<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
SLOAN'S SUPERMARKETS, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11-(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2).
/ / $500 per each party to controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$40,000,000 (the aggregate consideration in cash and value of Common
Stock to be paid for acquistion)
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
$8,000.00
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$8,000.00
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2) Form, Schedule or Registration Statement No.:
Schedule 14A
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3) Filing Party:
Sloan's Supermarkets, Inc.
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4) Date Filed:
October 16, 1996
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<PAGE>
SLOAN'S SUPERMARKETS, INC.
October 1, 1997
Dear Stockholder:
You are cordially invited to attend the Thursday Special and Annual Meeting
of Stockholders of Sloan's Supermarkets, Inc. (the "Company"), to be held on
Thursday, October 30, 1997, at 10:00 a.m., local time, at The New York Hilton
and Towers Hotel, 1335 Avenue of the Americas, New York, New York 10019.
As set forth in the attached Notice of Special and Annual Meeting of
Stockholders, at this important meeting you will be asked to consider and vote
upon a proposal to approve a Merger Agreement dated as of July 14, 1997 (the
"Merger Agreement") by and among Red Apple Group, Inc. ("Group"), Red Apple
Supermarkets, Inc. ("RAS"), Gristede's Supermarkets, Inc. ("Gristede's"), City
Produce Distributors, Inc. ("City Produce"), Supermarket Acquisition Corp.
("SAC"), John A. Catsimatidis, the Company, RAS Operating Corp. ("RASOC"),
Gristede's Operating Corp. ("GOC"), SAC Operating Corp. ("SACOC") and City
Produce Operating Corp. ("CPO") pursuant to which RAS, Gristede's, SAC and City
Produce (corporations directly or indirectly wholly owned by John A.
Catsimatidis, the principal stockholder and Chairman of the Board, Chief
Executive Officer and Treasurer of the Company) would be merged with and into
RASOC, GOC, SACOC and CPO (corporations wholly owned by the Company),
respectively. As a result of the proposed mergers (the "Merger"), the Company,
through its subsidiaries, will acquire 28 operating supermarkets, a lease for a
currently non-operating supermarket, ownership of the tradenames "Sloan's" and
"Gristede's", and the business of City Produce (which operates a warehouse and
distribution center primarily for fresh produce) and John Catsimatidis and
entities controlled by him shall receive an aggregate of $40,000,000 in market
value of the Company's Common Stock. The aggregate market value of the
Company's Common Stock to be issued in the Merger will be subject to reduction
by an amount equal to the amount of certain liabilities of Gristede's, RAS, SAC
and City Produce to John Catsimatidis and entities controlled by him (the
"Intercompany Liabilities") which will be assumed by the surviving corporations
in the Merger. The amount of such Intercompany Liabilities is estimated to be
$4,000,000. Additional details of the proposed Merger are set forth in the
attached Proxy Statement, and a copy of the Merger Agreement is attached
thereto as Exhibit A.
The average closing sales price for the Common Stock as reported on the
American Stock Exchange for the thirty consecutive trading days ended on
September 29, 1997 was approximately $2.194. Assuming that such average closing
sales price would be used for purposes of calculating the number of shares of
Common Stock to be issued pursuant to the Merger Agreement, an aggregate of
16,408,387 shares of Common Stock would be issued pursuant to the Merger
Agreement. Giving effect to such issuance, Mr. Catsimatidis would beneficially
own an aggregate of 17,860,939 shares of Common Stock (approximately 90.1% of
the outstanding shares) and have the power to control the outcome of all
stockholder votes, including the election of all directors of the Company. John
Catsimatidis has informed the Company that he has no present intention of
effecting a short form merger or other business combination of the Company.
In addition, at the Special and Annual Meeting you will be asked to
approve an amendment to the Company's Certificate of Incorporation to increase
from 10,000,000 to 25,000,000 the authorized number of shares of the Common
Stock, to approve an amendment to the Company's Certificate of Incorporation to
change the name of the Company to Gristede's Sloan's, Inc., to vote on the
election of one director to serve on the Company's Board of Directors as a
Class 3 director for a term expiring at the 1998 Annual Meeting of Stockholders
and two directors to serve as Class 1 directors for a term expiring at the 1999
Annual Meeting of Stockholders, and to ratify the grant to John Catsimatidis of
non-qualified options to purchase an aggregate of 250,000 shares of the
Company's Common Stock at $2.875 per share.
A special committee comprised of two independent directors, who are not
members of management or employees of the Company (the "Special Committee"),
has carefully reviewed and considered the terms and conditions of the Merger
Agreement. In connection with such review and consideration, the Board of
Directors retained Coopers & Lybrand L.L.P. ("Coopers") to evaluate the
consideration to be paid by the parties pursuant to the Merger Agreement and to
render an opinion concerning the same. Coopers & Lybrand Securities, L.L.C., a
wholly owned investment banking subsidiary of Coopers ("C&L"), has rendered an
opinion to the Board of Directors of the Company to the effect that as of the
date of its opinion, the consideration to be paid by the
<PAGE>
Company pursuant to the Merger Agreement is fair to the Company from a
financial point of view. A copy of this opinion is attached to the accompanying
Proxy Statement as Exhibit B and should be read in its entirety. Based on the
Special Committee's review and consideration of the terms of the proposed
Merger Agreement and, among other things, the opinion of C&L, the Special
Committee unanimously recommended to your Board of Directors that the Merger
Agreement be approved. Your Board of Directors (with John Catsimatidis
abstaining), after considering the recommendation of the Special Committee, has
concluded that the Merger is fair to, and in the best interests of, the
Company's stockholders.
Accordingly, your Board of Directors (with John Catsimatidis abstaining),
including both members of the Special Committee, unanimously recommends a vote
FOR the proposal to approve and adopt the Merger Agreement.
You are urged to read the enclosed materials carefully and are requested,
whether or not you plan to attend the Special and Annual Meeting and regardless
of the number of shares of the Company's Common Stock you own, to complete,
sign, date and return the enclosed proxy card promptly in the accompanying
prepaid envelope. You may, of course, attend the Special and Annual Meeting and
vote in person, even if you have previously returned your proxy card.
We sincerely thank you for your support over the years.
Sincerely yours,
John A. Catsimatidis
Chairman and Chief Executive Officer
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
SLOAN'S SUPERMARKETS, INC.
823 Eleventh Avenue
New York, New York 10019-3535
---------------------
NOTICE OF SPECIAL AND ANNUAL MEETING OF STOCKHOLDERS
To Be Held October 30, 1997
---------------------
To the Stockholders:
The Special and Annual Meeting of Stockholders of Sloan's Supermarkets,
Inc. (hereinafter called the "Company" or "Sloan's") will be held at The New
York Hilton and Towers Hotel, 1335 Avenue of the Americas, New York, New York
10019, on the 30th day of October, 1997 at 10:00 A.M., to consider and vote on
the following matters described in this Notice and Proxy Statement:
1. To approve a Merger Agreement dated as of July 14, 1997 (the "Merger
Agreement") by and among Red Apple Group, Inc. ("Group"), Red Apple
Supermarkets, Inc. ("RAS"), Gristede's Supermarkets, Inc. ("Gristede's"),
City Produce Distributors, Inc. ("City Produce"), Supermarket Acquisition
Corp. ("SAC"), John A. Catsimatidis, the Company, RAS Operating Corp.
("RASOC"), Gristede's Operating Corp. ("GOC"), SAC Operating Corp.
("SACOC") and City Produce Operating Corp. ("CPO") pursuant to which RAS,
Gristede's, SAC and City Produce (corporations directly or indirectly
wholly owned by John A. Catsimatidis, the principal stockholder and
Chairman of the Board, Chief Executive Officer and Treasurer of the
Company), would be merged with and into RASOC, GOC, SACOC and CPO
(corporations wholly owned by the Company), respectively, and John
Catsimatidis and entities controlled by him shall receive an aggregate of
$40,000,000 in market value of the Company's Common Stock, subject to
reduction by the amount of certain liabilities (estimated to be $4,000,000)
of Gristede's, RAS, SAC and City Produce to be assumed by the surviving
corporations in the mergers.
2. To approve an amendment to the Company's Certificate of Incorporation
to increase from 10,000,000 to 25,000,000 the authorized number of shares
of Common Stock.
3. To approve an amendment to the Company's Certificate of Incorporation
to change the name of the Company to Gristede's Sloan's, Inc.
4. To elect one Class 3 director to serve for a term expiring at the
1998 Annual Meeting of Stockholders.
5. To elect two Class 1 directors to serve for a term expiring at the
1999 Annual Meeting of Stockholders.
6. To ratify the grant to John Catsimatidis of non-qualified stock
options to purchase an aggregate of 250,000 shares of Common Stock at
$2.875 per share through the earlier of August 11, 2006 or 90 days after
the termination of Mr. Catsimatidis' employment by the Company.
7. To transact such other business as may properly come before the
meeting or adjournments thereof.
The Board of Directors has fixed the close of business on September 29,
1997 as the record date for determining stockholders entitled to notice of, and
to vote at, the meeting.
Whether or not you plan to attend the meeting, we urge you to date, sign
and return your proxy in the enclosed post-paid envelope. Any stockholder
attending the meeting may vote in person even though he has returned a proxy.
By Order of the Board of Directors
Mark S. Kassner
Vice President and Secretary
New York, New York
October 1, 1997
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement and the Exhibits hereto.
Capitalized terms used but not defined in this Summary shall have the meanings
ascribed to them elsewhere in this Proxy Statement. Stockholders are urged to
read this Proxy Statement and the Exhibits attached hereto in their entirety.
Time, Place and Date of the Annual Meeting
The Annual Meeting will be held at 10:00 a.m., local time, on Thursday,
October 30, 1997, at The New York Hilton and Towers Hotel, 1335 Avenue of the
Americas, New York, New York 10019.
Record Date
The close of business on September 29, 1997 has been fixed as the Record
Date for the determination of those stockholders entitled to notice of and to
vote at the Annual Meeting. On such date, there were 3,132,289 shares of Common
Stock outstanding. The Company has no other class of voting securities
outstanding.
Purposes, Vote Required and Quorum
At the Annual Meeting, stockholders will be asked to consider and vote
upon a proposal to approve the Merger Agreement. Although applicable Delaware
law does not require that stockholders of the Company approve the Merger, the
rules of the American Stock Exchange, Inc. (the "AMEX") upon which the
Company's Common Stock is traded, require approval of the issuance of Common
Stock pursuant to the Merger since all of such Common Stock shall be issued to
corporations directly or indirectly wholly owned by John Catsimatidis, the
Chairman of the Board, Chief Executive Officer and Treasurer and principal
stockholder of the Company. Such approval is required to be given by the
affirmative vote of the holders of a majority of the Common Stock voted on the
proposal provided that a quorum is present or represented by proxy at the
Annual Meeting.
As of the record date for determining the stockholders entitled to notice
of, and to vote at the Annual Meeting Mr. Catsimatidis and entities controlled
by him are the record owners of an aggregate of 1,177,552 shares of Common
Stock (approximately 37.6% of the outstanding Common Stock). Mr. Catsimatidis
has informed the Company that he intends to vote all of such shares in favor of
the Merger Agreement. It is not a condition to approval of the Merger Agreement
that the holders of a majority of the shares of Common Stock voted at the
Annual Meeting by stockholders who are unaffiliated with Mr. Catsimatidis vote
in favor of approval of the Merger.
Stockholders will also be requested to approve amendments to the Company's
Certificate of Incorporation to increase from 10,000,000 to 25,000,000 the
authorized number of shares of Common Stock and to change the name of the
Company to Gristede's Sloan's, Inc. Under Delaware law, the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock entitled to
vote thereon (at least 1,566,145 shares based on 3,132,289 shares outstanding)
is required to approve each amendment. Stockholders will also be requested to
elect one Class 3 director to serve until the 1998 Annual Meeting of
Stockholders and two Class 1 directors to serve until the 1999 Annual Meeting
of Stockholders. Under Delaware law and the Company's by-laws, a plurality of
the shares of Common Stock voted at the Annual Meeting, provided that a quorum
is present, is required to elect nominees as directors. In addition,
stockholders will be requested to ratify the grant to John Catsimatidis of
non-qualified stock options to purchase an aggregate of 250,000 shares of
Common Stock at $2.875 per share. Under Delaware law and the Company's by-laws
the holders of a majority of the shares of Common Stock voted on the proposal,
provided that a quorum is present, is required to approve the grant of such
options.
Holders of a majority of the shares of Common Stock entitled to vote at
the Annual Meeting, represented in person or by proxy, will constitute a
quorum. At the Annual Meeting, each holder of shares of Common Stock will be
entitled to cast one vote for each share held.
Under Delaware law shares as to which a stockholder abstains or withholds
authority to vote and shares as to which a broker indicates that it does not
have discretionary authority to vote ("broker non-votes") will be
i
<PAGE>
treated as present at the Annual Meeting for the purposes of determining a
quorum. Proxies marked "Withhold Authority" with respect to the election of one
or more directors will not be counted in determining whether a plurality of the
shares of Common Stock voted at the Annual Meeting in the election have been
voted in favor of the nominee for director. Proxies marked "Abstain" with
respect to other matters will have the effect of a vote against the matter in
question. Shares represented by broker non-votes will have the effect of a vote
against approval of the amendments to the Company's Certificate of
Incorporation and will not be counted in determining the number of shares
necessary for ratification of the grant to John Catsimatidis of stock options.
Shares represented by properly executed and unrevoked proxies will be
voted at the Annual Meeting and will be voted in accordance with the directions
contained therein. If no direction is made in a properly executed and unrevoked
proxy, the shares represented by such proxy will be voted FOR the approval and
adoption of the Merger Agreement, FOR each of the amendments to the Certificate
of Incorporation, FOR the election of the Company's nominees for directors and
FOR ratification of the grant of stock options to Mr. Catsimatidis. Any
stockholder is empowered to revoke a proxy at any time before its exercise. A
proxy may be revoked by filing with the Secretary of the Company a written
revocation or a duly executed proxy bearing a later date. Any stockholder may
attend the Annual Meeting and vote in person, whether or not he has previously
given a proxy.
No Appraisal Rights
Stockholders will not have rights under the Delaware General Corporation
Law to seek an appraisal of the fair value of their shares in the event that
they do not desire to vote their shares in favor of approval of the Merger (see
"PROPOSAL TO APPROVE THE MERGER AGREEMENT-- The Merger Agreement").
The Merger Agreement
The Company, John Catsimatidis, Group, RAS, Gristede's, City Produce, SAC,
RASOC, GOC, SACOC and CPO have entered into the Merger Agreement, a copy of
which is attached hereto as Exhibit A. The Merger Agreement provides that,
subject to the requisite approval of the stockholders of the Company and to the
satisfaction or waiver of certain other conditions, (i) Gristede's will be
merged into GOC, (ii) RAS will be merged into RASOC, (iii) SAC will be merged
into SACOC and (iv) City Produce will be merged into CPO.
As a result of the Merger the Company, through its subsidiaries, will
acquire 28 operating supermarkets, a lease for a currently non-operating
supermarket, ownership of the tradenames "Sloan's" and "Gristede's", and the
business of City Produce (which operates a warehouse and distribution center
primarily for fresh produce) and John Catsimatidis and entities controlled by
him shall receive an aggregate of $40,000,000 in market value of the Company's
Common Stock. The aggregate market value of the Company's Common Stock to be
issued in the Merger will be subject to reduction by an amount equal to the
amount of certain liabilities of Gristede's, RAS, SAC and City Produce to John
Catsimatidis and companies affiliated with him (the "Intercompany Liabilities")
which will be assumed by the surviving corporations in the Merger. The amount
of such Intercompany Liabilities is estimated to be approximately $4,000,000.
(The Company currently intends to pay such Intercompany Liabilities promptly
after the Merger.) Therefore, it is anticipated that an aggregate of
approximately $36,000,000 in market value of Sloan's Common Stock will be
issued. (See "PROPOSAL TO APPROVE THE MERGER AGREEMENT--Merger Consideration.")
As a result of the issuance to John Catsimatidis and entities controlled
by him of the Company's Common Stock, upon the consummation of the Merger
Agreement, Mr. Catsimatidis will beneficially own substantially more than 50%
of the Common Stock of the Company (for example, 90.1% of the outstanding
shares if the average closing sales price of the Common Stock to be issued
pursuant to the Merger Agreement is $2.194, which is the average closing sales
price for the thirty consecutive trading days ended September 29, 1997). By
virtue of the Common Stock which Mr. Catsimatidis and corporations controlled
by him will own after the Merger, Mr. Catsimatidis will have the power to
control the outcome of all stockholder votes, including the election of
directors. In making their determinations to approve and adopt the Merger
Agreement the Special Committee and the Board of Directors considered the
effect of this significant dilution in the relative equity percentage of
stockholders other than Mr. Catsimatidis and his affiliates, but concluded that
the potential benefits of the Merger to all stockholders outweighed this
factor. See "SUMMARY -- Dilution of Equity Interest of Unaffiliated
Stockholders" and "PROPOSAL TO APPROVE THE MERGER AGREEMENT -- Recommendation
of the Board of Directors" and "-- Reasons for the Merger."
ii
<PAGE>
DILUTION OF EQUITY INTEREST OF UNAFFILIATED STOCKHOLDERS
The following table sets forth with respect to John A. Catsimatidis and
stockholders of the Company affiliated with him, on one hand, and stockholders
of the Company not affiliated with Mr. Catsimatidis on the other hand, (a) the
aggregate number of shares of Common Stock beneficially owned as of September
29, 1997, (b) the number of shares of Common Stock which would be issued to
them pursuant to the Merger Agreement at various assumed average closing sales
prices of the Common Stock and (c) the total number of outstanding shares of
Common Stock (and percentage of all outstanding shares) such persons would
beneficially own giving effect to the Merger based on the various number of
shares which would be issued at such assumed average closing sales prices.
<TABLE>
<CAPTION>
Average Closing Sales Price of
$1.75
--------------------------------------------
Shares Total
Beneficially Number of Shares
Owned on Shares Beneficially Percentage of
September 29, to be Owned after Shares after
1997 Issued Issuance Issuance (1)
--------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
John Catsimatidis and
Affiliates ............ 1,452,552(2) 20,571,429 22,023,981 91.8%
All other Stockholders . 2,122,537(3) 0 2,122,537 8.9%
<CAPTION>
Average Closing Sales Price of Average Closing Sales Price of
$2.25 $2.75
----------------------------------------------- ----------------------------------------------
Total Shares Total Shares
Number of Beneficially Percentage of Number of Beneficially Percentage of
Shares to be Owned after Shares after Shares to be Owned after Shares after
Issued Issuance Issuance (1) Issued Issuance Issuance (1)
-------------- -------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John Catsimatidis and
Affiliates ............ 16,000,000 17,452,552 89.9% 13,090,909 14,543,461 88.2%
All other Stockholders . 0 2,122,537 11.0% 0 2,122,537 12.9%
</TABLE>
- ------------
(1) Calculated in accordance with rules promulgated by the Securities and
Exchange Commission. Because of the method of making such calculations,
the percentages owned by John Catsimatidis and his affiliates and all
other stockholders add up to more than 100%.
(2) Includes an aggregate of 25,730 shares held by corporations controlled by
Mr. Catsimatidis, 2,057 shares held by a profit sharing plan of which Mr.
Catsimatidis is a trustee, 605 shares held by Mr. Catsimatidis as a
trustee of individual retirement accounts and currently exercisable
options to purchase an aggregate of 275,000 shares of Common Stock. Does
not include options to purchase an aggregate of 250,000 shares of Common
Stock which the Board of Directors have granted to Mr. John Catsimatidis
subject to approval by the stockholders of the Company at this Annual
Meeting and which are not exercisable unless and until such approval is
given. See "RATIFICATION OF STOCK OPTIONS GRANTED TO JOHN CATSIMATIDIS."
(3) Includes an aggregate of 167,800 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
iii
<PAGE>
Conflict of Interests
John Catsimatidis, the Chairman of the Board, Chief Executive Officer and
Treasurer and the principal stockholder of the Company (see "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"), directly or indirectly owns all
of the capital stock of Group and SAC. Group and Mr. Catsimatidis shall receive
all of the consideration payable by the Company and its subsidiaries pursuant
to the Merger Agreement (see "PROPOSAL TO APPROVE THE MERGER AGREEMENT--Merger
Consideration"). As a result, Mr. Catsimatidis may be considered to have a
conflict of interest in connection with the proposed Merger.
At a meeting of the Board of Directors held on September 6, 1996, the
Board adopted a policy whereby Mr. Catsimatidis will abstain from participation
and voting when the Board considers any aspect of the proposed Merger. At a
meeting of the Board of Directors held on September 18, 1996, the Board formed
a Special Committee, consisting of Messrs. Frederick Selby and Leroy Hemingway
II, two of the directors of the Company who are not members of management or
employees of the Company (the "Special Committee"). The Board empowered the
Special Committee with sole responsibility and authority to make all
determinations and take all actions required to be made by the Company under
the Merger Agreement (see "PROPOSAL TO APPROVE THE MERGER AGREEMENT--Conflict
of Interests").
Recommendation of the Company's Board of Directors
The Company's Board of Directors (with John Catsimatidis abstaining),
after considering the recommendation of the Special Committee, consisting of
two directors who are not members of management or employees of the Company,
has unanimously approved and adopted the Merger Agreement. Accordingly, the
Company's Board of Directors (with John Catsimatidis abstaining) has
unanimously concluded that the proposed Merger is fair to, and in the best
interests of, the stockholders of the Company and unanimously recommends a vote
FOR the proposal to approve the Merger Agreement. See "PROPOSAL TO APPROVE THE
MERGER AGREEMENT--Recommendation of the Board of Directors."
Opinion of Coopers & Lybrand Securities, L.L.C.
