In addition to the vesting of the Options under paragraph (b) above,
upon the expiration of the four year period ended December 31, 1998, any of the
Options with respect to the Performance Shares which remain unexercisable (after
giving effect to paragraph (b) above) (the "Remaining Shares") may also become
exercisable as follows: (i) if the Company's cumulative Cash Flow for the four
year period ended December 31, 1998 (the "Cumulative Cash Flow") is equal to or
greater than $213 million, then the Option will become exercisable with respect
to all of the Remaining Shares; and (ii) if the Cumulative Cash Flow is greater
than $192 million but less than $213 million, then, the Option will become
exercisable with respect to a portion of the Remaining Shares equal to (x) four
and three-quarters percent (4.75%) of the Performance Shares for each additional
$1,000,000 of Cash Flow in excess of $192 million, less (y) the number of
----
Performance Shares which have vested under paragraph (b) above, such that
-7-
<PAGE>
the Option will be exercisable in full if the Cumulative Cash Flow is equal to
$213 million. The Option will be exercisable pursuant to this paragraph (c) on
or after the later of the end of the Total Target Period of the date that the
Company's Cumulative Cash Flow is certified by the Chief Financial Officer of
the Company.
(d) The Target Cash Flow levels set forth on Schedule A shall be
----------
adjusted in the manner and to the extent reasonably determined by the Board of
Directors in good faith to take into account (i) material changes in the
Company's method of accounting or (ii) the sale of substantial assets by the
Company or the acquisition of ongoing businesses, whether by merger,
consolidation or otherwise. Any such adjustment shall be made in good faith
with the intent that, after taking into account the nature of the cause of the
adjustment, the measure of the Company's performance established by the Target
Cash Flow levels before and after the adjustment will be as nearly equivalent as
is reasonably possible.
<TABLE>
<CAPTION>
SCHEDULE A
------------------
Maximum Percentage
Target Target Cash Flows of Shares Eligible
Period (1,000's) for Early Vesting
- ------------------------- ----------------- ------------------
<S> <C> <C>
1/1/95 to 12/31/95 $ 43,000 25%
1/1/96 to 12/31/96 $ 50,000 25%
1/1/97 to 12/31/97 $ 57,000 25%
1/1/98 to 12/31/98 $ 63,000 25%
Total Target Cash Flow
for Total Target Period $213,000
(1/1/95 to 12/31/98)
</TABLE>
(e) In the event of a Sale of the Company (as hereinafter defined),
then any as yet unvested Shares shall vest if and to the extent they would
otherwise vest hereunder based on the following formula: (i) the Cash Flow for
the Target Period in which the Sale takes place (the "Sale Target Period") shall
be annualized based on the Company's most recently available consolidated
audited financial statements for the portion of the Sale Target Period prior to
the Sale (or, if audited financial statements are not available, unaudited
financial statements prepared in accordance with generally accepted accounting
principles consistently applied subject to year end adjustments and the absence
of notes, as certified by the Chief Financial Officer of the Company) and after
taking into account seasonal adjustment as determined in good faith by the
Company's Board of Directors, and the Company will be deemed to have achieved
such annualized Cash Flow in the Sale Target Period and (ii) the Company will be
deemed to have achieved in any Target Periods occurring after the Sale Target
Period, the average of the percentages of the Target Cash Flows achieved in the
prior Target Periods (based on the annualized Cash Flow with respect to the Sale
Target Period). Any Shares that would have vested had the Company achieved such
deemed Cash Flows shall vest and become exercisable immediately prior to the
Sale of the Company. For the purposes hereof, a "Sale" of the Company shall
mean a sale of all or substantially all of the assets of the Company or the sale
or other transfer of fifty percent or more of the common stock of the Company
held by the Institutional Investors (as defined in the Shareholders' Agreement)
to an unaffiliated third party or parties.