Coopers & Lybrand L.L.P. ("Coopers") was retained by the Company to
evaluate the consideration to be paid by the parties pursuant to the Merger
Agreement and to render an opinion to the Board of Directors concerning the
fairness from a financial point of view of the consideration to be paid by the
Company pursuant to the Merger Agreement. Coopers & Lybrand Securities, L.L.C.,
a wholly owned investment banking subsidiary of Coopers ("C&L"), delivered its
written opinion to the Special Committee and to the Board of Directors that, as
of the date of its opinion, the consideration proposed to be paid by the
Company pursuant to the Merger Agreement is fair from a financial point of
view. C&L's opinion includes a description of the procedures followed, the
matters considered, the scope of review undertaken and the assumptions made in
arriving at its conclusions. The full text of such opinion is attached to this
Proxy Statement as Exhibit B, which stockholders are urged to read in its
entirety. For purposes of its opinion, C&L relied, without independent
verification, on the accuracy and completeness of all financial and other
information reviewed by it. For further information regarding C&L's opinion and
C&L's fee and expense arrangements, see "PROPOSAL TO APPROVE THE MERGER
AGREEMENT--Opinion of Coopers & Lybrand Securities, L.L.C."
Financing
The cash required by the Company to pay fees and expenses related to the
Merger (including expenses of the financing discussed below) is estimated to be
approximately $1,100,000. In addition, as a result of the Merger the Company
will assume approximately $4,000,000 of Intercompany Liabilities owed to John
Catsimatidis and his affiliates and the Company currently intends to pay such
Intercompany Liabilities promptly after the Merger. It is anticipated that all
of the approximately $5,100,000 in the aggregate needed to pay fees and
expenses of the Merger and the Intercompany Liabilities will be obtained from
the proceeds of a secured term loan made to the Company by European American
Bank and certain other participating lenders that would close as soon as
practicable following the approval of the Merger by the Company's stockholders.
See "PROPOSAL TO APPROVE THE MERGER AGREEMENT--Financing."
iv
<PAGE>
Summary Historical and Pro Forma Financial Data
The following tables present certain summary historical and unaudited pro
forma combined financial and comparative per share data for Sloan's
Supermarkets, Inc. and Subsidiaries and the Food Group. The summary historical
financial data are qualified in their entirety by reference to, and should be
read in conjunction with, the financial statements and notes thereto of the
separate companies included elsewhere in this Proxy Statement. The unaudited
summary pro forma combined financial data are calculated after giving effect to
the Merger and reflect application of the purchase method of accounting. The
unaudited summary pro forma consolidated financial data are not necessarily
indicative of future operations or actual results that would have occurred had
the Merger actually been consummated at the assumed dates (see below). This
information is qualified in its entirety by reference to, and should be read in
conjunction with, the unaudited pro forma condensed consolidated financial
statements and notes thereto of the separate companies included elsewhere in
this Proxy Statement. See "Unaudited Pro Forma Combined Financial Statements"
and "Index to Financial Statements."
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended Years Ended
---------------------- --------------------------------------------------------------
June 1, June 2, March 2, March 3, February 26, February 27, February 28,
1997 1996 1997 1996 26, 1995 27, 1994 28, 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales .............................. $12,255 $13,538 $51,792 $50,279 $48,367 $44,975 $ --
Income (loss) from continuing operations
before discontinued operations and
extraordinary item .................. 102 330 1,159 1,831 380 84 (375)
Net income (loss) ..................... 102 330 1,159 1,742 362 162 (671)
Per share of common stock:
Earnings (loss) from continuing opera-
tions before discontinued operations
and extraordinary item ............... .03 0.10 0.37 0.58 0.13 0.03 (0.16)
Net income (loss) .................. .03 0.10 0.37 0.55 0.12 0.06 (0.28)
Cash dividend ........................ -- -- -- -- -- -- --
At End of Period
Total assets ........................... 22,425 22,146 22,815 22,094 16,391 17,624 4,332
Net working capital (deficiency) ...... (1,026) (2,012) (1,086) (2,458) (3,025) (3,241) 3,336
Long-term debt ........................ 3,900 5,100 4,200 5,400 2,743 4,158 --
Total liabilities ..................... 14,165 14,817 14,657 15,095 11,135 13,505 375
Stockholders' equity .................. $ 8,260 $ 7,328 $ 8,158 $ 6,998 $ 5,256 $ 4,119 $ 3,957
</TABLE>
THE FOOD GROUP
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended Years Ended
--------------------- ---------------------------------------
June 1, June 2, March 2, March 3, February 26,
1997 1996 1997 1996 1995
--------- --------- ---------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales .............................. $24,929 $26,938 $104,169 $116,866 $116,863
Excess of expenses over revenues ...... (806) (582) (1,999) (1,937) (4,064)
At End of Period
Total assets ........................... 22,877 -- 23,119 20,152 18,281
Long-term debt ........................ -- -- -- -- --
Total liabilities ..................... 19,849 -- 20,014 17,621 15,822
</TABLE>
v
<PAGE>
THE FOOD GROUP
AND
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED SUMMARY OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 1, 1997
-------------------------------------------------------------------
Sloan's Merger
Supermarkets, Inc. Pro Forma Pro Forma
Food Group and Subsidiaries Adjustments Total
------------ -------------------- ------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales and other operating revenues ......... $24,929 $ 12,255 $ (962) $ 36,222
Cost of goods sold ........................... 15,350 7,507 (962) 21,895
Interest expense .............................. -- 187 108 295
Income (loss) from continuing operations ...... (806) 102 (67) (771)
Per share of common stock:
Earnings (loss) from continuing operations . $ 0.03 $ (0.04)
Weighted average number of common shares
outstanding ................................. 3,132,000 14,400,000 17,532,000
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 2, 1997
--------------------------------------------------------------
Sloan's
Supermarkets, Merger Pro
Inc. and Forma Pro Forma
Food Group Subsidiaries Adjustments Total
------------ --------------- ------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales and other operating revenues ......... $104,169 $ 51,792 ($ 5,240) $ 150,721
Cost of goods sold .............................. 63,933 31,184 (5,240) 89,877
Interest expense ................................. -- 709 471 1,180
Income (loss) from continuing operations ......... (1,999) 1,160 (266) (1,105)
Per share of common stock:
Earnings (loss) from continuing operations ...... $ 0.37 $ (0.06)
Weighted average number of common shares
outstanding .................................... 3,132,000 14,400,000 17,532,000
</TABLE>
PRO FORMA COMBINED SUMMARY BALANCE SHEET DATA
(UNAUDITED)
<TABLE>
<CAPTION>
June 1, 1997
--------------------------
(Dollars in thousands,
except per share amount)
<S> <C>
Total assets .................................... $ 49,933
Net working capital ........................... (1,993)
Long-term debt and capitalized lease obligations 11,216
Stockholders' equity ........................... 15,688
Book value per share ........................... $ .89
</TABLE>
vi
<PAGE>
SLOAN'S SUPERMARKETS, INC.
-------------------------------
PROXY STATEMENT
-------------------------------
SPECIAL AND ANNUAL MEETING OF STOCKHOLDERS
October 30, 1997
This proxy statement is furnished in connection with the solicitation of
proxies by and on behalf of the management of Sloan's Supermarkets, Inc.
(hereinafter called the "Company" or "Sloan's") to be voted at the Special and
Annual Meeting of Stockholders (the "Annual Meeting") to be held on October 30,
1997 or any adjournments thereof, for the purposes set forth in the foregoing
Notice of Special and Annual Meeting. Proxy material is being mailed in an
initial mailing beginning on or about October 1, 1997 to stockholders of record
as of September 29, 1997. The address of the principal executive offices of the
Company is 823 Eleventh Avenue, New York, New York 10019-3535 and the telephone
number is (212) 541-5534.
OUTSTANDING SHARES AND
VOTING RIGHTS
The Board of Directors has set the close of business on September 29, 1997
as the record date for determining the stockholders entitled to notice of, and
to vote at, the Annual Meeting. On that date the Company had outstanding
3,132,289 shares of Common Stock, par value $.02 per share ("Common Stock"),
each of which is entitled to one vote on each matter. No other class of
securities other than Common Stock will be entitled to vote at the meeting.
There are no cumulative voting rights. Any stockholder executing a proxy card
may revoke or revise it any time before the meeting by submitting a new proxy
card or by voting in person at the meeting. Either action will automatically
cancel any proxy card previously executed.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
Common Stock on September 29, 1997 by: (i) each stockholder known to the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock; (ii) each of the Company's directors and nominees for and (iii) all
officers and directors of the Company as a group. Except as otherwise
indicated, the address of each person is c/o Sloan's Supermarkets, Inc., 823
Eleventh Avenue, New York, N.Y. 10019-3535, the Company believes that ownership
of the shares by the persons named below is both of record and beneficial and
such persons have sole voting and investment power with respect to the shares
indicated.
<TABLE>
<CAPTION>
Name and Address of Percent
Beneficial Owner Number of Shares of Class
- ---------------------------------------------------------- ------------------ ----------
<S> <C> <C>
John Catsimatidis ....................................... 1,452,552(1) 42.6%
Leroy Hemingway II .................................... 15,950(2) *
Frederick Selby ....................................... 7,822(2) *
Martin Bring .......................................... 6,600(2) *
Kishore Lall .......................................... 0 *
All officers and directors as a group (7 persons) ...... 1,499,924(3) 43.6%
</TABLE>
- ------------
* Less than 1%.
(1) Includes an aggregate of 25,730 shares held by corporations controlled by
Mr. Catsimatidis, 2,057 shares held by a profit sharing plan of which Mr.
Catsimatidis is a trustee, 605 shares held by Mr. Catsimatidis as a
trustee of individual retirement accounts and currently exercisable
options to purchase an aggregate of 275,000 shares of Common Stock. Does
not include options to purchase an aggregate of 250,000 shares of
<PAGE>
Common Stock which the Board of Directors have granted to Mr. John
Catsimatidis subject to approval by the stockholders of the Company at this
Annual Meeting and which are not exercisable unless and until such approval
is given. See "RATIFICATION OF STOCK OPTIONS GRANTED TO JOHN CATSIMATIDIS."
(2) Includes for each of Messrs. Selby, Hemingway and Bring an aggregate of
6,600 shares of Common Stock which may be purchased upon the exercise of
currently exercisable stock options.
(3) Includes an aggregate of 311,800 shares of Common Stock which may be
purchased upon the exercise of currently exercisable stock options.
PROPOSAL TO APPROVE THE MERGER AGREEMENT
General
The Merger Agreement provides, that, subject to the requisite approval of
the stockholders of the Company and to the satisfaction or waiver of certain
other conditions, Gristede's will be merged into GOC, RAS will be merged into
RASOC, SAC will be merged into SACOC and City Produce will be merged into CPO.
Gristede's, RAS and City Produce are corporations indirectly wholly owned
by John Catsimatidis. SAC is a corporation directly wholly owned by Mr.
Catsimatidis. (Gristede's, RAS, SAC and City Produce are collectively referred
to as the "Merging Corporations" or the "Food Group".) RASOC, SACOC, GOC and
CPO are corporations wholly owned by the Company which have been recently
formed by the Company for the purposes of the Merger and which currently have
minimal assets and no liabilities. (RASOC, SACOC, GOC, and CPO are sometimes
collectively referred to as the "Acquiring Corporations.")
As a result of the Merger the Company, through its subsidiaries, will
acquire 28 operating supermarkets, a lease for a supermarket which is currently
non-operating pending completion of renovations but which the Company expects
to reopen on or about October 15, 1997 (the 28 operating and one currently
non-operating supermarkets are hereinafter referred to as the "Acquired
Stores"), ownership of the tradenames "Sloan's" and "Gristede's", and the
business of City Produce (which operates a warehouse and distribution center
primarily for fresh produce) and John Catsimatidis and entities controlled by
him shall receive an aggregate of $40,000,000 in market value of the Company's
Common Stock. The aggregate market value of the Company's Common Stock to be
issued in the Merger will be subject to reduction by an amount equal to the
amount of certain liabilities of Gristede's, RAS, SAC and City Produce to John
Catsimatidis and companies affiliated with him (the "Intercompany Liabilities")
which will be assumed by the surviving corporations in the Merger. The amount
of such Intercompany Liabilities is estimated to be approximately $4,000,000.
(The Company currently intends to pay such Intercompany Liabilities promptly
after the Merger.) Therefore, it is anticipated that an aggregate of
approximately $36,000,000 in market value of Sloan's Common Stock will be
issued. (See "--Merger Consideration.") As a result of the issuance to John
Catsimatidis and entities controlled by him of the Company's Common Stock, upon
the consummation of the Merger Agreement, Mr. Catsimatidis will beneficially
own substantially more than 50% of the Common Stock of the Company and have the
power to control the outcome of stockholder votes, including the election of
all directors of the Company.
The description of the terms and conditions of the Merger Agreement and
related documents (collectively, the "Merger Documents") included herein is
qualified in its entirety by reference to the Merger Agreement and such
documents attached as annexes hereto.
Conflict of Interests
John Catsimatidis, the Chairman of the Board, Chief Executive Officer and
Treasurer and the principal stockholder of the Company (see "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"), directly or indirectly owns all
of the capital stock of Group and SAC. Group and Mr. Catsimatidis shall receive
all of the consideration payable by the Company and its subsidiaries pursuant
to the Merger Agreement (see "PROPOSAL TO APPROVE THE MERGER AGREEMENT --
Merger Consideration"). As a result Mr. Catsimatidis may be considered to have
a conflict of interest in connection with the proposed Merger.
At a meeting of the Board of Directors held on September 6, 1996, the
Board adopted a policy whereby Mr. Catsimatidis will abstain from participation
and voting when the Board considers any aspect of the proposed
2
<PAGE>
Merger. At a meeting of the Board of Directors held on September 18, 1996, the
Board formed a Special Committee, consisting of Messrs. Frederick Selby and
Leroy Hemingway II, two of the directors of the Company who are not members of
management or employees of the Company (the "Special Committee"). The Board
empowered the Special Committee with sole responsibility and authority to make
all determinations and take all actions required to be made by the Company
under the Merger Agreement, including the approval of the terms of all Merger
Documents, the prosecution of all Merger-related actions required to be taken
by the Company and its subsidiaries prior to and after the closing of the
Merger, all determinations as to strict enforcement or waiver of any closing or
other conditions in the documents and agreements entered into by the Company in
connection with the Merger, the determination or acceptance of all financial
data necessary to determine the purchase price and post-closing adjustments in
connection with the proposed Merger, including the value of inventory and
receivables to be acquired and the value of obligations to be assumed to by the
Company or its subsidiaries, the value of the Company's Common Stock to be
issued in connection with the Merger and the taking of any post-closing
actions, including the giving or seeking of indemnification, if necessary.
Approval Requirements
Although applicable Delaware law does not require that stockholders of the
Company approve the Merger, the rules of the American Stock Exchange, Inc. (the
"AMEX") upon which the Company's Common Stock is traded, require approval of
the issuance of Common Stock pursuant to the Merger since all of such Common
Stock shall be issued to John Catsimatidis or a corporation wholly owned by
John Catsimatidis, the Chairman of the Board, Chief Executive Officer and
Treasurer and principal stockholder of the Company. Such approval is required
to be given by the affirmative vote of the holders of a majority of the Common
Stock voted on the proposal provided that a quorum (the holders of a majority
of the outstanding Common Stock) of stockholders is present or represented by
proxy at the Annual Meeting. It is a condition to the obligations of the
Company and its subsidiaries under the Merger Agreement that the agreement be
approved by the requisite vote of the holders of Common Stock. However,
stockholders will not have rights under the Delaware General Corporation Law to
seek an appraisal of the fair value of their shares in the event that they do
not desire to vote their shares in favor of approval of the Merger (see "--The
Merger Agreement").
As of the record date for determining the stockholders entitled to notice
of, and to vote at the Annual Meeting Mr. Catsimatidis and entities controlled
by him are the record owners of an aggregate of 1,177,552 shares of Common
Stock (approximately 37.6% of the outstanding Common Stock). Mr. Catsimatidis
has informed the Company that he intends to vote all of such shares in favor of
the Merger Agreement. It is not a condition to approval of the Merger Agreement
that the holders of a majority of the shares of Common Stock voted at the
Annual Meeting by stockholders who are unaffiliated with Mr. Catsimatidis vote
in favor of approval of the Merger.
Merger Consideration
Upon consummation of the Merger, Gristede's will be merged with and into
GOC, RAS will be merged with and into RASOC, SAC will be merged with and into
SACOC and City Produce will be merged with and into CPO. Each share of common
stock of each of Gristede's, RAS, SAC and City Produce will be converted into
and exchanged for the number of shares of the Company's Common Stock determined
in accordance with Schedule 4 to the Merger Agreement. Subject to certain
closing adjustments hereinafter described, the aggregate consideration payable
by Sloan's and its subsidiaries pursuant to the Merger Agreement will be such
number of shares of Common Stock as shall have a Market Value (as defined
below) of $40,000,000. The aggregate market value of the Company's Common Stock
to be issued in the Merger will be subject to reduction by an amount equal to
the amount of the Intercompany Liabilities which will be assumed by the
surviving corporations in the Merger. The amount of such Intercompany
Liabilities is estimated to be $4,000,000. Therefore, it is anticipated that an
aggregate of $36,000,000 in market value of Sloan's Common Stock will be
issued. As used in this Proxy Statement, the term "Market Value" means the
aggregate number of shares of Common Stock to be issued times the average of
the closing sales price of the Common Stock as reported on the AMEX for the
sixty consecutive trading days ended on the trading day immediately preceding
the day, if any, on which the stockholders of the Company shall approve the
Merger Agreement.
3
<PAGE>
The average closing sales price for the Common Stock as reported on the
AMEX for the thirty consecutive trading days ended on September 29, 1997 was
approximately $2.194. Assuming that such average closing sales price would be
used for purposes of calculating the number of shares of Common Stock to be
issued pursuant to the Merger Agreement, an aggregate of 16,408,387 shares of
Common Stock would be issued pursuant to the Merger Agreement. Giving effect to
such issuance, Mr. Catsimatidis would beneficially own an aggregate of
17,860,939 shares of Common Stock (approximately 90.1% of the outstanding
shares).
Financing
The total amount of cash required by the Company and the Acquiring
Corporations to pay fees and expenses related to the Merger (including expenses
of the financing described below) is estimated to be approximately $1,100,000.
In addition, as a result of the Merger the Company will assume approximately
$4,000,000 of Intercompany Liabilities owed to John Catsimatidis and his
affiliates and the Company currently intends to pay such Intercompany
Liabilities promptly after the Merger. It is anticipated that all of the
approximately $5,100,000 in the aggregate needed to pay fees and expenses
related to the Merger and the Intercompany Liabilities will be obtained from a
portion of the proceeds of a secured term loan to be made to the Company by
European American Bank ("EAB") and certain other participating lenders. The
Company has received commitment letters from EAB and the participating lenders
with respect to a facility comprised of a $12,000,000 five year term loan to
refinance existing bank debt, fund the payment of $4,000,000 of Intercompany
Liabilities and provide working capital; an $8,000,000 five year term loan to
finance the remodelling of existing stores and the installation of a
point-of-sale and management information system; and a $5,000,000 revolving
line of credit for additional working capital which line of credit shall be for
a two year period. The foregoing commitments are subject to the negotiation and
execution of definitive documentation satisfactory to EAB and the participating
lenders.
The outstanding principal balance of the loans made under the facility
will bear interest at the Company's option at either (a) EAB's prime rate in
effect from time to time plus an additional .75% per annum or (b) at LIBOR plus
an additional 2.50% per annum. Commencing on the issuance of audited financial
statements of the Company as of March 1, 1998 and thereafter, the interest rate
margins on prime rate and LIBOR loans may be reduced by up to .75% per annum
based upon the ratio of Senior Debt to EBITDA (as such terms are defined in the
commitment letters).
All indebtedness under the facility will be secured by a first lien on all
personal property of the Company, including a pledge by the Company of the
stock of its subsidiaries, as well as personal guarantee of John Catsimatidis
limited to an amount of $4,000,000. The Company expects to be able to pay the
principal and interest on all indebtedness under the facility out of internally
generated funds following the consummation of the Merger.
It is also anticipated that the definitive documentation for the facility
will contain provisions, including, but not limited to, those (i) limiting the
incurrence of additional indebtedness, the granting of additional liens, the
giving of guarantees and payments of dividends and other distributions, (ii)
requiring the Company to repay indebtedness with the proceeds of the issuance
by the Company of debt or equity securities, (iii) compliance with certain
financial covenants, and (iv) restrictions on certain transactions, including
mergers and the sale of a substantial portion of the Company's assets and
transactions which would result in a "change of control" of the Company.
The actual terms and conditions of the definitive documentation with
respect to the facility may differ from those described above.
Background
Between 1989 and 1992, the Company disposed of all of its business
operations in the jewelry business. Thereafter, it sought the acquisition of a
new business or businesses. In late 1992 CKMR Corporation ("CKMR"), a
privately-held corporation which during 1991 and 1992 had sold to SAC, a
corporation wholly owned by Mr. Catsimatidis, an aggregate of 21 "Sloan's"
supermarkets (including certain of the Acquired Stores), offered to sell an
additional 11 supermarkets operating under the "Sloan's" name to Mr.
Catsimatidis or his affiliates. Mr. Catsimatidis brought such opportunity to
the Board of Directors of the Company for consideration.
4
<PAGE>
In discussions concerning the terms of the acquisition, members of the
Board of Directors raised their concern that the number of supermarkets being
offered for purchase by the Company was too small to be administered on a cost
effective basis by an entirely new staff of management and back office
personnel that the Company might have to put in place to operate the
supermarkets. To address this concern, Mr. Catsimatidis offered to provide the
Company, pursuant to a management agreement, the services of Group (a
corporation which administers Mr. Catsimatidis' privately owned supermarkets in
the New York City area including the Acquired Stores). Under the proposed
management agreement Group would provide such services for a fee equal to 1 1/4%
of gross revenues of the Company's supermarkets. Mr. Catsimatidis further
offered to allow the Company to continue to operate the supermarkets under the
"Sloan's" name by granting to the Company a perpetual royalty-free license for
the name (which had been acquired as part of the 21 supermarket acquisition in
1991 and 1992). Based upon these offers, the Board of Directors approved the
acquisition.
From the date of its 11 store acquisition from CKMR the Company has
operated profitably under the management agreement with Group. However, due to
the Company's size, the market price of its Common Stock and its lack of
capital, in the 19 month period after the acquisition, management believed that
the Company was not yet in a position to execute an aggressive growth strategy.
Rather, the Company focused upon improving store profitability. Since March
1993, the Company has opened one new store, disposed of one of the acquired
supermarkets and in October 1995 purchased from SAC for $5,000,000 plus the
cost of inventory, three additional supermarkets. Other than the foregoing, the
Company did not consider making any acquisitions or entering into any business
combinations during the period from March 1993 to October 1995.
During 1995 it became clear to the Board of Directors that by acquiring
ownership of most of the supermarkets privately held by companies controlled by
Mr. Catsimatidis, the Company could greatly increase its operating leverage and
be in a better position to obtain the capital and other resources to strengthen
its operations, automate its facilities and capitalize on strategic
opportunities.
As a result, discussions followed between Mr. Catsimatidis and other
directors in which Mr. Catsimatidis stated his willingness to sell to the
Company most of his privately-owned supermarkets in New York City for a
consideration of approximately $40,000,000. Recognizing that the terms of any
acquisition would ultimately have to be submitted to an independent entity for
a determination of the fairness thereof from a financial point of view, the
Board authorized Mr. Catsimatidis to explore the feasibility of a potential
acquisition by the Company from Mr. Catsimatidis' privately-owned companies of
supermarkets for a consideration of approximately $40,000,000. In August 1995,
after discussions with several other investment banking firms, the Company
retained Barington Capital Group, L.P. ("Barington") to assist the Company in
obtaining financing for such an acquisition and to advise the Company
concerning the form and structure of possible transactions pursuant to which
such acquisition might be effectuated. Barington was not retained to and did
not render a valuation of the Acquired Stores or an opinion as to the fairness
to the Company of an acquisition of the Acquired Stores.
Barington and the Company considered various alternative structures for
the transaction. Such structures included an all cash payment, a payment of
$15,000,000 in cash and $25,000,000 in capital stock (either all Common Stock
or $20,000,000 in Common Stock and $5,000,000 in preferred stock) and a cash
payment in excess of $15,000,000 with the balance of the $40,000,000 payable in
capital stock. Barington and the Company understood that to the extent that a
significant portion of the acquisition consideration was payable in cash,
financing for the transaction in the form of subordinated debt and warrants
would be required. Based upon Barington's advice, Mr. Catsimatidis and the
Special Committee informally agreed upon a structure for a transaction under
which entities controlled by Mr. Catsimatidis would receive an aggregate of
$15,000,000 in cash and $25,000,000 in market value of the Company's stock.
Barington informed the Board of Directors that it considered that such an
acquisition of the Food Group was within a range which could support a
$35,000,000 private placement of subordinated debt and warrants of the Company
to finance such acquisition and for other purposes. On September 18, 1996, the
Board of Directors of the Company, John Catsimatidis abstaining, determined
that the Company should proceed with a private offering of subordinated debt
and warrants to finance an acquisition of the Food Group on such terms.
On October 16, 1996 the Company filed with the Securities and Exchange
(the "Commission") preliminary proxy material relating to the foregoing
acquisition, among other things, and shortly thereafter commenced to seek
financing for the cash portion of the purchase price and other purposes. The
Company thereafter received
5
<PAGE>
various proposals to finance an acquisition of the Food Group through the
issuance by the Company of $35,000,000 subordinated debt and warrants to
purchase Common Stock of Company, all of which proposals contained pricing
terms which the Company considered expensive.
As an alternative to consummating the $35,000,000 private offering through
Barington, in early 1997 the Company entered into discussions with EAB
concerning a $25,000,000 facility to the Company upon pricing terms
significantly lower than terms offered by institutions making proposals to
finance the Company through the issuance of subordinated debt. The terms of the
proposed EAB facility include a $12,000,000 secured term loan, up to $4,000,000
of the proceeds of which could be used to fund the repayment of Intercompany
Liabilities that might be assumed by the Acquiring Corporations in the Merger.
Because the proposed facility limited the amount of cash that could be paid to
Mr. Catsimatidis or entities controlled by him in connection with the Merger,
but the pricing terms of such proposed facility were more attractive to the
Company, the members of Special Committee and Mr. Catsimatidis agreed to
restructure the terms of the Merger by making the merger consideration payable
solely in the Company's Common Stock (although promptly after the Merger the
Company intends to pay John Catsimatidis and entities controlled by him all
Intercompany Liabilities, estimated to be $4,000,000) assumed by the surviving
corporations in the Merger). In June 1997 EAB and the participating lenders
issued commitment letters to the Company with respect to the $25,000,000
facility (see "PROPOSAL TO APPROVE THE MERGER AGREEMENT-Financing").
Recommendation of the Board of Directors
At a meeting held on July 11, 1997 the Special Committee determined that,
subject to the terms and conditions set forth in the Merger Agreement, the
Merger is fair to and in the best interests of the Company and its stockholders
and that the Merger Agreement be approved and adopted. Based upon the approval
of the Merger Agreement by the Special Committee, on July 11, 1997 the entire
Board of Directors of the Company (John Catsimatidis abstaining) determined to
recommend that the stockholders of the Company approve and adopt the Merger
Agreement. In reaching its conclusion the Board of Directors considered the
factors described below in "Reasons for the Merger," the presentations of
Coopers & Lybrand Securities, L.L.C. and the opinion of such firm that the
consideration to be paid by the Company pursuant to the Merger Agreement is
fair from a financial point of view, information with respect to the financial
condition, results of operations, business and prospects of the Company, as
well as the current conditions and risks involved with its business and the
terms and conditions of the Merger Agreement. In making their determinations to
approve and adopt the Merger Agreement the Special Committee and the Board of
Directors also considered the effect of the significant dilution which would be
experienced in the relative equity percentage of stockholders other than Mr.
Catsimatidis and his affiliates, but concluded that the potential benefits of
the Merger to all stockholders outweighed this factor, particularly since Mr.
Catsimatidis already beneficially owned approximately 37.6% of the outstanding
Common Stock and was already in a position to substantially control the outcome
of stockholder votes.
Reasons for the Merger
Management believes that the proposed Merger renders substantial value to
the Company by allowing it to achieve the critical mass necessary to execute
its future growth strategy. The post-merger combination of 19 Gristede's
stores, 24 Sloan's stores and one Pioneer store operating under one entity will
allow the Company to realize synergies and increase operating leverage while
providing management with the necessary resources and focus to streamline
operations, automate facilities and capitalize on strategic opportunities. The
following highlights several key advantages gained by the proposed Merger:
o Increased Size and Market Share Giving effect to the Merger as of the
beginning of the year, the Company would have had total sales of over $162
million for the fiscal year ended March 3, 1996 rather than $52 million in
sales it actually had for such year. According to 1996 Metro New York
Market Study At A Glance published in Modern Grocer's (the "Modern
Grocer's Study"), after the Merger, the Company will rank first in
Manhattan in number of stores. The second largest supermarket chain in
Manhattan has approximately half the number of stores as will the Company
after the Merger (the "Combined
6
<PAGE>
Company"). According to the Modern Grocer's Study, the Combined Company
would rank fourth in estimated sales among chains which operate within the
five boroughs of New York City. Furthermore, management believes the
increased size of the Company will enable it to obtain financing (for
capital improvements, working capital and acquisitions) on more attractive
terms than would be available to the Company at its present size and to
facilitate potential acquisitions.
o Increased Efficiency and Strategic Focus through Combined Operations The
Food Group has been managed by a team of personnel (led by John
Catsimatidis) with significant experience in managing supermarkets in New
York. When the Company acquired its initial supermarkets in March 1993,
the Board of Directors determined that in light of the cost savings that
would be achieved by contracting out management functions and the fact
that the acquired supermarkets would be operated under the same "Sloan's"
name as certain supermarkets privately-owned by Mr. Catsimatidis, it would
be in the best interests of the Company to enter into a management
agreement with Group under which Group would manage the operations of the
Company's supermarkets for a fee of 1 1/4% of gross revenues. As a result
of the Merger, the management agreement will be terminated and the
employees of Group who have managed the operations of the Company's
supermarkets will become employees of the Company. Management believes
that the combination of management functions offers the Company
significant opportunities to realize an increase in operating efficiencies
and to pursue a more focused operating strategy. For example, management
believes that as a result of the combination, the Combined Company will
benefit from (a) having one set of financial records, rather than many,
(b) reduced costs associated with reducing the number of independent
audits that will be required, (c) a streamlined back office operation that
should result in lower corporate overhead expense than in prior periods,
(d) a more unified presence in its core New York market and (e) the
increased sharing among employees of critical information regarding store
operations. As such, the Combined Company will be in a better position to
improve profitability and continue to gain market share in the New York
City area.
o Enhanced Operations Through A Company-Wide Capital Expenditure Program In
February 1992 management embarked on a capital expenditure program that
has included extensive store remodelings and the introduction of a
centralized point-of-sale information system in many of the Acquired
Stores. Since February 1992, 3 of the 44 supermarkets to be operated by
the Combined Company after the Merger have been extensively remodelled,
certain other supermarkets have been upgraded and point-of-sale units have
been installed in 7 stores with point-of-sale units expected to be
installed in an additional 37 stores by December 1998. Since its
inception, the remodelling program has been successful in increasing foot
traffic and generating higher margin sales in each of the Combined
Company's reformatted stores. Based upon the results of installations made
to date, management believes that the point-of-sale information system
will result in operating cost savings and increased productivity as a
result of greater accuracy in merchandise pricing and receiving, the
elimination of labor-intensive functions and the availability of
additional information for use by management.
o Increased Investor Interest Management of the Company believes that one
of the possible benefits of increasing the size and revenues of the
Company may be an increase in interest in the Company by supermarket
analysts at brokerage firms, banks and other institutions. Such increased
interest could result in increased investor interest in the Company.
o Elimination of Confusion Concerning Tradenames Currently, the Food Group
and the Company each operate stores under the tradenames "Sloan's" and
"Gristede's." After the Merger, substantially all of the stores using such
names would be owned by the Company and the present uncertainty among
investors as to which entity owns which supermarkets would be eliminated.
Opinion of Coopers & Lybrand Securities, L.L.C.
The Company retained Coopers & Lybrand L.L.P. ("Coopers") in September
1996 to render an opinion to the Company's Board of Directors as to the
fairness, from a financial point of view, of the consideration to be paid by
the Company in connection with the Merger. On July 14, 1997 Coopers & Lybrand
Securities, L.L.C., a wholly owned investment banking subsidiary of Coopers
("C&L"), delivered its written opinion to the Board that as of the date of the
opinion, the consideration to be paid by the Company pursuant to the Merger
Agreement is fair from a financial point of view.
7
<PAGE>
The full text of C&L's opinion, which includes the assumptions made,
general procedures followed and matters considered is set forth as Exhibit B to
this Proxy Statement. C&L relied upon and assumed the accuracy and completeness
of all financial and historical and prospective operating information that was
publicly available or furnished to C&L and did not attempt to independently
verify any of such information nor did it make or obtain any independent
evaluations or appraisal of any assets of the Food Group. C&L also was not
requested to and did not solicit third party indications of interest in
acquiring all or any part of the Food Group. No limitations were imposed by the
Board or the Special Committee upon C&L with respect to the investigation made,
or procedures followed by C&L in rendering its opinion. C&L did not determine
or recommend the amount of the consideration to be paid by the Company in
connection with the Merger.
In rendering its opinion, C&L carried out various procedures and
considered certain facts, including: (i) a review of the Merger Agreement; (ii)
a review of certain financial and other information related to the Food Group
that was publicly available or furnished to C&L by the Company and the
management of the Food Group including financial forecasts and an analysis of
the lower corporate overhead anticipated by management from its planned
streamlining of back office operations; (iii) meetings with management of the
Company and the Food Group to discuss the nature of the market in which the
Food Group competes, the scope of operations, historical financial results and
future prospects for the Food Group; (iv) a physical inspection of each
location comprising the Food Group; (v) an analysis of certain financial data
of the Food Group compared to similar data for publicly-held companies in
businesses which C&L deemed to be comparable to the Food Group; (vi) an
analysis of the financial terms of certain recent mergers of companies in
businesses similar to the Food Group; and (vii) a discounted cash flow analysis
utilizing financial and operating projections and/or assumptions provided by
the management of the Food Group.
C&L utilized the following valuation approaches to arrive at its
preliminary ranges of value:
o Income Approach: The concept underlying this approach is that realistic
valuation of any investment in an income-producing property is directly
related to the future cash flow attributable to such property. Therefore,
future cash flow represents the recovery of investments as well as a
return on investment. The ability of an enterprise to create adequate cash
flow, fund the proper cash disbursements, and provide for related
financing activities is the primary determinant of value in that
enterprise.
A major requirement of the cash flow approach is an earnings forecast.
This forecast is management's best estimate of what will most likely occur
in the future as it pertains to revenues, expenses, capital expenditures
and working capital requirements. During the valuation analysis, the
forecast is analyzed by comparison to the forecasted financial and
operating results of comparable businesses with an emphasis on growth and
profitability.
Another important component of this income approach is the determination
of the cost of equity as well as the weighted average cost of capital.
These rates of return are utilized to convert to present value the
operating cash flow the subject property is expected to generate in the
future. Various financial tools and models are used to calculate these
returns.
C&L worked with the management of the Food Group and the Company to
estimate what will most likely occur in the future as it pertains to
revenues, expenses, income, cash flow, capital expenditures and working
capital requirements associated with the Food Group. These cash flows were
then discounted at a weighted average cost of capital ranging from 14% to
16% to determine an indication of value for the Food Group of $45 to $50
million. This value indication incorporated a 10% control premium to
reflect the fact that the discount rate utilized was derived through an
examination of the returns required on securities traded on public
exchanges, which involve only minority blocks.
o Transaction Approach: This approach required an analysis of recent
transactions involving retail operations comparable to the Food Group.
Market derived multiples, based on sales and EBDIT (earnings before
depreciation, interest and taxes) were developed and analyzed to consider
differences between the Food Group and the comparable transactions used in
the analysis for factors such as location, market share, growth potential
and profitability. C&L's transaction database included information on more
than
8
<PAGE>
60 separate retail supermarket transactions. Based on this analysis, C&L
considered purchase price to sales multiples of .35 to .40 and purchase
price to EBDIT multiples of 6.0 to 7.0. Valuation multiples were then
applied to the appropriate financial indicators to determine a range of
values for the Food Group of $40 to $45 million.
o Market Multiple Approach: This approach required an analysis of the
publicly-traded companies operating in the relevant industry. Market
valuation multiples were developed from the financial statements of the
identified guideline companies. The guideline companies used in this
analysis included Arden Group, Buttrey Food & Drug, Quality Food Centers,
Seaway Food Town, Sloan's Supermarkts, Inc., Village Super Market, Whole
Foods Market, Casey's General Stores, Inc., Unimarts, Inc., and Dairy Mart
Convenience Stores. Comparisons of certain financial characteristics of
the guideline companies, including company size, profitability, and
historical and expected growth, were made to the corresponding
characteristics of the Food Group. Based on this analysis, market value of
total capital to sales multiples of .30 to .35 and market value of total
capital to EBDIT multiples of 4.5 to 6.0, were considered. Based on the
application on the valuation multiples to the appropriate financial
indicators of the Food Group, a range of values for the Food Group of $40
to $45 million was determined. These values include a control premium of
10% to reflect the fact that the valuation ratios utilized were derived
through an examination of the ratios exhibited by stocks traded on public
exchanges, which involve only minority transactions.
In each of the Income Approach, Transaction Approach and Market Multiple
Approach, the bottom of the range of indicated values was equal to or greater
than $40,000,000. Based on the foregoing, it is C&L's opinion that as of the
date of its opinion the consideration to be paid by the Company pursuant to the
Merger Agreement is fair from a financial point of view. C&L believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create a misleading view of the processes underlying its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description.
Upon the engagement of C&L to render the opinion the Company paid to C&L a
fee of $100,000. The Company paid an additional $50,000 to C&L prior to receipt
of the opinion. The Company shall be required to pay an additional $150,000 to
C&L upon receipt, pursuant to the Company's request, of a reaffirmation of
C&L's opinion on or before the date of this Annual Meeting. The Company has
also agreed to reimburse C&L for its out-of-pocket expenses in connection with
rendering the opinion.
Coopers and its subsidiary has performed numerous valuation engagements
encompassing a wide and diversified range of industries including food
distribution and retail supermarket operations. Coopers was retained by the
Board of Directors after consideration by it of several candidate firms.
In October 1995 Coopers conducted a valuation analysis of three
supermarkets which the Company was acquiring from SAC. The Company paid to
Coopers a fee of $15,000 for such services and also reimbursed Coopers for
certain of its expenses in connection with such services.
Federal Income Tax Consequences
The Company will not recognize gain or loss as a result of the completion
of the transactions set forth in the Merger Agreement. The Company believes
that it will undergo an "ownership change" within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, as a consequence of the
transaction. As a result, the Company's ability to offset its net operating
loss carryforwards (including a portion of any net operating loss incurred in
the Company's current taxable year) against income earned after the transaction
will be limited. (As of March 2, 1997 the Company had net operating loss
carryforwards of approximately $2,000,000.) Thus, the transaction could result
in taxation of some Company income that, absent the transaction, might have
been offset by net operating loss carryforwards.
9
<PAGE>
Accounting Treatment
The Merger will be accounted for under Emerging Issues Task Force
Statement 90-13 ("EITF 90-13") similar to a reverse merger whereby the
resulting equity of the Combined Company represents the cost basis of the
owners of the Food Group in the Acquired Stores and their adjusted basis for
the Company's equity, net of the $4.0 million liability assumption relating to
this transaction.
Merger Agreement
The following summary of the Merger Agreement is qualified in its entirety
by reference to the full Merger Agreement which is attached to this Proxy
Statement as Exhibit A. All capitalized terms used herein and not otherwise
defined have the same meanings ascribed to them in the Merger Agreement.
The Mergers
At the Effective Time of its respective Merger, Gristede's will be merged
with and into GOC, RAS will be merged with and into RASOC, SAC will be merged
with and into SACOC, City Produce will be merged with and into CPO and Group,
as the holder of all of the outstanding shares of capital stock of each of
Gristede's, RAS and City Produce, and John Catsimatidis, as the holder of all
of the outstanding shares of SAC, will be entitled to receive upon surrender of
the certificates representing such shares a number of shares of Sloan's Common
Stock determined in accordance with Schedule 4 to the Merger Agreement (See
"--Merger Consideration"). The Merger shall not effect any changes in the
capital stock of GOC, RASOC, SACOC and CPO. Thus, after the Merger, Sloan's
will remain as the holder of all of the outstanding capital stock of each of
the surviving corporations. Each Merger shall become effective upon the filing
of a Certificate of Merger with the New York Department of State. The Merger
Agreement provides that such filings will be made no later than the next
business day after the closing of the Merger Agreement (the "Closing"), which
in turn shall be no later than the second business day following satisfaction
or waiver of all of the conditions contained in the Merger Agreement.
Post-Closing Adjustments
Physical inventories of the merchandise and supplies of each of the
Merging Corporations will be taken on the two days immediately preceding the
date of consummation of the Merger (the "Closing Date"). Prior to a date which
is sixty days after the Closing Date (the "Post-Closing Adjustment Date") the
parties shall agree upon the value of such inventory, as well as the value on
the Closing Date of the accounts receivable, notes receivable, certain other
current assets, accrued vacation and sick pay for employees, liabilities to
Sloan's or its subsidiaries and trade payables of the Merging Corporations. To
the extent that the aggregate value of the inventory, accounts receivable,
notes receivable and specified other current assets of Gristede's, RAS, SAC and
City Produce on the Closing Date (as such amounts are calculated in accordance
with the terms of the Merger Agreement) exceeds the aggregate value of trade
payables, accrued vacation and sick pay for employees and liabilities to
Sloan's or its subsidiaries of such corporations on the Closing Date (as
calculated in accordance with the terms of the Merger Agreement), GOC, RASOC,
SACOC and CPO shall jointly and severally be obligated to deliver to Group and
John Catsimatidis a check in the amount of such excess. No closing prorations
shall be made in the Merger.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
certain of the parties thereto, including representations and warranties of
each of Group, SAC, Sloan's and the Acquiring Corporations as to (a) the
organization and good standing of the parties, (b) their power and authority to
enter into the Merger Agreement and carry out the transactions contemplated
thereby, (c) the validity and binding nature of the Merger Agreement, (d)
subject to certain exceptions, the absence of the need for consents and
approvals to consummate the Merger Agreement, and (e) the absence of any
obligation to third parties for finder's fees or brokers' commissions in
connection with the Merger.
The Company and the Acquiring Corporations have also represented that all
of the Company's Common Stock to be issued in consideration of the Merger will
upon issuance be duly authorized, validly issued, fully paid and
non-assessable.
10
<PAGE>
Group and SAC have also represented, among other things, with respect to
each Merging Corporation and, where appropriate, Group, as to its (a)
capitalization, (b) title to its assets, (c) compliance with the terms of all
leases for real property to which it is a party and its use of the demised
premises, (d) subject to certain exceptions, the absence of pending or
threatened actions, proceedings or investigations against or involving it, (e)
the absence of material adverse changes since March 2, 1997 in its financial
condition, results of operations, properties, business or properties, (f)
intellectual property and the lack of its infringement upon the intellectual
property rights of others, (g) compliance with applicable laws, regulations and
ordinances, including safety and environmental laws, (h) labor relations, (i)
licenses in connection with the ownership, occupancy or operation of its assets
for their present uses, (j) insurance coverage, and (k) employee benefit plans.
Group and SAC have also represented as to the condition of the fixed assets of
the Merging Corporations, certain financial information concerning the Merging
Corporations and that the information supplied by Group, any Merging
Corporation or John Catsimatidis for inclusion in this Proxy Statement will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
Covenants and Agreements
Group, each of the Merging Corporations and John Catsimatidis have agreed,
among other things, prior to the consummation of the Merger, to: (a) cooperate
with the Company to cause the transactions contemplated by the Merger Agreement
to be consummated, (b) use their best efforts to obtain all necessary third
party consents and government approvals, and (c) continue the businesses of
each of the Merging Corporations in their ordinary course consistent with prior
practice.