-8-
<PAGE>
STOCK OPTION AGREEMENT
EXHIBIT 1
---------------
Gentlemen:
In connection with the exercise by me as to 3,000 shares of common stock, no
par value per share, of BIG V HOLDING CORP. (the "Company") under the non-
qualified stock option dated December 21, 1997, granted to me under the 1990
Time Accelerated Restricted Stock Option Plan, I hereby acknowledge that I have
been informed as follows:
1. The shares of common stock of the Company to be issued to me pursuant
to the exercise of said option have not been registered under the Securities Act
of 1933, as amended (the "Act"), and accordingly, must be held indefinitely
unless such shares are subsequently registered under the Act, or an exemption
from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Act can be made only after the holding period and in limited amounts in
accordance with the terms and conditions provided by that Rule, and in any sale
to which that Rule is not applicable, registration or compliance with some other
exemption under the Act will be required.
3. The Company is under no obligation to me to register the shares or to
comply with any such exemptions under the Act.
4. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the shares to me, I
hereby represent and warrant that I am acquiring such shares for my own account
for investment, and that I will not sell, pledge or transfer such shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Act. In view of this representation and warranty, I agree
that there may be affixed to the certificates for the shares to be issued to me,
and to all certificates issued hereafter representing such shares (until in the
opinion of counsel, which opinion must be reasonably satisfactory in form and
substance to counsel for the Company, it is no longer necessary or required) a
legend as follows:
-9-
<PAGE>
"These securities have not been registered under the Securities Act of
1933 and may not be sold, transferred, offered for sale, pledged or
hypothecated in the absence of an effective registration statement as
to the securities under said Act or an opinion of counsel satisfactory
to the Company, both as to opinion and counsel, that such registration
is not required."
"These securities are subject to the terms and conditions, including
restrictions on transfer, of an Amended and Restated Stockholders
Agreement dated as of December 17, 1993, as amended from time to time,
a copy of which is on file with the Secretary of the Company."
I further agree that the Company may place a stop order with its Transfer
Agent, prohibiting the transfer of such shares, so long as the legend remains on
the certificates representing the shares.
Very truly yours,
/s/ Joseph V. Fisher
-----------------------------
Joseph V. Fisher
-10-
<PAGE>
Exhibit 10.38
BIG V HOLDING CORP.
1990 TIME ACCELERATED RESTRICTED STOCK OPTION PLAN
--------------------------------------------------
NON-QUALIFIED TIME ACCELERATED
RESTRICTED STOCK OPTION AGREEMENT
with
STEPHEN HITTMAN
<PAGE>
BIG V HOLDING CORP.
STOCK OPTION AGREEMENT
UNDER 1990 TIME ACCELERATED RESTRICTED STOCK OPTION PLAN
NON-QUALIFIED TIME ACCELERATED RESTRICTED STOCK OPTION
------------------------------------------------------
AGREEMENT entered into this 21st day of December, 1997 by and between Big V
Holding Corp., a Delaware corporation (the "Company"), and the undersigned
employee (the "Employee") of the Company (or one of its subsidiaries) (the
Company and its subsidiaries herein together referred to as the "Company").
1. The Company desires to grant the Employee a non-qualified stock option
under the Company's 1990 Time Accelerated Restricted Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock").
2. Section 6 of the Plan provides that each option is to be evidenced by an
option agreement, setting forth the terms and conditions of the option.
ACCORDINGLY, in consideration of the promises and of the mutual covenants
and agreements contained herein, the Company and the Employee hereby agree as
follows:
1. Grant of Option. The Company hereby irrevocably grants to the Employee
---------------
a non-qualified stock option (the "Option") to purchase all or any part of an
aggregate of 2,600 shares of Common Stock (the "Shares") on the terms and
conditions hereinafter set forth. This option shall not be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price. The purchase price ("Purchase Price") for the Shares
--------------
covered by the Option shall be $35.00 per Share, which Purchase Price is not
less than the fair market value of the Shares on the date hereof.
3. Time of Exercise of Option; Exercisability. Except as provided below,
------------------------------------------
the Option shall not be exercisable prior to nine years and six months from the
date of grant of the Option at which time the Option shall become exercisable in
full. The Option shall become exercisable earlier, however, with respect to the
number of Shares and upon the attainment of certain performance goals on or
prior to the end of certain performance periods, all as shown on Schedule I
----------
attached hereto and incorporated herein.
-2-
<PAGE>
4. Term of Options; Exercisability.
-------------------------------
(a) Term.
----
(1) Each Option shall expire ten (10) years from the date of the
granting thereof, but shall be subject to earlier termination as provided in
subsections (2) and (3) below.