Conditions to the Merger
The Merger Agreement provides that the respective obligations of the
parties to consummate the Merger are subject to the satisfaction at or prior to
the Closing Date of the following conditions: (a) there shall not be in effect
any preliminary restraining order or injunction or other order issued by a
court or other governmental authority of competent jurisdiction directing that
any or all of the transactions contemplated by the Merger Agreement not be
consummated or imposing any material conditions on such consummation and (b)
all approvals or orders by governmental entities required to be obtained have
been obtained and all filings, notices or declarations required to be made
before any governmental entity by any party have been made (including the
filing of pre- merger notification and report forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the expiration or
termination of the applicable waiting period thereunder). (In such connection,
pre-merger notification and request forms shall be filed with the Federal Trade
Commission on or about October 2, 1997.)
The obligations of the Company and the Acquiring Corporations to
consummate the Merger are further subject to, among other things, (a) all of
the representations and warranties of Group and SAC being true and correct in
all respects as of the Closing Date, (b) each of Group, the Merging
Corporations and John Catsimatidis having performed all agreements to be
performed by it or him under the Merger Agreement at or prior to the Closing
Date, (c) the delivery to the Company and the Acquiring Corporations of
certificates on behalf of Group and SAC signed by an executive officer of Group
and SAC to the effect described in clauses (a) and (b), (d) Group and SAC
having obtained and delivered to the Company and the Acquiring Corporations all
consents (and related estoppel certificates) required to be given by lessors
under leases of real property required to be given by lessors under real
property leased to any of the Merging Corporations in connection with the
Merger, (e) Group and John Catsimatidis having prepared and delivered to the
Company and the Acquiring Corporations tax returns and checks payable to the
appropriate authorities in payment of the transfer taxes payable in connection
with the Merger, (f) the stockholders of the Company having approved the Merger
Agreement at the Annual Meeting, (g) C&L having reaffirmed its fairness opinion
as of a date not later than one day prior to the date of the Annual Meeting and
(h) the Management Agreement between the Company and Group pursuant to which
Group has managed the operations of the Company's supermarkets, having been
terminated.
The obligations of Group, the Merging Corporations and John Catsimatidis
to consummate the Merger are further subject to, among other things, (a) all of
the representations and warranties of the Company and the Acquiring
Corporations being true and correct in all respects as of the Closing Date, (b)
each of the Company
11
<PAGE>
and the Acquiring Corporations having performed all agreements to be performed
by it under the Merger Agreement at or prior to the Closing Date, (c) the
Company and the Acquiring Corporations having delivered a certificate signed on
their behalf by an executive officer to the effect described in clauses (a) and
(b), (d) Group and/or entities controlled by Group (the "Group Companies")
having entered into with Namdor Inc. ("Namdor"), a corporation wholly owned by
the Company which owns and operates all of the supermarkets currently owned by
the Company, a management agreement pursuant to which Namdor shall manage the
operations of the supermarkets still owned by the Group Companies after the
consummation of the Merger for a fee of 1 1/4% of all sales made in or from such
supermarkets, (e) SACOC and GOC having entered into license agreements with the
Group Companies pursuant to which the Group Companies shall receive a
royalty-free license to use the "Sloan's" and "Gristede's" names in connection
with the operation of all supermarkets owned by the Group Companies on the
commencement of such agreement and (f) the Company having entered into a
registration rights agreement with Group and John Catsimatidis pursuant to which
the Company shall have agreed, subject to certain conditions, limitations and
exclusions, at the Company's expense to register under the Securities Act of
1933, as amended, the shares of Common Stock issued pursuant to the Merger
Agreement on two occasions upon the demand of the holders thereof and upon
request of such holders to include such Common Stock in any appropriate
Registration Statement which is filed by the Company following the issuance of
such stock.
Indemnification
The Merger Agreement provides that Group shall indemnify, defend and hold
harmless the Company and the Acquiring Corporations against all claims,
demands, losses, costs, expenses, obligations, liabilities, damages, recoveries
and deficiencies, including interest, penalties and reasonable attorney's fees
(collectively "Losses") as a result of any breach of any representation made by
Group or SAC in the Merger Documents or the failure by Group, SAC or John
Catsimatidis to perform any of its or his covenants or agreements in the Merger
Documents generally for a period of three years after the Closing Date.
The Company and the Acquiring Corporations have agreed to jointly and
severally indemnify, defend and hold harmless Group and John Catsimatidis
against all Losses arising out of the operations of the supermarkets and any
other business conducted by the Acquiring Corporations after the Closing Date
and, for a period of three years after the Closing Date, all Losses arising out
of a breach of any representations made by the Company or the Acquiring
Corporations in the Merger Documents or the failure by the Company or any
Merging Corporation to perform any of its covenants or agreements in the Merger
Documents.
MARKET PRICES AND DIVIDENDS
The Company's Common Stock is listed and traded on the American Stock
Exchange under stock symbol "SLO". For the two fiscal years ended March 2, 1997
and March 3, 1996, the quarterly high and low price range for such common stock
is shown in the following tabulation:
1996 1997
---------------- ----------------
Quarter High Low High Low
- --------------- ------ ------- ------- ------
First ......... 5 1/4 4 1/16 3 3/4 2 7/8
Second ...... 5 3/4 3 5/8 3 1/2 2 1/2
Third ...... 5 3 5/8 3 3/8 2 1/4
Fourth ...... 4 3 1/8 3 1/16 1 7/8
The approximate number of holders of record of the Company's Common Stock
on May 22, 1997 was 236. The Company believes that there are a significant
number of shares of the Company's Common Stock held in street name and,
consequently, the Company is unable to determine the actual number of
beneficial owners.
The Company has never paid a cash dividend on its Common Stock and does
not expect to pay a cash dividend in the near future.
Under its Loan and Security Agreement with EAB, the Company is restricted
from paying dividends on its Common Stock so long as there is outstanding
indebtedness to EAB. As of August 31, 1997, the outstanding indebtedness to EAB
under the agreement was approximately $7,300,000.
12
<PAGE>
THE FOOD GROUP AND
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
COMPARATIVE PER SHARE DATA
The following unaudited table is based upon data used in compiling the pro
forma combined statements of Sloan's Supermarkets, Inc. and Subsidiaries and
upon the respective historical combined financial statements of Sloan's
Supermarkets, the pro forma financial statements and the introduction to the
pro forma financial statements appearing elsewhere herein and should be read in
conjunction with those statements and the related notes thereto. The pro forma
information set forth is not necessarily indicative of the combined results and
the combined financial position as they may be in the future or as they might
have been for the periods or as of the dates indicated had the Merger been
consummated at the beginning of the respective periods or as of such dates. The
results of operations for the interim periods may not be indicative of full
year results.
<TABLE>
<CAPTION>
Three Months Ended Years Ended
------------------- -----------------------------------------------------------------
June 1, June 2, March 2, March 3, February 26, February 27, February 28,
1997 1996 1997 1996 1995 1994 1993
--------- -------- --------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sloan's Common Stock
Historical:
Earnings (loss) per share from
continuing operations ......... $ 0.03 $ 0.10 $ 0.37 $ 0.58 $ 0.13 $ 0.03 $(0.16)
Net earnings (loss) per share 0.03 0.10 0.37 0.55 0.12 0.06 (0.28)
Dividends per share ............ -- -- -- -- -- -- --
Book value per share (1) ...... 2.64 2.33 2.60 2.21 1.80 1.50 1.65
Pro Forma:
Net earnings (loss) per share
adjusted ..................... (0.04) -- (0.06) -- -- -- --
Book value per share (2) ...... 0.89 -- 0.92 -- -- -- --
</TABLE>
- ------------
(1) The book value per share is calculated by taking the equity and dividing it
by the weighted average number of shares.
(2) The pro forma book value per share is calculated by taking the equity less
the pro forma adjustments divided by the weighted average number of shares
plus the additional shares issued to finance the Merger.
13
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
Introduction
The directors of the Company have decided that it is in the Company's best
interest to purchase the Acquired Stores. The Company will assume $4.0 million
in related party liabilities and issue $36.0 million in Common Stock to John A.
Catsimatidis, the Company's principal stockholder and chief executive officer,
and entities controlled by him, for these assets. The Merger will be accounted
for according to Emerging Issues Task Force Statement 90-13 as a reverse
merger, whereby the equity of the combined entity will represent the owner's
basis in the Acquired Stores and the adjusted basis for the Company's equity,
net of the $4.0 million liability assumption relating to this transaction.
The accompanying pro forma balance sheet reflects the Merger as if it
occurred on June 1, 1997. The accompanying pro forma statements of operations
for the year ended March 2, 1997 and three months ended June 1, 1997 reflect
the Merger as if it occurred on March 4, 1996.
The accompanying pro forma data should be read in conjunction with the
notes thereto and the applicable historical financial statements of the Company
and the Food Group, included elsewhere herein. The results of operations are
not indicative of the actual results that might have occurred had the Merger
taken place as of March 4, 1996 or of expected future combined operating
results.
Certain reclassifications have been made to the presentation of the
Sloan's Supermarkets, Inc. and subsidiaries financial statements to conform to
the presentation for The Food Group's financial statements and the pro forma
financial statements.
14
<PAGE>
THE FOOD GROUP AND SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
June 1, 1997
<TABLE>
<CAPTION>
Sloan's
Food Supermarkets, Inc. Proforma Proforma
Group and Subsidiaries Adjustments Total
------------ -------------------- -------------- ------------
<S> <C> <C> <C> <C>
Assets
Current:
Cash ................................................ $ -- $ 65,481 $ 10,900,000 (3) $ 865,481
(10,100,000)(4)
Accounts receivable ................................. 2,413,276 741,709 3,154,985
Inventories .......................................... 9,331,163 5,706,520 15,037,683
Notes receivable - current portion .................. 534,919 -- 534,919
Prepaid expenses and other current assets ............ 204,046 208,717 412,763
Due from related parties .............................. -- 1,668,982 (1,668,982)(5) --
---------- -------------- ------------- ------------
Total current assets ................................. 12,483,404 8,391,409 (868,982) 20,005,831
---------- -------------- ------------- ------------
Fixed assets, net of depreciation and amortization ..... 7,027,987 12,251,607 4,400,000 (23,679,594)
Capitalized leases, net of depreciation and
amortization ....................................... 1,272,072 -- -- 1,272,072
Notes receivable - noncurrent portion ............... 1,786,515 -- -- 1,786,515
Due from affiliates ................................. -- 342,129 342,129
Deposits and other assets ........................... 307,306 492,824 800,130
Deferred costs ....................................... -- 111,220 111,220
Noncompete agreement - net of amortization ............ -- 458,992 458,992
Deferred finance costs - net of amortization ......... -- 376,528 1,100,000 (3) 1,476,528
---------- -------------- ------------- ------------
Total assets ....................................... 22,877,284 22,424,709 4,631,018 49,933,011
========== ============== ============= ============
Liabilities and Stockholder's Equity
Current:
Accounts payable, trade .............................. 10,310,129 6,641,583 16,951,712
Accrued payroll, vacation and withholding ............ 738,965 345,805 1,084,770
Capitalized lease obligations due to affiliate - ...... 1,790,832 -- -- 1,790,832
current
Accrued expenses and other current liabilities ...... -- 230,201 230,201
Due to related parties .............................. -- -- 241,727 (5) 241,727
Revolving credit facility ........................... -- 1,000,000 (1,000,000)(4) --
Current portion of long term debt ..................... -- 1,200,000 (1,200,000)(4) 1,700,000
1,700,000 (3) --
---------- -------------- ------------- ------------
Total current liabilities ........................... 12,839,926 9,417,589 (258,273) 21,999,242
---------- -------------- ------------- ------------
Long-term debt ....................................... -- 3,900,000 (3,900,000)(4) --
---------- -------------- ------------- ------------
Notes payable .......................................... -- 10,300,000 (3) 10,300,000
---------- -------------- ------------- ------------
Deferred rent .......................................... 846,887 846,887
Deferred payroll, vacation and withholdings ............ 183,112 -- -- 183,112
---------- -------------- ------------- ------------
Capitalized lease obligations due to affiliate -
non-current .......................................... 915,550 -- -- 915,550
---------- -------------- ------------- ------------
Due to Sloan's Supermarkets, Inc. ..................... 1,910,709 -- (1,910,709)(5) --
Due to related parties ................................. 4,000,000 -- (4,000,000)(4) --
---------- -------------- ------------- ------------
Total liabilities .................................... 19,849,297 14,164,476 231,018 34,244,791
---------- -------------- ------------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $50 par -- shares authorized
500,000; none issued ................................. -- -- --
Common Stock, $0.02 par -- shares authorized
10,000,000; outstanding 3,132,289 (6) ............... -- 62,646 288,000 (1) 350,646
Additional paid-in capital ........................... 3,027,987 18,248,286 (10,338,699)(1) 15,337,574
4,400,000 (2)
Retained earnings (accumulated deficit) ............... -- (10,050,699) 10,050,699 (1) --
---------- -------------- ------------- ------------
Total stockholders' equity ........................... 3,027,987 8,260,233 4,400,000 15,688,220
---------- -------------- ------------- ------------
$22,877,284 $ 22,424,709 $ 4,631,018 $ 49,933,011
========== ============== ============= ============
</TABLE>
See accompanying footnotes for explanation of the adjustments.
15
<PAGE>
The Food Group and Sloan's Supermarkets, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Combined Balance Sheet
June 1, 1997
(1) The transaction has been accounted for as the acquisition of Sloan's by the
Food Group pursuant to EITF 90-13 as a result of the Food Group obtaining
control of Sloan's after the transaction. The shares representing 37.6%
ownership of Sloan's held by Mr. Catsimatidis prior to the transaction was
accounted for at Mr. Catsimatidis' actual cost of $5,490,000 based upon his
stock purchase records. The assets and liabilities of the Food Group (the
acquiror) are recorded at their historical cost. Sloan's' assets and
liabilities are being recorded at their fair market value to the extent
acquired.
Due to the change of control of Sloan's Supermarkets, Inc., Sloan's' net
operating loss carryforward will be limited pursuant to Section 382 of the
Internal Revenue Code.
(2) To record the excess of cost over fair value of the net assets acquired.
Upon the consummation of the transaction, the Company intends to have an
appraisal performed to allocate the excess purchase price to the fair
value of the assets acquired. Management believes based on historical
experience that such excess will be allocated to leasehold rights.
(3) To recognize the proceeds received (net of financial costs) from EAB in
connection with the committed financing to repay existing indebtedness.
(4) To record the repayment of $4,000,000 due to related parties and the
repayment of $6,100,000 of debt obligations refinanced in connection with
the transaction.
(5) To offset intercompany balances between the Food Group and the Company.
(6) In connection with the transaction, Mr. Catsimatidis will receive
approximately 14,400,000 shares of Sloan's common stock based on a closing
stock price of $2.50 per share.
16
<PAGE>
THE FOOD GROUP AND SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED INCOME STATEMENT
YEAR ENDED MARCH 2, 1997
<TABLE>
<CAPTION>
Sloan's
Supermarkets,
Inc. and Pro Forma Pro Forma
Food Group Subsidiaries Adjustments Combined
-------------- ------------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
Sales .................................... $104,168,864 $ 51,792,539 $ (5,240,000)(a) $150,721,403
Cost of sales .............................. 63,932,541 31,184,126(b) (5,240,000)(a) 89,876,667
------------ -------------- --------------- ------------
Gross profit .............................. 40,236,323 20,608,413 -- 60,844,736
Direct operating expenses .................. 33,821,475 15,937,452 -- 49,758,927
Management fee ........................... -- 644,811 (644,811)(c) --
------------ -------------- --------------- ------------
6,414,848 4,026,150 644,811 11,085,809
Corporate overhead ........................ 6,321,172 409,008 -- 6,730,180
------------ -------------- --------------- ------------
93,676 3,617,142 644,811 4,355,629
Depreciation & amortization ............... 2,092,403 1,699,677 440,000(d) 4,232,080
Interest expense and bank charges (g)....... -- 709,454 220,000(e) 1,180,000
250,546(f)
Taxes .................................... 48,333 48,333
------------ -------------- --------------- ------------
Net income (loss) ........................ $ (1,998,727) $ 1,159,678 $ (265,735) $ (1,104,784)
============ ============== =============== ============
Earnings (loss) per share .................. $ 0.37 ($ 0.06)
============== ============
Weighted average number of shares
outstanding .............................. 3,132,000 17,532,000
</TABLE>
THE FOOD GROUP AND SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED INCOME STATEMENT
THREE MONTHS ENDED JUNE 1, 1997
<TABLE>
<CAPTION>
Sloan's
Supermarkets,
Inc. and Pro Forma Pro Forma
Food Group Subsidiaries Adjustments Combined
----------- ------------------ -------------------- ----------------
<S> <C> <C> <C> <C>
Sales .................................... $24,928,724 $ 12,254,700 $ (961,375)(a) $36,222,049
Cost of sales .............................. 15,349,822 7,506,416(b) (961,375)(a) 21,894,863
---------- ------------- ------------- -----------
Gross profit .............................. 9,578,902 4,748,284 -- 14,327,186
Direct operating expenses .................. 8,332,852 3,792,765 -- 12,125,617
Management fee ........................... -- 150,829 (150,829)(c) --
---------- ------------- ------------- -----------
1,246,050 804,690 150,829 2,201,569
Corporate overhead ........................ 1,528,958 85,086 -- 1,614,044
---------- ------------- ------------- -----------
(282,908) 719,604 150,829 587,525
Depreciation & amortization ............... 523,111 425,545 110,000(d) 1,058,656
Interest expense and bank charges (g) ...... -- 187,442 55,000(e) 295,000
52,558(f)
Taxes .................................... 4,500 -- 4,500
---------- ------------- ------------- -----------
Net income (loss) ........................ $ (806,019) $ 102,117 $ (66,729) $ (770,631)
========== ============= ============= ===========
Earnings (loss) per share .................. $ .03 ($ 0.04)
============= ===========
Weighted average number of shares
outstanding .............................. 3,132,000 17,532,000
</TABLE>
17
<PAGE>
The Food Group and Sloan's Supermarkets, Inc. and Subsidiaries
Notes to the Pro Forma Income Statements -- Unaudited
For the year ended March 2, 1997
and the three months ended June 1, 1997
(a) To eliminate intercompany sales between the Food Group and the
Company.
(b) Certain companies owned by the Chairman of the Board of the Company
allocate volume, advertising and other rebates to the Company. For
the year ended March 2, 1997 and the three months ended June 1,
1997, such amounts approximated $1,455,600 and $292,000,
respectively, and have been reflected as a reduction of cost of
sales. In the future, these amounts will be negotiated and received
directly by the Company. The receipt of volume, advertising and
other rebates is a normal trade practice; however, there can be no
assurance that vendors will provide allowances in the same amounts
they have in the past.
(c) To eliminate management fees paid by the Company to the parent of
the Food Group. The amount represents billings from a related party
that provides office services to the Company. This amount is
included in the corporate overhead of the Food Group.
(d) To record amortization of the value assigned to the leaseholds
acquired in the transaction. The leaseholds were valued at
$4,400,000 and were amortized over 10 years.
(e) To record amortization of deferred financing costs related to the
transaction. Total fees for the transaction are estimated at
$1,100,000 and are being amortized over a period of 5 years which
coincides with the term of the loan.
(f) To record pro forma interest expense on the $12.0 million at March
2, 1997 and $12.0 million at June 1, 1997 of secured bank debt
outstanding. The interest expense for the year is based on 8.0% per
annum, which amounts to $960,000 for the year ended March 2, 1997
and $240,000 for the three months ended June 1, 1997. The journal
entries eliminate the actual interest expense for the old debt that
was retired and calculates what interest will be under new terms.
(g) The Company will have an additional $13.0 million at March 2, 1997
and $13.0 million at June 1, 1997 for capital expenditures and
working capital purposes available from a group of banks. Interest
expense on the additional amount would be $1,040,000 for the year
ended March 2, 1997 and $260,000 for the three months ended June 1,
1997 based upon an assumed interest rate of 8.0% per annum. The
Company intends to draw down on this commitment during the year for
working capital and capital expenditures.
18
<PAGE>
The Food Group and Sloan's Supermarkets, Inc. and Subsidiaries
Pro Forma Combined Capitalization
The following unaudited table sets forth the historical capitalization of
the Food Group and the Company as of June 1, 1997 and the pro forma combined
capitalization after giving effect to the reverse merger between the Food Group
and the Company. The pro forma information set forth below is not necessarily
indicative of the combined capitalization as it may be in the future or as it
might have been had the Merger been consummated as of June 1, 1997.
<TABLE>
<CAPTION>
The
Company Food Group Pro Forma
Title of Class As Reported As Reported As Reported
- --------------------------------------------------- ------------- ------------- ------------
(Dollars in 000's)
<S> <C> <C> <C>
Current portion of long-term debt ............... $ 1,200 $ 0 $ 1,700
Existing bank facility ........................... 1,000 0 0
Due related parties .............................. 0 4,000 0
Capitalized lease obligations to affiliate ...... 0 2,706 2,706
Long-term debt ................................. 3,900 0 0
New senior debt ................................. 0 0 10,300
-------- -------- -----------
Total debt .................................... 6,100 6,706 14,706
======== ======== ===========
Existing shareholders' equity .................. 8,260 3,028 0
New shareholders' equity ........................ 0 0 15,688(a)
-------- -------- -----------
Total shareholders' equity .................. 8,260 3,028 15,688
-------- -------- -----------
Total capitalization ........................ $ 14,360 $ 9,734 $ 30,394
======== ======== ===========
</TABLE>
- ------------
(a) Pursuant to EITF 90-13, The Food Group is considered the acquiror.
Accordingly, the pro forma shareholders' equity consists of the net assets
of the Food Group at the closing date, increased by the cost of shares
representing Mr. Catsimatidis' 37.6% interest and the value assigned to
the shares to be held by the public immediately after the transaction
closes.