(2) Except as provided in paragraph (3) below, if the Employee
ceases to be an employed by the Company, at any time, for any reason or no
reason, in either such case, the option granted to the Employee shall terminate,
with respect to any Shares subject to options exercisable on the date of such
termination, on the fifth day following such termination and, with respect to
any Shares subject to options not exercisable on the date of such termination,
on the date of such termination.
(3) In the event of the termination of the Employee's employment
with the Company or one of its subsidiaries due to the death or disability of
the Employee, the option granted to the Employee shall terminate, with respect
to any Shares subject to options exercisable on the date of such termination, on
the 365th day following such termination and, with respect to any Shares subject
to options not exercisable on the date of such termination, on the date of such
termination.
(b) Exercisability. If the Employee ceases to be an employee of the
--------------
Company, at any time, for any reason or for no reason, the Option granted to the
Employee hereunder shall be exercisable only to the extent that the right to
purchase Shares under such Option has accrued and is in effect on the date such
Employee ceases to be an employee of the Company or one of its subsidiaries.
5. Manner of Exercise of Option.
----------------------------
(a) To the extent that the right to exercise the Option has accrued and
is in effect, the Option may be exercised in full or in part by giving written
notice to the Company stating the number of Shares exercised and accompanied by
payment in full for such Shares. Payment may be either wholly in cash or by
check payable to the Company. Upon such exercise, delivery of a certificate for
paid-up, non-assessable Shares shall be made at the principal office of the
Company to the person exercising the Option, not more than thirty (30) days from
the date of receipt of the notice by the Company.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of Shares of its common stock as will be
sufficient to satisfy the requirements of the Option.
-3-
<PAGE>
(c) Notwithstanding the provision of Section 5(a) of this Agreement,
the Company may delay the issuance of Shares covered by the exercise of this
Option and the delivery of a certificate for such Shares until one of the
following conditions shall be satisfied:
(i) The Shares with respect to which such Option has been
exercised are at the time of the issue of such Shares effectively
registered or qualified under applicable federal and state securities
acts now in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such
Shares are exempt from registration and qualification under applicable
federal and state securities acts now in force or as hereafter amended.
6. Non-Transferability. The right of the Employee to exercise the Option
-------------------
shall not be assignable or transferable by the Employee otherwise than by will
or the laws of descent and distribution, and the Option may be exercised during
the lifetime of the Employee only by him or her. The Option shall be null and
void and without effect upon the bankruptcy of the Employee or upon any
attempted assignment or transfer, except as hereinabove provided, including
without limitation any purported assignment, whether voluntary or by operation
of law, pledge, hypothecation or other disposition contrary to the provisions
hereof, or levy of execution, attachment, trustee process or similar process,
whether legal or equitable, upon the Option.
7. Shares Subject to Restrictions; Representation Letter and Investment
--------------------------------------------------------------------
Legend.
------
(a) Each of the Shares shall be subject to the restrictions on transfer
imposed on, the terms and conditions requiring the sale or transfer of, and the
rights and the options of the Company and certain stockholders of the Company to
purchase, those shares of Common Stock held by Management Investors under the
terms of the Amended and Restated Shareholders' Agreement Dated as of December
17, 1993 (the "Restrictions"). The Shares shall be subject to the Restrictions
and the Employee hereby agrees to be bound by and undertakes to comply with the
Restrictions, whether or not the Employee is a party to the Shareholders'
Agreement, in the same manner and to the same extent as a Management Investor,
and agrees and undertakes to execute and deliver any and all such additional
agreements, instruments and other documents deemed necessary by the Company to
effect the provisions of this subparagraph (a).
(b) In the event that for any reason the Shares to be issued upon
exercise of the Option shall not be effectively registered under the Securities
Act of 1933 (the "1933 Act"), upon any date on which the Option is exercised in
whole or in part, the person exercising the Option shall give a written
representation to the Company in the form attached hereto as Exhibit 1 and the
Company shall place an "investment legend", so-called, as described in Exhibit 1
hereto, upon any certificate for the Shares issued by reason of such exercise.
-4-
<PAGE>
(c) The Company shall be under no obligation to qualify Shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purposes of covering the issue of Shares.