19
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
Set forth below is selected financial data of the Company. The information
is based upon the historical financial statements of the Company. Results for
the unaudited periods may not be indicative of full year results. Any financial
information or financial statements included in this proxy statement may not
reflect necessarily the continuing business of the Company, or represent a
basis for assessing future performance.
<TABLE>
<CAPTION>
Three Months Ended Years Ended
---------------------- ----------------------------------------------------------
June 1, June 2, March 2, March 3, February 26, February 27, February 28,
1997 1996 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ........................... $12,255 $13,538 $51,792 $50,279 $48,367 $44,975 $ --
Income (loss) from continuing
operations before discontinued
operations and extraordinary item.... 102 330 1,159 1,831 380 84 (375)
Net income (loss) .................. 102 330 1,159 1,742 362 162 (671)
Per share of common stock:
Earnings (loss) from continuing
operations before
discontinued operations and
extraordinary item ............... 0.03 0.10 0.37 0.58 0.13 0.03 (0.16)
Net income (loss) ............... 0.03 0.10 0.37 0.55 0.12 0.06 (0.28)
Cash dividend ..................... -- -- -- -- -- -- --
At End of Period
- -------------------------------------
Total assets ........................ 22,425 22,146 22,815 22,094 16,391 17,624 4,332
Net working capital (deficiency) ... (1,026) (2,012) (1,086) (2,458) (3,025) (3,241) 3,336
Long-term debt ..................... 3,900 5,100 4,200 5,400 2,743 4,158 --
Total liabilities .................. 14,165 14,817 14,657 15,095 11,135 13,505 375
Stockholders' equity ............... $ 8,260 $ 7,328 $ 8,158 $ 6,998 $ 5,256 $ 4,119 $ 3,957
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
OF THE COMPANY
Company Background
The fiscal year ended February 26, 1995 consisted of 52 weeks. The fiscal
year ended March 3, 1996 consisted of 53 weeks. The fiscal year ended March 2,
1997 consisted of 52 weeks.
Results of Operations (Three Months Ended June 1, 1997 Compared to Three Months
Ended June 2, 1996)
Net income was $102,117 for the 13 weeks ended June 1, 1997 as compared to
$330,253 for the 13 weeks ended June 2, 1996.
Sales were $12,254,700 in the 1997 period compared to $13,538,008 for the
same period in 1996. The decline in sales was primarily due to a delay in the
commencement of the Company's remodeling program, which was originally
scheduled to start earlier this year. In addition, deflationary pressures in
food prices also contributed to the decrease in sales in the 1997 period as
compared to the 1996 period.
The Company has embarked on a substantial remodeling program under which 4
stores will be extensively remodeled and refixtured during the next 8 months.
The remodels will also result in the expansion of the sales areas in these
stores. It is anticipated that the Company will experience appreciable sales
increases in the remodeled stores based on prior history.
Gross profit as a percentage of sales was 38.75% for the 13 weeks ended
June 1, 1997 compared to 40.07% for the 13 weeks ended June 2, 1996. The
decrease in gross profit margin was mainly due to a curtailment of our
long-term forward buying program in the 1997 period as compared to the 1996
period, due to the temporary lack of suitable available product. It is
anticipated that forward buying opportunities will once again be available in
future periods.
Direct operating expenses were $3,792,765 or 30.95% of sales in 1997
compared with $4,199,435 or 31.02% of sales in 1996. Direct operating expenses
as a percentage of sales decreased in the 1997 period as compared to the 1996
period mainly as a result of a reduction in store supply costs and lower
refrigeration maintenance costs.
Corporate overhead was $85,086 in 1997 as compared with $109,843 in 1996,
mainly as a result of lower legal expenses. The decrease in legal expenses was
a result of the Company's reduced need during the quarter for the services of
outside legal counsel in connection with litigation, real estate and general
corporate matters.
Results of Operations (1997 Compared to 1996)
Net income was $1,159,678 for the fiscal year ended March 2, 1997 as
compared to $1,742,266 for the fiscal year ended March 3, 1996. The 1996 income
included a gain of $1,001,397 on the sale of the leasehold of one supermarket
during the year.
Sales for the 1997 fiscal year were $51,792,539 as compared to $50,279,245
for fiscal year 1996. The increase in sales was primarily due to the fact that
three stores acquired during 1996 were open for the entire 1997 year, as well
as the opening of two additional stores at the beginning of the 1997 year. The
increase in sales generated by the additional stores was partially offset by
the fact that the prior year consisted of 53 weeks as compared with 52 weeks in
1997 as well as a decline in same store sales of $3,949,350 (after adjusting
1996 same store sales downward to reflect a comparable 52 week period). Same
store sales declined due to (a) management's decision to seek higher margins
over sales, (b) a decrease in the selling price of cereals (which constitute
approximately 7.5% of the Company's grocery sales) as a result of manufacturers
lowering wholesale prices of cereals by approximately 20% in April, 1996 and
(c) a reduction in beverage sales during the summer months of 1997 as compared
to the same period in 1996. Beverage sales, which ordinarily represent
approximately 17% of summer sales, were negatively impacted by the abnormally
cool weather in the New York area.
21
<PAGE>
The Company anticipates that until completion of its planned remodelling
program, same store sales will remain constant as a result of management's
intention to maintain current margin levels. Management believes that same
store sales will increase as the remodelling and refurbishment of stores is
completed.
Gross profit was $20,608,413 (39.79% of sales) in 1997 as compared to
$19,243,125 (38.27% of sales) in 1996. The improvement in the 1997 period
mainly reflects the implementation of the better buying program utilizing the
distribution center of an affiliate to make bulk purchases, on a direct basis
at better prices, as well as the expansion of the sales of value-added, higher
margin products. Additionally, prices were selectively increased. During 1997
the Company recognized as income approximately $1,340,000 of advertising and
volume achievement allowances as compared to approximately $1,141,000 during
1996.
Store operating, general and administrative expenses were $17,739,680 in
1997 (34.25% of sales) as compared to $16,811,184 (33.44% of sales) in 1996.
The primary reasons for the increase were the expenses associated with the
additional stores operating in the 1997 year and the extra costs incurred with
the start-up of the new stores.
Nonstore operating expense decreased to $287,966 in 1997 as compared to
$414,165 in 1996, mainly as a result of lower legal expense. The decrease in
legal expenses was as a result of the Company's reduced need during the year
for the services of outside legal counsel in connection with litigation, real
estate and general corporate matters.
Interest expense was $709,454 in 1997 as compared with $551,631 in 1996.
The increase is attributable to the additional borrowing incurred to finance
the purchase of the three stores acquired during fiscal 1996.
Results of Operations (1996 Compared to 1995)
Net income was $1,742,266 for the year ended March 3, 1996 compared to
$362,088 for the year ended February 26, 1995. The 1996 income includes a gain
of $1,001,397 on the sale of the leasehold of one of its supermarkets during
the year.
Sales in 1996 were $50,279,245 compared to $48,366,513 in 1995. The
increase in sales is primarily due to 1996 having 53 weeks compared to 52 weeks
in 1995 and the fact that three additional stores were operated for part of
1996.
Gross profit was $19,243,125 (38.27%) in 1996 compared to $17,447,668
(36.07%) in 1995. Gross profit has continued to increase as a result of
improved cost controls, more efficient inventory purchasing and a better
product mix. Advertising and volume achievement allowances from vendors
continued to be a significant portion of gross profit. During 1996, the Company
recognized as income approximately $1,141,000 of these allowances from vendors
compared to approximately $1,350,000 during 1995. This decrease is primarily
the result of fewer new products being introduced by vendors during fiscal 1996
as compared to fiscal 1995. The deferred portion of the advertising income was
approximately $172,000 at March 3, 1996 compared to approximately $354,000 at
February 26, 1995.
Store operating, general and administrative expenses increased to
$16,811,184 in 1996 from $15,623,576 in 1995. As a percentage of sales, these
expenses were 33.4% and 32.3% for 1996 and 1995, respectively. The increase is
primarily due to additional depreciation and amortization applicable to the
supermarkets acquired, the additional costs incurred in opening the new
supermarket and additional payroll costs associated with a new union contract,
which took effect during fiscal 1996.
Nonstore operating expenses increased to $414,165 in 1996 compared to
$395,400 in 1995. As a percentage of sales, nonstore operating expenses
remained fairly constant. Interest expense increased to $551,631 in 1996 from
$406,193. The increase is primarily the result of the additional bank loan for
the purchase of the three Supermarkets.
Liquidity and Capital Resources
During the fiscal year ended March 2, 1997, the Company reduced its
working capital deficiency by approximately $1,373,000 and reduced its
long-term debt by $1,200,000.
22
<PAGE>
Sales and gross profits have increased in each of the last three years and
management anticipates that this trend will continue, along with the continued
generation of significant cash flows from operations.
The Company has targeted four stores for remodelling and refurbishing
during the fiscal year ending March 1, 1998 and plans to spend approximately
$1,700,000 on such remodelling and refurbishings.
The Company has received commitment letters from EAB and certain
participating lenders with respect to a secured bank facility comprised of a
$12,000,000 five year term loan to refinance existing bank debt, fund the
payment of $4,000,000 of Intercompany Liabilities and provide working capital;
an $8,000,000 five year term loan to finance the remodelling of existing stores
(including stores to be acquired from the Food Group) and the installation of a
point-of-sale and management information system; and a $5,000,000 revolving
line of credit for additional working capital which line of credit shall be for
a two year period. The foregoing commitments are subject to the negotiation and
execution of definitive documentation satisfactory to EAB and the participating
lenders. See "PROPOSAL TO APPROVE THE MERGER AGREEMENT--Financing." The Company
believes that such facility, together with cash flow generated from the
Company's operations, will be sufficient to sustain the operations of the
Combined Company for at least two years.
Inflation
The Company does not believe that inflation has had, or will have in the
foreseeable future, a material impact upon the Company's operating results.
23
<PAGE>
SELECTED FINANCIAL DATA
OF THE FOOD GROUP
Set forth below is selected financial data of the Food Group. The
information is based upon the historical financial statements of the Food
Group. Results for the unaudited interim periods may not be indicative of full
year results. Any financial information or financial statements included in
this proxy statement may not reflect necessarily the continuing business of the
Food Group, or represent a basis for assessing future performance.
<TABLE>
<CAPTION>
Three Months Ended
---------------------
Years Ended
(Unaudited) --------------------------------------
June 1, June 2, March 2, March 3, February 26,
1997 1996 1997 1996 1995
--------- --------- ---------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales .............................. $24,929 $26,938 $104,169 $116,866 $116,863
Excess of expenses over revenues ...... (806) (582) (1,999) (1,937) (4,064)
At End of Period
Total assets ........................... 22,877 -- 23,119 20,152 18,281
Long-term debt ........................ -- -- -- -- --
Total liabilities ..................... 19,849 -- 20,014 17,621 15,822
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE FOOD GROUP
Results of Operation (Three Months Ended June 1, 1997 Compared to Three Months
Ended June 2, 1996)
Sales for the 13 weeks ended June 1, 1997 were $24,928,724 as compared to
$26,937,532 for the 13 weeks ended June 2, 1996. Approximately $933,200 of the
sales decrease was attributable to one store which was open for the entire 1996
period but was closed during the 1997 period, due to a fire. In addition, sales
from the City Produce distribution center to outside customers were
approximately $581,000 less in the 1997 period as compared with the 1996 period
mainly as a result of the utilization of the facility as a distribution center
for the Food Group stores. Deflationary pressures in food prices also
contributed to the decrease in the 1997 period as compared to the 1996 period.
Gross profit as a percentage of sales was 38.4% for the 13 weeks ended
June 1, 1997 as compared to 39.9% for the 13 weeks ended June 2, 1996. The
decrease in gross profit margin was mainly due to a curtailment of the Food
Group's long-term forward buying program in the 1997 period as compared to the
1996 period, due to the temporary lack of suitable product. It is anticipated
that forward buying opportunities will once again be available in future
periods.
Store operating expenses were $8,332,852 or 33.4% of sales for the 13
weeks ended June 1, 1997, as compared with $8,988,150 or 33.3% of sales for the
13 weeks ended June 2, 1996. The slight increase in store operating expenses as
a percentage of sales in 1997 as compared to 1996 was mainly due to an increase
in advertising costs.
Corporate overhead decreased to $1,528,958 or 6.1% of sales for the 13
weeks ended June 1, 1997 as compared to $1,789,643 or 6.6% of sales for the 13
weeks ended June 2, 1996. The decrease in 1997 as compared to 1996 was
primarily due to reductions in general back office expenses and a reduction in
the number of operating stores.
As a result of the foregoing, the net loss was $806,019 for the 13 weeks
ended June 1, 1997 as compared to a net loss of $582,462 for the 13 weeks ended
June 2, 1996, after charges for depreciation and amortization of $523,111 and
$564,168, respectively.
Results Of Operations (1997 Compared to 1996)
Sales for the fiscal year ended March 2, 1997 were $104,168,864 as
compared to $116,866,023 for the fiscal year ended March 3, 1996. The decrease
in sales was attributable to the following: (i) 1996 was comprised of 53 weeks
as compared with 52 weeks in 1997, (ii) one store that was open for all of 1996
was only open for a portion of 1997 due to a fire, as a result of which sales
of such store were approximately $3,270,000 less in 1997 as compared to 1996,
(iii) beverage sales, which ordinarily represent approximately 17.0% of summer
sales, were negatively impacted by the abnormally cool weather in the New York
area in 1997 and (iv) the selling price of cereals, which typically represent
approximately 7.50% of grocery sales, decreased in 1997. Sales from the City
Produce distribution center to outside customers were approximately $1,525,000
less in 1997 as compared with 1996 mainly as a result of the increased
utilization of the facility as a distribution center for the Food Group's
stores under the better-buying program.
Gross profit as a percentage of sales was 38.6% for 1997 as compared to
38.1% for 1996. The improvement in 1997 primarily reflects the implementation
of the better-buying program utilizing the City Produce distribution center to
make bulk purchases, on a direct basis at better prices, as well as the
expansion of the sales of value-added, higher margin products. Additionally,
prices were selectively increased.
Direct operating expenses as a percent of sales were 32.1% for 1997 as
compared with 32.3% for 1996. The primary reasons for the increase in operating
expenses as a percent of sales in 1997 as compared with 1996 were increases in
utility costs, advertising costs and occupancy costs resulting from new leases
replacing expired ones. In addition, fixed monthly expenses such as occupancy
costs benefitted from 53 weeks of sales in 1996 as compared to 52 weeks of
sales in 1997.
25
<PAGE>
Corporate overhead decreased to $6,207,930 in 1997 as compared to
$6,405,593 in 1996. Bad debt expense was $113,242 or 0.1% of sales in 1997 as
compared with $222,878 or 0.2% of sales in 1996. The decrease in bad debt
expense was primarily due to a reduction in reserves required for the expanded
use of credit cards in the Food Group's stores.
As a result of the above, the excess of expenses over sales was $1,998,727
for 1997 as compared to $1,937,505 for 1996, after charges for depreciation and
amortization expenses of $2,092,403 and $2,257,714, respectively.
Results of Operations (1996 Compared to 1995)
Sales in the year ended March 3, 1996 were $116,866,063 as compared to
$116,862,727 in the year ended February 26, 1995. 1996 sales were flat as
compared to 1995 despite the fact that 1996 reflected a 53 week period. The
additional week's sales in 1996 was offset by a decline in sales by the City
Produce division, resulting from the elimination of shipments to the Virgin
Islands in the last 5 months of the year.
Gross profit in 1996 was $44,514,823 as compared to $43,969,085 in 1995.
As a percentage of sales gross profit increased to 38.1% in 1996 as compared to
37.6% in 1995. The increase in 1996 was primarily attributable to more
efficient inventory purchasing as a result of the expansion of bulk purchases
directly from distributors.
Direct operating expenses were $37,566,143 or 32.1% of sales in 1996 as
compared to $36,738,453 or 31.4% of sales in 1995. The increase in direct
operating expenses as a percentage of sales in 1996 as compared to 1995 was
mainly due to increased occupancy costs resulting from renegotiated leases and
rent accelerations as well as from cost increases in maintenance service
contracts and general store repairs.
Corporate overhead was $6,405,593 or 5.5% of sales in 1996 as compared to
$8,269,408 or 7.1% of sales in 1995. Corporate overhead declined in 1996 as
compared to 1995 primarily as a result of reductions in field supervision
salaries and related fringes and general back office expenses. This decline was
mainly attributable to reductions in the number of stores and to reductions in
expenses as a result of a comprehensive expense review.
Bad debt expense was $222,878 or 0.2% of sales in 1996 as compared to
$277,952 or 0.2% of sales in 1995. The reduction in the dollar amount of bad
debt expense is attributable to better collection performance on vendor and
customer accounts receivable.
As a result of the foregoing, excess of expenses over sales decreased to
$1,937,505 in 1996 as compared to $4,064,369 in 1995, after charges for
depreciation and amortization expense of $2,257,714 and $2,747,641,
respectively.
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BUSINESS AND PROPERTIES OF THE COMPANY
The Company owns and operates fourteen supermarkets and one health and
beauty aids store (the "Company Stores") in New York City. Thirteen Company
Stores are located in Manhattan and two are located in Brooklyn. Fourteen of
the Company Stores are operated under the "Sloan's" name and one is operated
under the "Gristede's" name. Eleven Company Stores were acquired in March 1993
from CKMR Corporation ("CKMR"), a privately-held corporation unaffiliated with
the Company. In August 1995, the Company sold the leasehold of one of its
supermarkets; in October 1995, the Company purchased three other Company Stores
from SAC; and in February 1996, the Company opened one new Company Store. In
March 1996, the Company opened a health and beauty aids store. The Company
leases all of its Company Store locations.
The Company competes on the basis of providing customer convenience,
service and a wide assortment of food products, including those that are
appealing to the clientele in the neighborhoods where its Company Stores are
located. The Company Stores, like most Manhattan supermarkets, are smaller than
their suburban counterparts, ranging in size from approximately 5,000 to 16,000
square feet of selling space and averaging 9,700 square feet of selling space.
The Company Stores offer, at competitive prices, broad lines of
merchandise, including nationally and regionally advertised brands, private
label and generic brands. Merchandise sold includes food items such as fresh
meats, produce, dry groceries, dairy products, baked goods, poultry and fish,
fresh fruits and vegetables, frozen foods, delicatessen and gourmet foods, as
well as many non-food items such as cigarettes, soaps, papers products, and
health and beauty aids. Check-cashing services are available to qualified
customers holding check-cashing cards and, for a small fee, the Company will
deliver groceries to a customer's apartment door. The Company Stores accept
payment by Mastercard, Visa, American Express and Discover credit cards. All of
the Company Stores are open fourteen hours per day, seven days a week and on
holidays, including Christmas, New Year's and Thanksgiving. Most of the Company
Stores close two hours earlier on Sundays.
The Company's predecessor was incorporated in 1956 in New York. In 1985,
the Company's domicile was changed to Delaware by merging the predecessor
corporation into a newly formed Delaware corporation, incorporated for such
purpose. The Company became a public company in 1968 and listed its Common
Stock on the AMEX in 1972. Until 1992, the Company engaged in the jewelry
business, operating under the name Designcraft Industries, Inc. for most of
such time. The Company changed its name to Sloan's Supermarkets, Inc. in
September 1993 to reflect its current business.
Administration
Group supervises all operations of the Company Stores pursuant to a
management agreement entered into in March 1993 (the "Management Agreement").
John Catsimatidis, the Chairman of the Board, Chief Executive Officer and
Treasurer of the Company, is also the Chairman of the Board and Chief Executive
Officer of Group. Information concerning the other officers of Group is set
forth under "BUSINESS AND PROPERTIES OF THE FOOD GROUP--Management."
The initial term of the Management Agreement ran until March 19, 1994. The
current term expires on March 19, 1998. Unless terminated by either party, the
Management Agreement is automatically renewed for successive one-year terms.
The Management Agreement requires the Company to pay to Group a quarterly fee
equal to 1 1/4/% of all sales made in or from the Company Stores and to
reimburse Group for all reasonable expenses incurred by Group in the
performance of services thereunder. Mr. Catsimatidis and Group have over 25
years of experience in operating supermarkets in the New York City metropolitan
area ("NYC Area"). It is a condition to the Company's obligation to consummate
the Merger Agreement that the Management Agreement shall be terminated on or
prior to the Closing Date (see "PROPOSAL TO APPROVE THE MERGER AGREEMENT --
Conditions to the Merger.")
Marketing
The Company advertises in local newspapers on a weekly basis. The
Company's advertising emphasizes competitive prices and a variety of
merchandise. Newspaper advertising for the Company Stores is frequently pooled
with advertising for other supermarkets which are not owned by the Company but
which are operated by
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Group and its affiliates other than the Company under the "Sloan's" and
"Gristede's" name including supermarkets which will be acquired by the Company
in the Merger. In such cases, the Company pays a portion of such advertising
expenses based upon the number of Company Stores and supermarkets of other
companies covered in the advertisements. The Company believes that the pooling
arrangement provides benefits to the Company because the size of typical
advertisements with respect to the Company Stores that may be placed may be
larger and the number of advertisements that may be run may be greater as a
result of the spreading of advertising costs over a greater number of
supermarkets. Some of the Company's vendors offer cooperative advertising
allowances (in some instances as part of a pooling arrangement with Group and
its affiliates), which the Company receives for advertising particular products
in its newspaper advertisements.
Competition
The Company's retail business is subject to intense competition,
characterized by low profit margins and requiring regular advertising. All of
the Company Stores are in direct competition with Food Emporium, D'Agostino,
A&P, Pathmark and independent supermarket/grocery operators which do business
under the names "Pioneer," "Key Foods" and "Associated", many of which are
larger and have substantially greater resources than the Company. RAS, SAC and
Gristede's, which also operate an aggregate of 32 stores in the NYC Area (12
under the tradename "Sloan's", 19 under "Gristede's" and one under "Pioneer
Supermarkets", 28 of which supermarkets will be acquired by the Company
pursuant to the Merger), also compete with the Company's retail business. The
Company Stores also compete with other outlets which sell products sold by
supermarkets in New York City. Those outlets include gourmet food stores,
health and beauty aid stores, drug stores, produce stores, bodegas,
delicatessens and other retail food establishments. In addition, several of the
Company's competitors have announced plans to open larger stores in the NYC
Area.
Sources of Supply
During the fiscal year ended March 2, 1997, the Company obtained 45% of
the merchandise sold in its stores from one principal merchandise supplier,
White Rose Food Corp., and the balance from other vendors, none of which
accounted for more than 10% of merchandise purchased by the Company. The
Company believes that its supplier relationships are currently satisfactory.
The Company is not dependent on these supplier relationships since merchandise
is readily available from numerous sources under different brand names, subject
to conditions affecting food supplies generally.
Tradenames
The "Sloan's" and "Gristede's" names have an established reputation in the
areas served by the Company Stores for convenience, competitive prices, service
and a wide variety of quality produce and merchandise. The Company currently
licenses the use of the "Sloan's" and "Gristede's" names under royalty-free
licenses from SAC and Gristede's, respectively. If the Merger is consummated,
the Company will acquire ownership of all of the licensors' rights in the
tradenames.
Gristede's is a federally registered trademark. While the Company is not
aware that its use of the tradename infringes upon the rights of any persons,
SAC has not obtained any federal or state trademark registration for the
"Sloan's" tradename. The assertion by a third party of superior rights in
either tradename or the loss of the Company's right to use either tradename
could have a material adverse effect on the Company.
Labor Contracts
All of the employees of the Company other than three executives and 12
store managers are represented by unions. The Company has entered into
collective bargaining agreements with Retail, Wholesale & Chain Store Food
Employees Union, Local 338 and Amalgamated Meat Cutters and Retail Food Store
Employees Union, Local 342-50 for terms expiring on October 3, 1998 and October
23, 1999, respectively. The Company has also entered into a collective
bargaining agreement with United Food and Commercial Workers International
Union, Local 174 for a term expiring on December 19, 1998.
Governmental Approvals
The Company has obtained all necessary governmental approvals, licenses
and permits to operate the Company Stores.
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Management
For information concerning the officers and directors of the Company see
"ELECTION OF DIRECTORS" and "OTHER DIRECTORS AND EXECUTIVE OFFICERS."
Employees
At September 29, 1997, the Company had approximately 385 employees. Other
than for three executive officers, all employees of the Company are employed at
the Company Stores, and approximately 137 were employed on a full-time basis.
Properties
The Company leases all fifteen Company Stores locations. Eight of such
leases expire on dates from 2001 through 2010 and seven of such leases expire
on dates from 2013 through 2018. Thirteen of the Company Stores are located in
Manhattan and two are located in Brooklyn, New York. The Company Stores range
in size from approximately 5,000 to 16,000 square feet of selling space,
averaging 9,700 square feet of selling space.
All of the stores are air-conditioned, have all necessary fixtures and
equipment and are suitable for the retail operations conducted thereat. The
Company has completed phase one of a remodeling program to refurbish the
Company Stores.
Legal Proceedings
In June 1994, the United States Federal Trade Commissions (the "FTC")
commenced an action alleging that the acquisitions by John Catsimatidis, the
Company, and three other entities controlled by Mr. Catsimatidis (collectively,
the "companies") of 32 Sloan's supermarkets between 1991 and 1993 violated
Federal antitrust laws because the effect of the acquisitions might be
substantially to lessen competition among supermarkets within four Manhattan
residential neighborhoods. The complaint indicated that the FTC could seek
divestiture of up to ten supermarkets owned by the companies.
In order to avoid the costs of protracted litigation in the matter and
without admitting that any antitrust law was violated as alleged in the
complaint, on November 21, 1994 the companies entered into a settlement
agreement with the Acting Director of the Bureau of Competition of the FTC
regarding certain claims made by the FTC against them (the "Settlement
Agreement"). The companies agreed in the Settlement Agreement that within
twelve months from the date of a final order in the proceeding they would
divest themselves of an aggregate of six supermarkets in Manhattan, chosen by
them from a list of 16 supermarkets specifically designated in the Settlement
Agreement (none of which are owned by the Company) and certain alternate
supermarkets referenced in the Settlement Agreement (five of which were then
owned by the Company). Nothing in the Settlement Agreement required the Company
to divest itself of any of its supermarkets, but divestiture of supermarkets
owned by the Company would count towards satisfaction of the divestiture
obligations.
An order embodying the Settlement Agreement was made effective March 6,
1995 (the "Order"). Pursuant to that Order for a period of 10 years from March
6, 1995 the companies cannot, without prior FTC approval, acquire any interest
in any existing supermarket in a designated area. The Order does not restrict
the companies from acquiring an interest in a supermarket by leasing or
purchasing a new location that at the time of acquisition (and for six months
prior to the acquisition) is not being operated as a supermarket.
In March 1996, an application (the "Application") was made to modify the
Order so as to lift the divestiture requirements other than with respect to one
store on the Upper West Side which was not owned by the Company. The FTC
approved the divestiture of that store and its divestiture was completed on May
9, 1996. On April 29, 1996, the Application was revised and it was further
revised in August and September 1996 so as to seek relief solely with respect
to the requirement of divestiture of any supermarkets in the Chelsea section of
Manhattan.
On September 13, 1996, the FTC granted the Application as modified, and
deleted the requirement of divestiture in Chelsea. Simultaneously, the FTC
appointed a trustee to divest four supermarkets pursuant to the Order, as
modified. The trustee was not granted any authority to divest until the FTC
approved a trustee agreement between the trustee and the companies. An
agreement was entered into with the trustee which would have become effective
upon approval by the FTC.
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<PAGE>
Subsequent to the modification of the Order, SAC, Gristede's and RAS sold
an aggregate of four stores in compliance with the divestiture provisions of
the Order, as modified. Based thereon, the trustee agreement will not become
effective.
A settlement of FTC claims relating to the divestiture provisions of the
Order has been agreed to pursuant to which $600,000 has been paid to the FTC.
No portion of such amount was borne by the Company.
On August 8, 1994, a lawsuit against the Company and Mr. Catsimatidis was
instituted in the United States District Court for the Southern District of New
York by RMED International, Inc. ("RMED"), a former stockholder of the Company.
The complaint alleges, among other things, that RMED and a purported class
consisting of persons who purchased the Company's common stock on or after
March 19, 1993 were damaged by alleged nondisclosures in certain filings made
by the Company with the Securities and Exchange Commission between January 1993
and June 1994 relating to an investigation by the FTC. The complaint alleges
that such nondisclosures constituted violations of Federal and New York State
securities laws, as well as common law fraud and seeks damages (including
punitive damages) in an unspecified amount (although in discovery proceedings
the named plaintiff has claimed that its damages were approximately $800,000),
as well as costs and disbursements of the action. On June 2, 1994, the Company
issued a press release which disclosed the FTC action.
On September 30, 1994, the defendants filed a motion to dismiss for
failure to state a cause of action and for lack of subject matter jurisdiction
over the state claims. The motion was denied. In June 1995, RMED filed a motion
for class certification, and discovery was held in abeyance pending disposition
of that motion. The motion was granted in March 1996 and discovery is now
proceeding. Management believes that the lawsuit is without merit and intends
to defend the action vigorously; however, the outcome cannot be determined.
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<PAGE>
BUSINESS AND PROPERTIES OF
THE FOOD GROUP
General
The Food Group consists of RAS, SAC, Gristede's, City Produce (each of
which will be merged into wholly owned subsidiaries of the Company). RAS
operates five Sloan's and two Gristede's supermarkets that will be Acquired
Stores. SAC operates six Sloan's supermarkets, one Gristede's supermarket and
one Pioneer supermarket that will be Acquired Stores. Gristede's operates 13
Gristede's supermarkets that will be Acquired Stores and is the tenant under a
lease for a retail location that is currently not being operated. City Produce
operates a 25,000 square foot facility located in Bronx, New York which is used
primarily as a warehouse for fresh produce. The supermarkets and health and
beauty aids stores which will be acquired by the Company pursuant to the Merger
are collectively referred to as the "Acquired Stores." All of the locations at
which the Acquired Stores as well as the warehouse operated by City Produce are
leased. Certain of the equipment used in the Acquired Stores is leased from an
affiliate of John Catsimatidis. The address of the principal executive officers
of each of Group, RAS, SAC, Gristede's and City Produce is 823 Eleventh Avenue,
New York 10019-3535 and the telephone number of such offices is (212) 956-5770.
As in the case of the Company Stores, the Acquired Stores compete on the
basis of providing customer convenience, service and a wide assortment of food
products, including those that are appealing to the clientele in the
neighborhoods where the Acquired Stores are located. The Acquired Stores, like
most Manhattan supermarkets, are smaller than their suburban counterparts,
ranging in size from approximately 3,200 to 14,000 square feet of selling space
and averaging 8,100 square feet.
The Acquired Stores offer, at competitive prices, broad lines of
merchandise, including nationally and regionally advertised brands, private
label and generic brands. Merchandise sold includes food items such as fresh
meats, produce, dry groceries, dairy products, baked goods, poultry and fish,
fresh fruits and vegetables, frozen foods, delicatessen and gourmet foods, as
well as many non-food items such as cigarettes, soaps, papers products, and
health and beauty aids. Check-cashing services are available to qualified
customers holding check-cashing cards and, for a small fee, the Company will
deliver groceries to a customer's apartment door. The Acquired Stores accept
payment by Mastercard, Visa, American Express and Discover credit cards. All of
the Acquired Stores are open fourteen hours per day, seven days a week and on
holidays, including Christmas, New Year's and Thanksgiving. Most of the
Acquired Stores close two hours earlier on Sundays.
Labor Contracts
All of the employees of the Food Group other than executive and
administrative personnel are represented by unions. Each of RAS and SAC is a
party to a collective bargaining agreement with Retail, Wholesale & Chain Store
Food Employees Union, Local 338 which expires on October 3, 1998. Gristede's is
a party to collective bargaining agreements with United Food and Commercial
Workers International Union Locals 1500 and 464A which expire on June 22, 1997
and March 7, 1998, respectively. Each of RAS, Gristede's and SAC is a party to
a collective bargaining agreement with United Food and Commercial Workers
International Union Local 174 which expires on December 19, 1998.
Employees
At September 29, 1997, approximately 990 persons were employed by the Food
Group relating to the operations of the Acquired Stores. Other than for
executive and administrative personnel, all of such persons were employed at
the Acquired Stores and approximately 440 were employed on a full-time basis.
Competition
The Food Group's retail business is subject to intense competition,
characterized by low profit margins and requiring regular advertising. All of
the Acquired Stores are in direct competition with Food Emporium, D'Agostino,
A&P, Pathmark and independent supermarket/grocery operators such as Pioneer,
Key Foods and Associated, many of which are larger and have substantially
greater resources than the Food Group. The Company, which also operates an
aggregate of 15 stores under the "Sloan's" and "Gristede's" tradenames in the
NYC Area, also competes with the Food Group's retail business. The Acquired
Stores also compete with other outlets
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which sell products sold by supermarkets in New York City. Those outlets
include gourmet food stores, health and beauty aid stores, drug stores, produce
stores, bodegas, delicatessens and other retail food establishments. In
addition, several of the Food Group's competitors have announced plans to open
larger stores in the NYC Area.
Properties
The Food Group leases all 28 Acquired Store locations and one retail
location that is not currently being operated. One of the Acquired Store
locations is leased from an affiliate of John Catsimatidis. City Produce leases
a 25,000 square foot warehouse in the Bronx, New York from an affiliate of John
Catsimatidis. All of the Acquired Stores are air-conditioned, have all
necessary fixtures and equipment and are suitable for the retail operations
conducted thereat.
For information concerning marketing, sources of supply, tradenames and
government approvals, see the comparable subsections under "BUSINESS AND
PROPERTIES OF THE COMPANY."
Management
Set forth below is a table setting certain information as of September 29,
1997 concerning certain officers of the Food Group. If the Merger is
consummated, the Company intends to cause the Acquiring Corporations to employ
each of such persons in capacities similar to the capacities in which they are
currently serving. John Catsimatidis is the Chairman and Chief Executive
Officer of Group and each of the Merging Corporations.
<TABLE>
<CAPTION>
Officer
Name Age Title Since
- -------------------------- ----- ------------------------------------------- -------
<S> <C> <C> <C>
Stuart Spivak ......... 61 Executive Vice President and Chief 1986
Financial Officer
Albert Faraldi ......... 66 Senior Executive Vice President of 1995
Operations
Charles Criscuolo ...... 46 Senior Executive Vice President of 1992
Merchandising and Store Development
Robert Schwartz ......... 60 Executive Vice President of Merchandising 1993
Michael Seltzer ......... 48 Vice President and Controller 1975
Lawrence Sachs ......... 34 Vice President of Management Information 1986
Services
Edward Reed ............ 57 Vice President-Grocery Purchasing 1989
Robert Euler ............ 45 Director of Dairy and Frozen Purchasing 1994
</TABLE>
Stuart Spivak joined the Food Group in October 1986 as Chief Financial
Officer and has over 30 years experience in the supermarket industry. From 1975
to 1986 he was Vice President and Corporate Controller of Shopwell, Inc./Food
Emporium, an AMEX-listed retail food company. From 1964 to 1975 he was Vice
President and Corporate Controller of Hills Supermarkets, Inc., subsidiary of
Pueblo International, Inc., a New York Stock Exchange-listed retail food
company. Prior to 1964 Mr. Spivak was engaged in the practice of Public
Accounting.
Albert Faraldi joined the Food Group in December 1995 and oversees all
store operations as well as the operations of City Produce. Mr. Faraldi also
directs the purchasing efforts of the meat, deli, and produce areas. He
directly supervises a staff of 11 which includes district managers and product
specialists who support each of the product categories in the stores. Mr.
Faraldi has over 40 years experience in the supermarket industry. From 1989 to
1993 he managed the Meat Farm chain of supermarket on Long Island. From 1979 to
1989, he was President of D'urso Key Foods where he opened 19 stores in eight
years and increased volume from $750,000 per week to over $5,000,000 per week.
Mr. Faraldi began his career with Food Fair/Pantry Pride supermarkets in 1949
and later became a Vice President of Operations responsible for 92 supermarkets
which covered New York City, Long Island, Westchester and parts of Connecticut.
Robert Schwartz joined the Food Group as Executive Vice President of
Merchandising in 1993. From 1979 to 1993 he was Senior Vice President of Sales
and Merchandising for Kings Super Markets, Inc. Mr. Schwartz started his career
in the food business in 1950 and served in various operations and merchandising
positions with The Grand Union Company and Pueblo International. His
experiences cover conventional supermarkets, convenience stores, self-service
gasoline stations, one-stop shopping discount centers, warehouse stores,
limited assortment "box" stores and upscale supermarkets.
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<PAGE>
Charles Criscuolo joined the Food Group in March 1992 and is responsible
for managing their direct and alternative purchasing efforts. Mr. Criscuolo
also has responsibility for all construction and remodeling projects. Mr.
Criscuolo started in the supermarket industry in 1971 as a grocery clerk with
Mayfair/Foodtown supermarkets. In his 20 years at Mayfair he served in various
capacities culminating as Senior Vice President of Operations where he oversaw
the daily operations of a 40 store chain with annual sales in excess of $600
million dollars.
Michael Seltzer joined the Food Group in March of 1973 and has served in
various capacities prior to his appointment as Vice President and Controller of
the Food Group in 1975. As Controller Mr. Seltzer supervises a staff of 12
persons. Mr. Seltzer began his career in 1966 as a clerk with Food City
Markets, and served in various capacities culminating as an Assistant Manager.
Lawrence Sachs joined the Food Group in June 1986 as Director of
Management Information Systems. Prior to joining the Food Group, he worked for
several years developing custom computer systems on behalf of a broad range of
business clients and as an information systems project manager in the insurance
industry. From 1979 to 1981 Mr. Sachs worked for Gristede's (then owned by
Southland Corp.) in several capacities at the store level.
Edward Reed joined the Food Group as a result of its acquisition in 1986
of the Gristede's supermarkets operation from Southland Corp. At the time of
the acquisition Mr. Reed was serving as a Purchasing Manager. Mr. Reed has
worked in the supermarket industry in the New York metropolitan area for over
40 years. Mr. Reed began his career with the Food Fair supermarket chain in
1956 where he was employed in various management capacities. From 1967 to 1985
Mr. Reed worked for H.C. Bohack and Foodarama Shoprite in a number of positions
including Grocery Specialist, District Manager, and Purchasing Manager. Mr.
Reed also participated in the Wakefern (Shoprite cooperative) buying and
merchandising meetings while at Foodarama. Mr. Reed has experience operating
and merchandising for stores in both the urban New York market and the suburban
markets of Long Island, Westchester, and New Jersey.
Robert Euler has over 27 years experience in the supermarket business. He
joined the Food Group when Gristede's was acquired by it in 1986. Mr. Euler
started in the food industry in 1970 with the Hills/Food Fair organization
where he worked in various positions until 1979. While at Hills he managed the
format conversions for several supermarkets in the metropolitan area. From 1979
to 1985, Mr. Euler worked at Foodarama Shoprite supermarkets in the
metropolitan area. From 1979 to 1985, Mr. Euler worked at Foodarama Shoprite
supermarkets where he was a field supervisor for 14 stores and was responsible
for front end operations, bakery, frozen foods, and store personnel. Mr. Euler
joined Gristede's in 1985 as Director of Cash Control and also served as
Director of Advertising and as Director of Budgeting prior to his current
position.
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<PAGE>
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK
The Board of Directors has adopted a resolution to amend the Company's
Certificate of Incorporation (the "Certificate") to increase the authorized
number of shares of Common Stock from 10,000,000 to 25,000,000 shares.
The Company's present authorized capital stock is 10,000,000 shares of
Common Stock. As of September 29, 1997, 3,132,289 shares of Common Stock were
outstanding, 253,000 shares were reserved for issuance upon the exercise of
options granted or which may be granted under the Company's stock option plans,
275,000 shares were reserved for issuance upon exercise of options granted to
Mr. Catsimatidis and an additional 250,000 shares were reserved for issuance to
Mr. Catsimatidis upon the exercise of options granted to him in August 1996
subject to ratification of such grant by stockholders at this Annual Meeting
(see "RATIFICATION OF STOCK OPTIONS GRANTED TO JOHN CATSIMATIDIS"). As a
result, as of September 29, 1997, 6,089,711 shares of Common Stock remained
available for issuance, other than upon exercise of presently outstanding stock
options or options to be granted under the Company's stock option plans. If the
Merger is consummated, however, a presently indeterminable number of shares of
Common Stock will be issued pursuant to the Merger Agreement. Such number of
shares will likely exceed the 6,089,711 shares available for issuance which
have not been reserved for issuance for other purposes (see "PROPOSAL TO
APPROVE THE MERGER AGREEMENT-Merger Consideration"). As a result, the number of
authorized, but unissued shares available for issuance will likely be
insufficient to enable the Company to fulfill the Company's obligations under
the Merger Agreement.
The Board of Directors therefore believes that it is prudent to authorize
an additional 15,000,000 shares of Common Stock to enable the Company to
perform its obligations under the Merger Agreement and stock options held by
Mr. Catsimatidis as well as to have available additional shares of Common Stock
for such corporate purposes as the Board of Directors, from time to time, may
deem necessary and advisable, including, but not limited to, acquisitions,
financings, stock dividends and other proper corporate purposes.
Any sale of a substantial number of shares of Common Stock to persons who
have an understanding with the Company concerning the voting of such shares, or
the distribution or dividend of shares of Common Stock (or any right to receive
Common Stock) to the stockholders of the Company, may have the effect of
discouraging unsolicited attempts to acquire control of the Company. In
addition, any issuance of additional shares of Common Stock could have the
effect of diluting the earnings per share and book value per share of existing
shares of Common Stock which could be used to dilute the stock ownership of a
person seeking to obtain control of the Company.
If the proposed amendment is approved, the additional shares may be issued
for proper purposes under the terms and conditions approved by the Board of
Directors without further action by the stockholders, except as may be required
by the rules and policies of any stock exchanges on which the Common Stock may
then be listed. (The Common Stock is currently listed for trading on the AMEX.)
Except as provided for in the Merger Agreement, Company's stock option
plans and outstanding options held by Mr. Catsimatidis, including options to
purchase an aggregate of 250,000 shares of Common Stock the grant of which is
subject to ratification by the stockholders at this Annual Meeting, there are
no present plans, understandings or agreements which will involve the issuance
of additional shares of Common Stock. However, the Company may in the future
issue additional shares of Common Stock in connection with public offerings,
further employee stock options, acquisitions of other companies or product
lines, stock dividends or for other corporate purposes.
Neither the shares currently authorized nor the additional shares proposed
to be authorized will carry pre-emptive rights when issued. The issuance of
such shares could have a dilutive effect on outstanding shares.
The affirmative vote of holders of a majority of the outstanding shares of
Common Stock entitled to vote thereon at the Annual Meeting (1,566,145 shares
based on 3,132,289 shares outstanding) with each share entitled to one vote, is
required for approval of the proposed amendment to the Certificate.
The Board of Directors recommends a vote FOR the approval of the proposed
amendment to the Certificate.
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<PAGE>
PROPOSAL TO CHANGE
THE COMPANY'S NAME TO GRISTEDE'S SLOAN'S, INC.
The Board of Directors has adopted a resolution to amend the Company's
Certificate in order to change the name of the Company to Gristede's Sloan's,
Inc. Because following the consummation of the Merger approximately 19 of the
Company's supermarkets will be operated under the tradename "Gristede's" and 24
will be operated under the tradename "Sloan's," management believes that the
proposed name will be more descriptive of the business to be conducted by the
Company than its present name and will promote greater public recognition of
the Company.
The affirmative vote of holders of a majority of the outstanding shares of
Common Stock entitled to vote thereon at the Annual Meeting (1,566,145 shares
based on 3,132,289 shares outstanding) with each share entitled to one vote, is
required for approval of the proposed amendment to the Certificate.
The Board of Directors recommends a vote FOR the approval of the proposed
amendment to the Certificate.