8. Adjustments on Changes in Capitalization. Adjustments or changes in
----------------------------------------
capitalization and the like shall be made in accordance with Section 12 of the
Plan, as in effect on the date of this Agreement.
9. Recapitalizations, Reorganizations, Changes in Control and the Like.
-------------------------------------------------------------------
Adjustments and other matters relating to recapitalizations, reorganizations,
sale of the assets of the Company, changes in control and the like shall be made
and determined in accordance with Section 12 of the Plan, as in effect on the
date of this Agreement (including, but not limited to, the termination and
cancellation of options upon a sale of all or substantially all of the assets of
the Company or a change of control in the Company).
10. No Special Employment Rights. Nothing contained in the Plan or this
----------------------------
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment of the Employee for the period
within which this Option may be exercised. However, during the period of the
Employee's employment, the Employee shall render diligently and faithfully the
services which are assigned to the Employee from time to time by the Board of
Directors or by the executive officers of the Company and shall at no time take
any action which directly or indirectly would be inconsistent with the best
interests of the Company.
11. Rights as a Shareholder. The Employee shall have no rights as a
-----------------------
shareholder with respect to any Shares which may be purchased by exercise of
this Option unless and until a certificate or certificates representing such
Shares are duly issued and delivered to the Employee and the Employee has
executed and delivered to the Company any and all agreements, instruments and
other documents required by the Company pursuant to Section 7(a) hereof. Except
as otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
12. Withholding Taxes. Whenever Shares are to be issued upon exercise of
-----------------
this Option, the Company shall have the right to require the Employee to remit
to the Company an amount sufficient to satisfy all Federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Shares.
*******************************
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and
its corporate seal to be hereto affixed by its officer thereunto duly
authorized, and the Employee has hereunto set his or her hand and seal, all as
of the day and year first above written.
-5-
<PAGE>
BIG V HOLDING CORP.
By: /s/ James A. Toopes, Jr.
---------------------------
Name: James A. Toopes, Jr.
Title: Executive Vice President
EMPLOYEE
/s/ Stephen Hittman
-------------------------------------
Stephen Hittman
Address:
118 Lakeside Drive
Ramsey, NJ 07446
Social Security
No.: ###-##-####
----------------------------------
-6-
<PAGE>
SCHEDULE I
Option Vesting Schedule
-----------------------
(a) The Option will become exercisable with respect to all Shares
subject thereto (the "Performance Shares") in the manner provided below.
(b) If the Company's Cash Flow (as hereinafter defined) is greater than
the Target Cash Flow for the applicable Target Period, as specified in Schedule
--------
A below, then the Option shall become exercisable with respect to twenty-five
- -
percent (25%) of the Performance Shares. If the Company's Cash Flow is less
than the Target Cash Flow for the applicable Target Period but at least ninety
percent (90%) of the Target Cash Flow for the Target Period, then the Option
shall become exercisable with respect to two and one-half percent (2.5%) of the
Performance Shares for each one percent (1%) by which the Company's actual Cash
Flow exceeds ninety percent of the Target Cash Flow for the Target Period, up to
a maximum of twenty-five percent (25%) of the Performance Shares for any one
Target Period. An Option shall be so exercisable on or after the later of the
end of the applicable Target Period or the date that the Company's Cash Flow for
such Target Period is certified by the Chief Financial Officer of the Company.
For the purpose of this Agreement, Cash Flow shall mean the Company's
consolidated income without reduction for non-cash or deferred compensation
expense, interest (except as indicated below), income taxes, depreciation or
amortization but after deduction of: (i) all operating expenses (including up to
$250,000 in management fees payable to Thomas H. Lee Company and J.S.
Frelinghuysen & Co. pursuant to their respective Management Agreements with the
Company), and (ii) other reserves required in connection with the operation of
the Company's business in the ordinary course. The determination of Cash Flow
shall not take into account any income or expense attributable to LIFO reserves,
gains or losses on sales of assets or other extraordinary gains or losses or
non-cash rent expenses. Except as otherwise provided herein, Cash Flow shall be
determined in accordance with generally accepted accounting principles
consistently applied, all as reflected in the Company's most recently available
consolidated audited financial statements for the immediately preceding fiscal
year and as certified by the Chief Financial Officer of the Company.