35
<PAGE>
ELECTION OF DIRECTORS
Because the Annual Meeting will be the first annual meeting of
stockholders which has been held since February 22, 1995, two of the three
classes of directors shall be elected at the Annual Meeting. One Class 3
director to serve for a term expiring at the 1998 Annual Meeting and two Class
1 directors to serve for a term expiring at the 1999 Annual Meeting shall be
elected. The terms of the two Class 2 directors expire at the 1997 Annual
Meeting.
The Class 3 and Class 1 directors shall each be elected by the affirmative
vote of a plurality of the votes cast at the Annual Meeting. If the enclosed
proxy is executed properly and returned, it is intended that the persons named
in the proxy will vote the shares represented FOR the election of John
Catsimatidis, the person nominated for election as the Class 3 director and for
the election of Leroy Hemingway II and Kishore Lall, the persons nominated for
election as the Class 1 directors, unless authority to do so is withheld.
Management believes that each of Messrs. Catsimatidis, Hemingway and Lall will
be available and be able to serve as a director. If, for any reason, which
management does not expect, any or all of such persons shall not be available
or able to serve, the proxies may exercise discretionary authority to vote for
and substitute such nominees as may be designated by the Board of Directors.
In accordance with the Company's By-Laws, any stockholder entitled to vote
for the election of directors at a meeting may nominate persons for election as
directors only if written notice of such stockholder's intent to make such
nomination is given, either by personal delivery or by U.S. mail, to the
Secretary of the Company at the main office of the Company not later than (i)
with respect to an election to be held at any annual meeting of stockholders,
20 days in advance of such meeting, and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of directors, the
close of business on the seventh day following the date on which notice of such
meeting is first given to the stockholders. Each notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that such
stockholder is a holder of record of stock of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between such stockholder and each nominee
and any other person or persons (naming such person(s)) pursuant to which the
nomination(s) are to be made by such stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules
promulgated by the Commission had each nominee been nominated or intended to be
nominated by the Board of Directors; and (e) the consent of each nominee to
serve as a director of the Company if so elected. The Chairman of the meeting
may refuse to acknowledge the nomination of any person not made in compliance
with the foregoing provisions.
36
<PAGE>
The name of, and certain information with respect to, each of the persons
nominated for election as the Class 3 director and Class 1 director is as
follows:
<TABLE>
<CAPTION>
Director Principal Occupation
Name and Age Since for the Past Five Years
- ------------------------------- ------------- -------------------------------------------
<S> <C> <C>
Class 3
John Catsimatidis, 49 ...... 1988(1) Chairman of the Board, Chief Executive
Officer and Treasurer of the Company,
President and Chief Executive Officer of
Group and SAC (holding companies for
supermarket chains) and Chairman of the
Board and Chief Executive Officer and
Director of United Refining Company (a
refiner and retailer of petroleum products)
for more than five years; Director of News
Communications Inc., a public company
whose stock is traded over-the-counter,
since December 4, 1991.
Class 1
Leroy Hemingway II, 65 ...... 1991 Chairman of the Board of The Famous
Carpet Barns of Florida, Inc. (a firm
engaged in retail sales of carpets) and
Chairman of the Board of Hemingway
Properties, Inc. (an owner and operator of
shopping centers) for more than five years.
Kishore Lall, 50 ............ -- Independent consultant since May 1994;
from January 1991 until May 1994 Senior
Vice President and Head of Commercial
Banking of ABN AMRO Bank, New York
branch.
</TABLE>
- ------------
(1) Mr. Catsimatidis also served as a director of the Company from November 4,
1986 to November 27, 1987.
37
<PAGE>
OTHER DIRECTORS AND EXECUTIVE OFFICERS
The names of, and certain information with respect to, the two Class 2
directors (whose terms expire at the 1997 Annual Meeting are as follows:
<TABLE>
<CAPTION>
Director Principal Occupation
Name and Age Since for the Past Five Years
- ---------------------------- ---------- ---------------------------------------------
<S> <C> <C>
Martin Bring, 54 ......... 1988 Member of the law firm of Lowenthal,
Landau, Fischer & Bring, P.C., New York,
New York for more than five years. Director
of He-Ro Group, Ltd., a New York Stock
Exchange listed company, since 1991.
Frederick Selby, 59 ...... 1978 Since 1990, Chairman of Selby Capital
Partners (merger and sale of privately
owned firms and divisions of public compa-
nies). Prior thereto, Investment Banking
Senior Vice President, BAII Banking
(Paris), Legg Mason Wood Walker and
Bankers Trust Company.
</TABLE>
The only other executive officers of the Company are Mark S. Kassner and
Carmine Zappola. Mr. Kassner, age 36, has served as Vice President and
Secretary of the Company since November 1991. For more than five years Mr.
Kassner has served as an executive officer of Group and certain of its
affiliates, with primary responsibility in the areas of accounting and
financial reporting. Mr. Zappola, age 62, has served as Director of Operations
of the Company since March 1993. Prior thereto he was Director of Operations
and a Supervisor for CKMR Corporation ("CKMR"). Mr. Zappola has over 30 years
experience in the retail supermarket industry.
Meetings of Board of Directors and Committees
The Board of Directors met four times during the fiscal year ended March
2, 1997 and acted one time by unanimous written consent of the directors during
such year. All incumbent directors attended all meetings.
The Board of Directors has a Compensation Committee, a Stock Option
Committee and an Audit Committee each of whose members are Messrs. Hemingway
and Selby. The Audit Committee met one time during the fiscal year ended March
2, 1997. The Stock Option Committee and the Compensation Committee did not meet
during the fiscal year ended March 2, 1997.
The function of the Audit Committee is to periodically review the conduct
and scope of the audit of the Company's financial statements by its independent
certified public accountants, to review the conduct of management of the
Company in connection with such audit, to review management letters from
accountants retained by the Company and the responses of management of the
Company to such letters and at such time as in the opinion of the Audit
Committee, the scope of the business of the Company shall require it, to
establish an internal audit committee for the Company.
The Board of Directors also has an Oversight Committee whose members are
Messrs. Hemingway and Selby. The function of the Oversight Committee is to set
policy goals and make decisions with respect to the operations of the Company's
supermarkets which are currently being managed by Group under a Management
Agreement described in "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Since
after the consummation of the proposed Merger, the day to day operations of the
Company's supermarkets will be managed by the Company, rather than by Group,
the Oversight Committee will be dissolved effective upon the consummation of
the Merger. The Company does not have a nominating committee of the Board of
Directors or committee performing similar functions.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires directors and officers of the Company and persons who
own more than 10 percent of the Company's Common Stock to
38
<PAGE>
file with the Securities and Exchange Commission (the "Commission") initial
reports of ownership and reports of changes in ownership of the Common Stock.
Directors, officers and more than 10 percent stockholders are required by the
Exchange Act to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the year ended March 2, 1997, all Section 16(a)
filings applicable to its directors, officers and more than 10 percent
beneficial owners were timely filed.
COMPENSATION PLANS AND ARRANGEMENTS
Executive Compensation
The following table sets forth for the three fiscal years ended March 2,
1997 certain information concerning the compensation paid or accrued to the
Chief Executive Officer of the Company. As of March 2, 1997 there were no other
persons serving as executive officers of the Company whose total salary and
bonus for the fiscal year ended March 2, 1997 exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------
Name and Other Annual
Principal Position Year Salary($) Bonus($) Compensation($)
- -------------------------- ------ ----------- ---------- -----------------
<S> <C> <C> <C> <C>
John Catsimatidis, 1997 0 0 0
Chairman of the Board, 1996 0 0 0
Chief Executive Officer 1995 0 0 0
<CAPTION>
Long-Term Compensation
--------------------------------------------
Awards Payouts
------------------------------ ------------
Name and Restricted Stock Options/ LTIP All Other
Principal Position Award(s)($) Sar's(#) Payouts($) Compensation($)
- -------------------------- ------------------ ---------- ------------ -----------------
<S> <C> <C> <C> <C>
John Catsimatidis, 0 0 0 0
Chairman of the Board, 0 0 0 0
Chief Executive Officer 0 275,000 0 0
</TABLE>
Stock Options
No stock options were granted to or exercised by Mr. Catsimatidis during
the fiscal year ended March 2, 1997. The following table sets forth certain
information with respect to options to purchase Common Stock held by John
Catsimatidis on March 2, 1997.
<PAGE>
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised in-the-Money
Held on March 2, 1997 Options on March 2, 1997
------------------------------- -----------------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------------- ------------------------------- -----------------------------------
<S> <C> <C>
John Catsimatidis ...... 275,000/0 0/0
</TABLE>
The closing sales price of the Common Stock on the American Stock Exchange
on February 28, 1997, the last trading day preceding March 2, 1997, was $3.06.
On March 2, 1997 Mr. Catsimatidis held options to purchase 275,000 shares of
Common Stock at $3.75 per share.
On August 12, 1996 the Board of Directors of the Company approved by the
grant to Mr. Catsimatidis of non-qualified stock options to purchase an
aggregate of 250,000 shares of Common Stock at $2.875 per share. Such grant is
subject to ratification by the stockholders of the Company at this Annual
Meeting. See "RATIFICATION OF STOCK OPTIONS GRANTED TO JOHN CATSIMATIDIS."
Compensation of Directors
Non-officer directors receive a quarterly stipend of $1,500 and $500 for
each meeting attended. Directors who serve on committees receive $250 for each
meeting attended.
39
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Philosophy. The Company's executive compensation philosophy is to provide
competitive levels of compensation, integrate management's pay with the
achievement of the Company's annual and long-term performance goals, reward
above average corporate performance, recognize individual initiative and
achievement, and assist the Company in attracting and retaining qualified
management. Executive compensation consists of base salary and long term
incentive compensation in the form of stock options. The compensation of the
Company's executive officers is reviewed and approved by the Compensation
Committee, which is composed entirely of non-employee directors. Management
compensation is intended to be set at levels that the Compensation Committee
believes is consistent with others in the Company's industry.
In reviewing compensation levels of the Company's key executives, the
Compensation Committee considers, among other items, corporate profitability on
an absolute basis as well as relative to budget; previous years' and
competitors' profitability; revenues; and the quality of the Company's
services. No specific weight is accorded to any single factor. Relative weights
differ from executive to executive and change from time to time as
circumstances warrant.
Base Salaries. Base salaries for new management employees are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual, and by reference to the competitive marketplace
for managerial talent. Annual salary adjustments are determined by evaluating
the performance of the executive and any increased responsibility assumed by
the executive, the competitive marketplace, and the performance of the Company.
Salary adjustments are determined and normally made on an annual basis.
Equity Ownership. The Company established a stock option plan for its key
employees in October, 1994. The Compensation Committee believes that equity
ownership by management is a means of aligning management's and stockholders'
interests in the enhancement of stockholder value. A Stock Option Committee
consisting solely of non-employee directors serves as the stock option
committee under the 1994 Stock Option Plan. The purpose of the Stock Option
Committee is to administer the plan.
Establishment. The Compensation Committee was established in June 1980 to
administer a former stock option plan of the Company. As a result of the
disposition by the Company of its former business during the period from
January 1990 to July 1991 the number of executives employed by the Company was
substantially reduced. Since March 1993 when it entered into the business, all
operations of the Company's supermarkets have been supervised by Group, a
corporation wholly owned by John Catsimatidis, the Company's Chairman of the
Board, Chief Executive Officer and President. The Company employs only two
other executives -- Mark Kassner, its Vice President and Secretary; and Carmine
Zappola, its Director of Operations. Mr. Kassner is employed on a part-time
basis. None of the foregoing persons is employed pursuant to an employment
agreement with the Company. If the Merger is consummated Group will cease to
manage the operations of the Company's supermarkets and the Company intends to
employ certain executives currently employed by the Food Group and other
personnel currently employed by the Food Group to manage the operations of the
Company's business. See "BUSINESS AND PROPERTIES OF THE FOOD GROUP --
Management."
Compensation of Chief Executive Officer. Mr. Catsimatidis is the principal
stockholder of the Company and since August 1991, has served the Company
without receiving a salary. During the three years ended March 2, 1997 the only
compensation Mr. Catsimatidis has received from the Company has been the grant
to him in October 1994 of options to purchase an aggregate of 275,000 shares of
Common Stock at $3.75 per share. (In October 1994 Mr. Catsimatidis exercised
outstanding options to purchase an aggregate of 450,000 shares of Common
Stock.)
COMPENSATION COMMITTEE
Frederick Selby
Leroy Hemingway II
40
<PAGE>
COMPARATIVE PERFORMANCE BY THE COMPANY
The Securities and Exchange Commission requires the Company to present a
chart comparing the cumulative total stockholder return on its Common Stock
with the cumulative total stockholder return of (i) a broad equity market index
and (ii) a published industry index or "peer group." This chart compares for
the period from March 3, 1992 to March 2, 1997, the cumulative total
stockholder return on the Common Stock with (i) the American Stock Exchange
Market Value Index and (ii) the Media General Industry Group 511 Index --
Retail Trade -- Food Stores (the "MG Industry Index"), and assumes an
investment of $100 on March 3, 1992 in each of the Common Stock, the stocks
comprising the American Stock Exchange Market Value Index and the stocks
comprising the MG Industry Index. The total return for each of the Company's
Common Stock, the American Stock Exchange Market Value Index and the MG
Industry Index assumes the reinvestment of all dividends (although no dividends
were declared on the Company's Common Stock during such period). Each index is
adjusted for additions and deletions of securities from the index. The Company
entered the supermarket business in March 1993.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG SLOAN'S SUPERMARKETS, INC.,
AMEX MARKET INDEX AND MG GROUP INDEX
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
SLOAN'S SUPERMARKETS, IN 100 157.14 300 195.24 151.96 128.35
AMEX MARKET INDEX 100 93.86 112.76 109.94 136.17 175.99
MG GROUP INDEX 100 95.37 111.1 101.91 123.4 131.47
</TABLE>
ASSUMES $100 INVESTED ON MARCH 3, 1992
ASSUMES DIVIDEND REINVESTED
FOR THE FIVE YEARS ENDED MARCH 2, 1997
41
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 14, 1993, simultaneously with the purchase by the Company of its
first eleven Company Stores, the Company entered into a management agreement
with Group, a company wholly owned by John Catsimatidis, pursuant to which
Group supervises all operations of the Company Stores subject to the policy
goals and decisions prescribed by a committee of the independent directors (the
"Management Agreement"). On March 31, 1993, the Board established an Oversight
Committee and elected Frederick Selby and Leroy Hemingway II as its initial
members.
The Management Agreement requires the Company to pay to Group a quarterly
fee equal to 1 1/4% of all sales made in or from the Company Stores and to
reimburse Group for all reasonable expenses incurred by Group in the
performance of its services thereunder. The initial term of the Management
Agreement ran until March 19, 1994. Unless terminated by either party, the
Management Agreement is automatically renewed for successive one year terms.
The current term expires March 19, 1998.
Group also provides maintenance services to the Company which are not
covered by the Management Agreement. Such services include supermarket
refrigeration, electrical and equipment maintenance. The Company believes that
prices charged by Group for such services have been consistent with those
obtainable from non-affiliated third parties. During the year ended March 2,
1997 the Company did not incur expenses for such services.
Certain companies owned by the Chairman of the Board of the Company
allocate volume, advertising and other rebates to the Company. For the year
ended March 2, 1997, such amounts approximated $1,455,600 and have been
reflected on the income statement of the Company as a reduction of cost of
sales. As of March 2, 1997 the Company had an aggregate of approximately
$1,830,000 in accounts receivable from supermarket companies owned by Mr.
Catsimatidis related to such allocations of volume, advertising and other
rebates to the Company that were received by such supermarket companies.
City Produce, a corporation indirectly wholly-owned and controlled by John
Catsimatidis and one of the corporations which would be acquired by the Company
pursuant to the Merger Agreement, sells produce to the Company at prices
consistent with those obtainable from non-affiliated third parties. During the
year ended March 2, 1997 such sales aggregated approximately $5,263,000.
Newspaper advertising for the Company Stores is frequently pooled with
advertising for other supermarkets which are not owned by the Company but which
are operated by Group or its affiliates other than the Company under the
"Sloan's" or "Gristede's" names. In such cases, the Company pays a portion of
such advertising expenses based upon the number of Company Stores and
supermarkets of other companies covered in the advertisements. Such amounts
allocated to the Company approximated $115,000 during the fiscal year ended
March 2, 1997.
The tradename "Sloan's" is used by the Company under a non-exclusive
license granted to the Company for a nominal consideration by SAC, a
corporation wholly-owned by John Catsimatidis. Ownership of the tradename will
be acquired by the Company pursuant to Merger Agreement.
In consideration of accommodations extended to the Company by H.S. Realty
Corp. ("H.S. Realty"), a corporation wholly-owned by John Catsimatidis which
enabled the Company to consummate the sale of assets of the Company's Howard H.
Sweet & Son Inc. subsidiary ("Sweet") to Tiffco Jewelry and Chain Crafts, Inc.
("Tiffco") on January 23, 1990, the Company, among other things, advanced to
H.S. Realty approximately $204,000.
The $204,000 advance was originally to be repayable on the earlier of
January 23, 1991 or five days after the sale by H.S. Realty to Tiffco of
certain real property leased to Tiffco by H.S. Realty after the sale of assets.
Since January 23, 1991, the Board of Directors has extended the repayment date
of the advance on an annual basis, the most recent extension being until
January 23, 1998 or five days after the sale by H.S. Realty to Tiffco of the
Sweet Property. As of March 2, 1997, H.S. Realty was indebted to the Company on
account of the advance in the amount of $337,304 and such indebtedness was
accruing interest at the rate of 9.50% per annum (1 1/4 % per annum over the
prime rate of interest charged by Chase Manhattan Bank, N.A. as of March 3,
1996).
42
<PAGE>
Effective as of January 1, 1994 the Company has entered into
Indemnification Agreements with each of its directors and officers. Said
agreements supplement the indemnification provisions of the Company's By-laws
and under the Delaware General Corporation Law. The stockholders of the Company
authorized the Company to enter into such agreements with each of its directors
at the Annual Meeting of Stockholders held on August 21, 1987. The Board of
Directors has authorized the Company to enter into such agreements with each of
its officers.
By virtue of his ownership of Common Stock (see "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT") and his position as Chairman of the
Board of the Company, John Catsimatidis may be deemed to be a "parent" of the
Company under rules promulgated by the Commission.
Lowenthal, Landau, Fischer & Bring, P.C., a law firm of which Martin
Bring, a director of the Company is a member, received fees of approximately
$218,675 for rendering legal services to the Company during the fiscal year
ended March 2, 1997.
In October 1995 the Company acquired three Company Stores from SAC. The
total consideration paid by the Company for the acquisition of the three
Company Stores was $5,000,000 plus the cost of inventory. The purchase price
was based on a valuation analysis conducted by C&L. See "PROPOSAL TO APPROVE
THE MERGER AGREEMENT--Opinion of Coopers & Lybrand Securities, L.L.C."
In connection with the Merger the Combined Company will become a party to
leases with an affiliate of John Catsimatidis for certain equipment used in the
Combined Company's supermarkets and health and beauty aid stores. See "BUSINESS
AND PROPERTIES OF THE FOOD GROUP--General."
RATIFICATION OF STOCK OPTIONS
GRANTED TO JOHN CATSIMATIDIS
On August 12, 1996 the Board of Directors granted to Mr. Catsimatidis
non-qualified stock options to purchase an aggregate of 250,000 shares of
Common Stock at a price of $2.875 per share (the "Catsimatidis Options").
The grant of the Catsimatidis Options was recommended by the Compensation
Committee of the Board and was made subject to ratification by the stockholders
which is being requested at this Annual Meeting. If ratified, the Catsimatidis
Options may be exercised at any time after the date of the Annual Meeting until
the earlier of August 11, 2006 or 90 days after the termination of Mr.
Catsimatidis' employment by the Company. The closing sales price of the Common
Stock on the American Stock Exchange on August 9, 1996 (the last trading day
preceding August 12, 1996) was $2.875.
The Catsimatidis Options were granted to Mr. Catsimatidis in consideration
of various financial accommodations made by Mr. Catsimatidis for the benefit of
the Company. Such accommodations include the continued waiver by Mr.
Catsimatidis since October 1994 of his salary (payable at the rate of $215,000
per annum). Mr. Catsimatidis has waived payment of his salary since August
1989. In October 1990 the Company granted to Mr. Catsimatidis options to
purchase an aggregate of 250,000 shares of Common Stock at a price of $1.50 per
share in partial consideration for the waiver of his salary from August 1989 to
October 1990. In December 1992 the Company approved a reduction in the exercise
price from $5.00 to $2.00 per share of certain other options to purchase
200,000 shares that were then held by Mr. Catsimatidis. The reduction in the
exercise price was in consideration of the waiver of Mr. Catsimatidis' salary
from October 1990 to December 1992.
There were no Federal income tax consequences to either the Company or to
Mr. Catsimatidis upon the grant of the Catsimatidis Options. Upon the exercise
of all or a portion of the Catsimatidis Options, Mr. Catsimatidis will
recognize ordinary income for each share purchased in an amount equal to the
difference between the option price and the fair market value of a share of
Common Stock on the date of the exercise, and the Company will be allowed an
equivalent deduction. The Company is required to collect Federal and state
withholding or other employment taxes applicable to the taxable income of Mr.
Catsimatidis resulting from such exercise. The Company intends to collect said
taxes from Mr. Catsimatidis at the time he exercises the option. Upon
subsequent sale or other disposition of the shares received under the option
(except in a tax free reorganization or other non-taxable disposition), the
difference between the amount realized on disposition and the fair market value
of the shares on the date of exercise will be treated as capital gain or loss,
short-term or long-term depending on the holding period of the shares
(presently more than one year for long-term treatment).
43
<PAGE>
The Board of Directors recommends a vote FOR the proposal. Approval of
this proposal shall require the affirmative vote of a majority of the votes
cast at the Annual Meeting on such proposal. If such approval is not obtained,
the Catsimatidis Options will become null and void.
OTHER MATTERS
Any stockholder intending to submit a proposal for presentation at the
Company's next Annual Meeting of Stockholders must submit such proposal to the
Company at its executive offices by March 17, 1998.