(c) In addition to the vesting of the Options under paragraph (b) above,
upon the expiration of the four year period ended December 31, 1998, any of the
Options with respect to the Performance Shares which remain unexercisable (after
giving effect to paragraph (b) above) (the "Remaining Shares") may also become
exercisable as follows: (i) if the Company's cumulative Cash Flow for the four
year period ended December 31, 1998 (the "Cumulative Cash Flow") is equal to or
greater than $213 million, then the Option will become exercisable with respect
to all of the Remaining Shares; and (ii) if the Cumulative Cash Flow is greater
than $192 million but less than $213 million, then, the Option will become
exercisable with respect to a
-7-
<PAGE>
portion of the Remaining Shares equal to (x) four and three-quarters percent
(4.75%) of the Performance Shares for each additional $1,000,000 of Cash Flow in
excess of $192 million, less (y) the number of Performance Shares which have
----
vested under paragraph (b) above, such that the Option will be exercisable in
full if the Cumulative Cash Flow is equal to $213 million. The Option will be
exercisable pursuant to this paragraph (c) on or after the later of the end of
the Total Target Period of the date that the Company's Cumulative Cash Flow is
certified by the Chief Financial Officer of the Company.
(d) The Target Cash Flow levels set forth on Schedule A shall be
----------
adjusted in the manner and to the extent reasonably determined by the Board of
Directors in good faith to take into account (i) material changes in the
Company's method of accounting or (ii) the sale of substantial assets by the
Company or the acquisition of ongoing businesses, whether by merger,
consolidation or otherwise. Any such adjustment shall be made in good faith
with the intent that, after taking into account the nature of the cause of the
adjustment, the measure of the Company's performance established by the Target
Cash Flow levels before and after the adjustment will be as nearly equivalent as
is reasonably possible.
<TABLE>
<CAPTION>
SCHEDULE A
------------------
Maximum Percentage
Target Target Cash Flows of Shares Eligible
Period (1,000's) for Early Vesting
- ------------------------- ----------------- ------------------
<S> <C> <C>
1/1/95 to 12/31/95 $ 43,000 25%
1/1/96 to 12/31/96 $ 50,000 25%
1/1/97 to 12/31/97 $ 57,000 25%
1/1/98 to 12/31/98 $ 63,000 25%
Total Target Cash Flow
for Total Target Period $213,000
(1/1/95 to 12/31/98)
</TABLE>
(e) In the event of a Sale of the Company (as hereinafter defined),
then any as yet unvested Shares shall vest if and to the extent they would
otherwise vest hereunder based on the following formula: (i) the Cash Flow for
the Target Period in which the Sale takes place (the "Sale Target Period") shall
be annualized based on the Company's most recently available consolidated
audited financial statements for the portion of the Sale Target Period prior to
the Sale (or, if audited financial statements are not available, unaudited
financial statements prepared in accordance with generally accepted accounting
principles consistently applied subject to year end adjustments and the absence
of notes, as certified by the Chief Financial Officer of the Company) and after
taking into account seasonal adjustment as determined in good faith by the
Company's Board of Directors, and the Company will be deemed to have achieved
such annualized Cash Flow in the Sale Target Period and (ii) the Company will be
deemed to have
-8-
<PAGE>
achieved in any Target Periods occurring after the Sale Target
Period, the average of the percentages of the Target Cash Flows achieved in the
prior Target Periods (based on the annualized Cash Flow with respect to the Sale
Target Period). Any Shares that would have vested had the Company achieved such
deemed Cash Flows shall vest and become exercisable immediately prior to the
Sale of the Company. For the purposes hereof, a "Sale" of the Company shall
mean a sale of all or substantially all of the assets of the Company or the sale
or other transfer of fifty percent or more of the common stock of the Company
held by the Institutional Investors (as defined in the Shareholders' Agreement)
to an unaffiliated third party or parties.
-9-
<PAGE>
STOCK OPTION AGREEMENT
EXHIBIT 1
---------------
Gentlemen:
In connection with the exercise by me as to 2,600 shares of common stock,
no par value per share, of BIG V HOLDING CORP. (the "Company") under the non-
qualified stock option dated December 21, 1997, granted to me under the 1990
Time Accelerated Restricted Stock Option Plan, I hereby acknowledge that I have
been informed as follows:
1. The shares of common stock of the Company to be issued to me pursuant
to the exercise of said option have not been registered under the Securities Act
of 1933, as amended (the "Act"), and accordingly, must be held indefinitely
unless such shares are subsequently registered under the Act, or an exemption
from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Act can be made only after the holding period and in limited amounts in
accordance with the terms and conditions provided by that Rule, and in any sale
to which that Rule is not applicable, registration or compliance with some other
exemption under the Act will be required.
3. The Company is under no obligation to me to register the shares or to
comply with any such exemptions under the Act.
4. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.
In consideration of the issuance of certificates for the shares to me, I
hereby represent and warrant that I am acquiring such shares for my own account
for investment, and that I will not sell, pledge or transfer such shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Act. In view of this representation and warranty, I agree
that there may be affixed to the certificates for the shares to be issued to me,
and to all certificates issued hereafter representing such shares (until in the
opinion of counsel, which opinion must be reasonably satisfactory in form and
substance to counsel for the Company, it is no longer necessary or required) a
legend as follows:
"These securities have not been registered under the Securities Act of
1933 and may not be sold, transferred, offered for sale, pledged or
hypothecated
-10-
<PAGE>
in the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel satisfactory to the
Company, both as to opinion and counsel, that such registration is not
required."
"These securities are subject to the terms and conditions, including
restrictions on transfer, of an Amended and Restated Stockholders
Agreement dated as of December 17, 1993, as amended from time to time,
a copy of which is on file with the Secretary of the Company."
I further agree that the Company may place a stop order with its Transfer
Agent, prohibiting the transfer of such shares, so long as the legend remains on
the certificates representing the shares.
Very truly yours,
/s/ Stephen Hittman
----------------------
Stephen Hittman
-11-
<PAGE>
EXHIBIT 12.1
BIG V SUPERMARKETS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
52 52 52 53 52
Weeks Weeks Weeks Weeks Weeks
Ended Ended Ended Ended Ended
December 27, December 28, December 30, December 31, December 25,
1997 1996 1995 1994 1993
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loss from continuing
operations before
income taxes $ (4,367) $ (6,467) $ (7,188) $ (8,931) $ (11,216)
Add:
Interest on indebtedness,
including amortization
of deferred debt costs 24,839 24,637 27,588 25,176 20,409
Portion of rents
representative of the
interest factor 2,545 2,226 2,374 1,779 1,301
-------- -------- ------- ------- -------
Income, as adjusted $ 23,017 $ 20,396 $22,774 $18,024 $10,494
======== ======== ======= ======= =======
Fixed charges:
Interest on indebtedness,
including amortization
of deferred debt costs $ 24,839 $ 24,637 $27,588 $25,176 $20,409
Portion of rents
representative of the
interest factor 2,545 2,226 2,374 1,779 1,301
-------- -------- ------- ------- -------
Fixed charges $ 27,384 $ 26,863 $29,962 $26,955 $21,710
======== ======== ======= ======= =======
Ratio of earnings to
fixed charges -- -- -- -- --
-------- -------- ------- ------- -------
Deficiency in earnings
available to cover
fixed charges $ 4,367 $ 6,467 $ 7,188 $ 8,931 $11,216
======== ======== ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 13,498
<SECURITIES> 0
<RECEIVABLES> 14,779
<ALLOWANCES> 110
<INVENTORY> 36,851
<CURRENT-ASSETS> 70,161
<PP&E> 134,436
<DEPRECIATION> 73,653
<TOTAL-ASSETS> 254,946
<CURRENT-LIABILITIES> 86,844
<BONDS> 154,097
0
0
<COMMON> 1
<OTHER-SE> (27,187)
<TOTAL-LIABILITY-AND-EQUITY> 254,946
<SALES> 762,880
<TOTAL-REVENUES> 762,880
<CGS> 563,896
<TOTAL-COSTS> 563,896
<OTHER-EXPENSES> 16,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,586
<INCOME-PRETAX> (4,367)
<INCOME-TAX> (1,625)
<INCOME-CONTINUING> (2,742)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,742)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