The Company has not yet selected a firm to audit the Company's financial
statements for the year ending March 1, 1998. BDO Seidman, LLP audited the
Company's financial statements for the two years ended March 2, 1997.
A representative of BDO Seidman, LLP is expected to be present at the
meeting and will have the opportunity to make any desired statement and respond
to appropriate questions.
Management knows of no other matters to be brought before this meeting. If
matters other than those for which authority is herein sought should arise at
the meeting, shares represented by proxies will be voted by the persons named
on the enclosed proxy in accordance with their judgment.
The expense of preparing, assembling and mailing this proxy statement, to
be used for the solicitation of proxies, will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by the directors,
officers and employees of the Company by personal interview, telephone,
facsimile or telegram. Such directors, officers and employees will not be
additionally compensated for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Shareholder
Communications Corporation has been retained by the Company to assist in the
solicitation of proxies, for a fee of $4,000, plus out-of-pocket expenses
anticipated to be approximately $2,000 in the aggregate. The Company will
reimburse brokerage houses, banks and custodians for their out-of-pocket
expenses in forwarding proxy material to the beneficial owners of stock held of
record.
All stockholders are urged to complete, date and sign the accompanying
form of proxy and return it in the enclosed envelope which requires no postage
stamp if mailed in the United States.
The Company will provide to any stockholder of record at the close of
business on September 29, 1997, without charge, upon written request to its
Secretary, Mark Kassner, a copy of the Company's Annual Report on Form 10-K for
the fiscal year ended March 2, 1997.
44
<PAGE>
The Food Group and Sloan's Supermarkets,
Inc. and Subsidiaries
Index to the Financial Statements
<TABLE>
<CAPTION>
Page Number
<S> <C>
Sloan's Supermarkets, Inc. and Subsidiaries Consolidated Financial Statements as of March
2, 1997, March 3, 1996 and February 26, 1995 and for the Years then Ended ..................... F-1
Sloan's Supermarkets, Inc. and Subsidiaries Unaudited Consolidated Balance Sheet as of
June 1, 1997 ................................................................................... F-16
Sloan's Supermarkets, Inc. and Subsidiaries Unaudited Consolidated Statement of
Operations for the Three Months Ended June 1, 1997 and June 2, 1996 ............................. F-17
Sloan's Supermarkets, Inc. and Subsidiaries Unaudited Consolidated Statements of Cash
Flows for the Three Months Ended June 1, 1997 and June 2, 1996 ................................... F-18
Sloan's Supermarkets, Inc. and Subsidiaries Notes to the Condensed Consolidated Financial
Statements ....................................................................................... F-19
The Food Group Unaudited Statement of Assets to be Purchased and Liabilities to be
Assumed as of June 1, 1997 ...................................................................... F-20
The Food Group Unaudited Statement of Sales and Expenses for the Three Months Ended June
1, 1997 and June 2, 1996 ....................................................................... F-21
The Food Group Notes to Condensed Financial Statements ........................................... F-22
The Food Group Financial Statements as of March 2, 1997, March 3, 1996 and February 26,
1995 and for the Years then Ended ................................................................ F-23
</TABLE>
45
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders of
Sloan's Supermarkets, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Sloan's
Supermarkets, Inc. and subsidiaries as of March 2, 1997 and March 3, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended March 2, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sloan's
Supermarkets, Inc. and subsidiaries as of March 2, 1997 and March 3, 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended March 2, 1997, in conformity with generally accepted
accounting principles.
BDO SEIDMAN LLP
New York, New York
May 30, 1997
F-1
<PAGE>
Sloan's Supermarkets, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 2, 1997 March 3, 1996
--------------- -------------
<S> <C> <C>
Assets
Current:
Cash ......................................................... $ 70,237 $ 71,242
Accounts receivable -- net of allowance for doubtful accounts of
$30,000 in both years ....................................... 501,916 282,182
Inventory ...................................................... 5,873,991 5,461,283
Prepaid expenses and other current assets ..................... 299,887 167,512
Due from related parties ....................................... 1,830,127 527,694
------------ -----------
Total current assets .......................................... 8,576,158 6,509,913
------------ -----------
Property and equipment:
Furniture, fixtures and equipment .............................. 5,466,456 5,461,146
Leasehold interests and improvements ........................... 11,704,425 11,657,126
------------ -----------
17,170,881 17,118,272
Less: Accumulated depreciation and amortization ............... 4,527,506 2,947,116
------------ -----------
Net property and equipment .................................... 12,643,375 14,171,156
------------ -----------
Due from affiliates ............................................. 337,304 318,005
------------ -----------
Deposits and other assets ....................................... 313,585 301,230
------------ -----------
Deferred costs ................................................ 115,489 115,358
------------ -----------
Noncompete agreement -- net of accumulated amortization of
$311,567 and $232,535, respectively ........................... 478,749 557,781
------------ -----------
Deferred finance costs - net of accumulated amortization of
$35,048 and $9,190, respectively .............................. 350,801 120,105
------------ -----------
$22,815,461 $22,093,548
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
Sloan's Supermarkets, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 2, 1997 March 3, 1996
--------------- ---------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current:
Accounts payable, trade .......................................... $ 6,593,412 $ 5,591,948
Accrued payroll, vacation and withholdings ........................ 491,857 703,785
Accrued expenses and other current liabilities .................. 377,431 473,506
Revolving credit facility ....................................... 1,000,000 1,000,000
Current portion of long-term debt ................................. 1,200,000 1,200,000
------------- -------------
Total current liabilities ....................................... 9,662,700 8,969,239
Long-term debt ................................................... 4,200,000 5,400,000
Deferred credits ................................................... -- 172,442
Deferred rent ...................................................... 794,645 553,429
------------- -------------
Total liabilities ................................................ 14,657,345 15,095,110
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $50 par -- shares authorized 500,000; none issued . -- --
Common stock, $0.02 par -- shares authorized 10,000,000; out-
standing 3,132,289 ............................................... 62,646 62,646
Additional paid-in capital ....................................... 18,248,286 18,248,286
Accumulated deficit ............................................. (10,152,816) (11,312,494)
------------- -------------
Total stockholders' equity .................................... 8,158,116 6,998,438
------------- -------------
$ 22,815,461 $ 22,093,548
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Sloan's Supermarkets, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended
-----------------------------------------------------
March 2, 1997 March 3, 1996 February 26, 1995
------------- ------------- -----------------
<S> <C> <C> <C>
Sales ...................................................... $51,792,539 $50,279,245 $48,366,513
Cost of sales ............................................. 31,184,126 31,036,120 30,918,845
----------- ----------- -----------
Gross profit ............................................. 20,608,413 19,243,125 17,447,668
Store operating, general and administrative expenses ...... 17,739,680 16,811,184 15,623,576
Management fee ............................................. 644,811 628,491 604,582
----------- ----------- -----------
2,223,922 1,803,450 1,219,510
Nonstore operating expense ................................. 287,966 414,165 395,400
----------- ----------- -----------
Operating profit ....................................... 1,935,956 1,389,285 824,110
----------- ----------- -----------
Other income (expense):
Interest income .......................................... 22,581 36,671 34,364
Other income (expenses) -- net ........................... (41,072) 17,218 7,365
Interest expense .......................................... (709,454) (551,631) (406,193)
Gain on sale of leasehold interests ..................... -- 1,001,397 --
----------- ----------- -----------
(727,945) 503,655 (364,464)
----------- ----------- -----------
Earnings before provision for income taxes,
discontinued operations and extraordinary item ......... 1,208,011 1,892,940 459,646
Provision for income taxes ................................. 48,333 62,000 80,059
----------- ----------- -----------
Earnings before discontinued operations and
extraordinary item .................................... 1,159,678 1,830,940 379,587
Loss from discontinued operations ........................ -- -- (17,499)
Extraordinary loss on early extinguishment of long-term
debt ...................................................... -- (88,674) --
----------- ----------- -----------
Net income ................................................ $ 1,159,678 $ 1,742,266 $ 362,088
=========== =========== ===========
Income (loss) per share of common stock:
Earnings before discontinued operations and
extraordinary item .................................... $ .37 $ .58 $ .13
Discontinued operations ................................. -- -- (.01)
Extraordinary item ....................................... -- (.03) --
----------- ----------- -----------
$ .37 $ .55 $ .12
=========== =========== ===========
Weighted average common shares outstanding ............... 3,132,000 3,171,000 2,919,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Sloan's Supermarkets, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Years ended March 2, 1997, March 3, 1996 and February 26, 1995
---------------------------------------------------------------------------
Common stock
----------------------- Additional Total
Number of paid-in Accumulated stockholders'
shares Amount capital deficit equity
----------- --------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, February 27, 1994 ...... 2,397,605 $47,952 $15,850,610 $ (11,779,478) $4,119,084
Exercise of stock options ...... 450,000 9,000 766,000 -- 775,000
Declaration of 10% stock dividend 284,684 5,694 1,631,676 (1,637,370) --
Net income ..................... -- -- -- 362,088 362,088
---------- -------- ------------ ------------- ----------
Balance, February 26, 1995 ...... 3,132,289 62,646 18,248,286 (13,054,760) 5,256,172
Net income ..................... -- -- -- 1,742,266 1,742,266
---------- -------- ------------ ------------- ----------
Balance, March 3, 1996 ......... 3,132,289 62,646 18,248,286 (11,312,494) 6,998,438
Net income ..................... -- -- -- 1,159,678 1,159,678
---------- -------- ------------ ------------- ----------
Balance, March 2, 1997 ......... 3,132,289 $62,646 $18,248,286 $ (10,152,816) $8,158,116
========== ======== ============ ============= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Sloan's Supermarkets, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended March 2, 1997 March 3, 1996 February 26, 1995
- ------------------------------------------------------ --------------- --------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 1,159,678 $ 1,742,266 $ 362,088
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of leasehold interests ............ -- (1,001,397)
Depreciation and amortization .................. 1,699,677 1,279,604 976,505
Extraordinary loss on early extinguishment of
long-term debt ................................. -- 88,674 --
Changes in operating assets and liabilities, net
of effect from acquisition of supermarkets:
Restricted cash ................................. -- 26,952 6,323
Accounts receivable -- net ..................... (219,734) (5,334) 262,758
Inventory ....................................... (412,708) (826,866) (318,607)
Prepaid expenses and other current assets ...... (132,375) 60,553 94,640
Due from related parties -- net ............... (1,302,433) (313,874) 237,485
Receivable from officer ........................ (19,299) (20,788) (17,906)
Other assets .................................... (12,355) (34,084) (73,119)
Deferred credits .............................. -- (5,605) 121,677
Accounts payable, trade ........................ 1,001,464 (269,174) 277,935
Accrued payroll, vacation and withholdings ....... (211,928) 112,836 (163,920)
Accrued expenses and other current liabilities (96,075) 278,296 (268,061)
Accrued rent leveling ........................... 241,216 215,471 28,678
Other credits ................................. (172,442) (181,213) (148,447)
------------ ------------ ------------
Net cash provided by operating activities ...... 1,522,686 1,146,317 1,378,029
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of leaseholds - net ............ -- 1,708,293 --
Acquisition of new stores ........................ -- (5,781,000) --
Capital expenditures -- net ........................ (52,609) (763,527) (393,563)
------------ ------------ ------------
Net cash used in investing activities ......... (52,609) (4,836,234) (393,563)
------------ ------------ ------------
Cash flows from financing activities:
Deferred financing costs ........................... (271,082) (118,730) --
Repayments of bank loan ........................... (1,200,000) (4,195,614) (1,089,912)
Proceeds from bank loan ........................... -- 8,000,000 --
------------ ------------ ------------
Net cash provided by (used in) financing
activities ................................. (1,471,082) 3,685,656 (1,089,912)
------------ ------------ ------------
Net decrease in cash .............................. (1,005) (4,261) (105,446)
Cash, beginning of year ........................... 71,242 75,503 180,949
------------ ------------ ------------
Cash, end of year ................................. $ 70,237 $ 71,242 $ 75,503
============ ============ ============
Supplemental disclosures of cash flow
information:
Cash paid for interest ........................... $ 709,727 $ 551,608 $ 405,797
Cash paid for taxes .............................. 52,971 46,080 155,499
============ ============ ============
Noncash transactions:
Exercise of cash options ........................... $ -- $ -- $ 775,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Business
The operations of Sloan's Supermarkets, Inc. and subsidiaries ("Sloan's"
or the "Company") have historically consisted of the manufacture of cast
component parts for the fine jewelry industry. The Company changed its name
from Designcraft Industries, Inc. to its present name in 1993.
As a result of the sale of the assets of its remaining jewelry businesses,
the Company no longer operates in the fine jewelry manufacturing business. On
March 19, 1993, Namdor Inc. ("Namdor"), a wholly-owned subsidiary of the
Company, purchased certain assets relating to 11 supermarkets in the New York
metropolitan area (the "Supermarkets") from CKMR Corporation. The purchased
assets included machinery and equipment, furniture, fixtures, leasehold
improvements, inventory of supplies and merchandise located at the Supermarkets
and a noncompete agreement (amortized on a straight-line basis over 10 years -
the life of the agreement). The net cash price for the assets and the
noncompete agreement was approximately $8.8 million. In addition, at the time
of the purchase, Namdor assumed certain accounts payable of the business's
prior owners in an amount of $5,000,000.
The acquisition of the Supermarkets by the Company has been accounted for
as a purchase transaction in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations". As such, the purchase price has been
allocated to assets acquired and liabilities assumed based on their estimated
fair values. The excess of the fair value of assets acquired less liabilities
assumed over cost has been allocated to reduce proportionately the values
assigned to noncurrent assets in determining their fair values.
On October 13, 1995, the Company purchased three supermarket store
locations including furniture and fixtures, leasehold improvements and
inventory from a company owned by the Chairman of the Board. The purchase price
of $5,000,000 was based on a fair market evaluation performed by an independent
third party. Such acquisition was financed with a term loan. In addition, the
Company purchased inventory at the locations at a cost of $781,000.
On August 29, 1995, the Company sold one store leasehold to a third party
for approximately $1.7 million. The sale resulted in a net gain of
approximately $1.0 million. The store's supermarket equipment was transferred
to a new store location which was opened during February 1996. In addition, the
Company opened its first health and beauty aid store during March 1996. As of
the date of this report, the Company operates 14 supermarkets and one health
and beauty aid store.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Sloan's
Supermarkets, Inc. and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year is comprised of 52 or 53 weeks ending on the
Sunday closest to the last day of February. The 1997 year consisted of 52
weeks, 1996 of 53 weeks and 1995 of 52 weeks.
Inventories
Store inventories are valued principally at the lower of cost or market
with cost determined under the retail method.
Property and Equipment
Depreciation of furniture, fixtures and equipment is computed by the
straight- line method over the estimated useful lives of the assets, with lives
ranging from seven to ten years. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the lease term by the straight-line
method.
F-7
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
Leases
The Company charges the cost of noncancelable operating lease payments and
beneficial leaseholds to operations on a straight-line basis over the lives of
the leases.
Included in income for the fiscal year ended February 26, 1995 are
benefits of $143,000, related to charges taken in the prior fiscal year for
deferred rents.
Deferred Advertising
Advertising rebates and space allocation allowances are deferred and
recognized over the period of the agreement which historically have ranged from
one to three years. Advertising costs are expensed as incurred.
Deferred advertising included in the balance sheet was $0 and $72,442,
respectively, for the years ended March 2, 1997 and March 3, 1996.
Advertising expense included in the income statement was $144,539,
$105,129 and $114,009, respectively, for the years ended March 2, 1997, March
3, 1996 and February 26, 1995.
Income Per Share
Per share data are based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each year. Income
(loss) per share is computed by the treasury stock method; primary and fully
diluted income (loss) per share are the same. The 10% stock dividend in fiscal
1995 has been retroactively applied to all periods presented.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which requires a liability method
of accounting for income taxes. Under the liability method, deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying applicable statutory tax rates to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities.
The Company files a consolidated Federal income tax return that includes
the accounts of its subsidiaries. The Company and its subsidiaries file
separate state and local income tax returns.
Fair Value of Financial Instruments
The carrying values of financial instruments including cash, accounts
receivable, accounts payable and due from related parties approximate fair
value at March 2, 1997 and March 3, 1996 because of the relative short
maturities of these instruments.
The aggregate fair value of the bank debt approximates its carrying amount
because of its recent and frequent repricing based upon market conditions.
Reclassifications
Certain reclassifications have been made to the presentations for fiscal
1996 and 1995 to conform to the presentation for fiscal 1997.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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.
Long-lived Assets
During 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to Be Disposed Of" ("SFAS 121"), was issued. SFAS 121 requires the Company to
review long-lived assets and certain identifiable assets related to those
assets for impairment
F-8
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
whenever circumstances and situations change such that there is an indication
that the carrying amounts may not be recoverable. If the undiscounted future
cash flows of the enterprise are less than their carrying amounts, their
carrying amounts are reduced to fair value and an impairment loss is
recognized. The adoption of this pronouncement in fiscal 1997 did not have a
significant impact on the Company's financial statements.
Stock Options
The Company accounts for all transactions under which employees receive
shares of stock or other equity instruments in the Company or the Company
incurs liabilities to employees in amounts based on the price of its stock in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company has not adopted the
fair value method encouraged but not required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
Appropriate pro forma and other information has been included herein.
3. Related Party Transactions
The Company has advanced funds to companies owned by the Chairman of the
Board who is also the principal stockholder of the Company. As of March 2, 1997
and March 3, 1996, the Company is owed approximately $337,000 and $318,000,
including $133,304 and $114,005 of accrued interest, respectively. Such
advances bear interest at prime plus 1.25% per annum (9.50% at March 2, 1997
and 9.50% at March 3, 1996).
Red Apple Group, Inc. ("Red Apple"), a corporation wholly owned and
controlled by the Company's Chairman of the Board, supervises all operations of
the Supermarkets pursuant to a management agreement entered into in March 1993
(the "Management Agreement"). The Management Agreement is terminable by either
party after March 19, 1998. The term of the agreement shall automatically be
extended for additional one-year periods unless either party has given the
other notice of termination no later than 90 days prior to the end of the
previous term. As of the date of this report, no such notice has been given.
The Management Agreement requires the Company to pay to Red Apple a quarterly
fee equal to 1.25% of all sales made in or from the Supermarkets. The quarterly
fee payable under the Management Agreement does not necessarily equal the costs
which would have been or may be incurred by the Company on a stand-alone basis.
The Company has various amounts receivable from supermarket companies
owned by the Chairman of the Board related to the allocation of volume,
advertising and other rebates to the Company. Rebates, whether allocated or
directly attributed to the Company, are recorded as reductions to cost of sales
or advertising expense over the life of the related agreement. Rebates recorded
as reductions to expenses approximated $1.7, $1.1 and $1.4 million during
fiscal 1997, 1996 and 1995, respectively.
Red Apple also provides maintenance services for the Company which are not
covered by the Management Agreement. Such services include supermarket
refrigeration, electrical and equipment maintenance. During the 1997, 1996 and
1995 fiscal years, the Company incurred approximately $-0-, $123,000 and
$90,000, respectively.
City Produce Distributors, Inc., a corporation indirectly wholly owned and
controlled by the Chairman of the Board, sells produce and certain grocery
items to the Company at prices consistent with other third parties. During the
1997, 1996 and 1995 fiscal years, such purchases aggregated approximately
$5,263,000, $3,618,000 and $2,900,000, respectively.
Newspaper advertising for the Supermarkets is frequently pooled with
advertising for other supermarkets which are not owned by the Company but which
are operated by Red Apple or its affiliates under the Sloan's name. In such
cases, the Company pays a proportionate share of such advertising expenses
based upon its number of Supermarkets covered in the advertisements. Such
amounts allocated to the Company approximated $115,000, $136,000 and $139,000
during fiscal 1997, 1996 and 1995, respectively.
F-9
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
3. Related Party Transactions -- (Continued)
At March 2, 1997 and March 3, 1996, the net amount due from related
parties resulting from the above transactions amounted to $1,830,127 and
$527,694, respectively.
Lowenthal, Landau, Fischer & Bring, P.C., a law firm of which a director
of the Company is a member, was paid $219,000, $213,000 and $117,000 in fees
for rendering legal services to the Company during the fiscal years ended March
2, 1997, March 3, 1996 and February 26, 1995, respectively.
4. Commitments and Contingencies
The Company operates primarily in leased facilities, under noncancelable
operating leases expiring at various dates through 2018. Certain leases provide
for contingent rents (based upon store sales exceeding stipulated amounts or on
the Consumer Price Index), escalation clauses and renewal options ranging from
five to fifteen years. The Company is obligated under all leases to pay for
taxes, insurance and common area maintenance expenses.
Rent expense under noncancelable operating leases, including leases with
related parties for the fiscal years ended March 2, 1997, March 3, 1996 and
February 26, 1995, respectively, is as follows:
<TABLE>
<CAPTION>
Year ended
-------------------------------------------------------
March 2, 1997 March 3, 1996 February 26, 1995
--------------- --------------- -------------------
<S> <C> <C> <C>
Base rents ............ $2,781,602 $2,350,162 $1,972,164
Contingent rents ...... 30,000 30,000 30,000
----------- ----------- -----------
Rent expense ......... $2,811,602 $2,380,162 $2,002,164
=========== =========== ===========
</TABLE>
Future minimum lease commitments under noncancelable leases as of March 2,
1997 are:
Fiscal year ending
- -----------------------------
1998 ......................... $ 2,215,556
1999 ......................... 2,036,400
2000 ......................... 1,962,441
2001 ......................... 2,009,949
2002 ......................... 1,946,376
Thereafter ................... 20,559,901
-----------
$30,730,623
===========
The Company may also expand its operations through acquisitions of
supermarkets and/or businesses which the Company believes would complement its
core supermarket business. The Company is continuing to pursue the possibility
of purchasing additional supermarkets from other companies owned by John
Catsimatidis.
5. Income Taxes
The Company adopted, effective March 1, 1993, SFAS 109 which, among other
things, requires a change from the deferred method to the liability method of
accounting for income taxes and allows recognition of deferred tax assets based
on the likelihood of realization of a tax benefit in future years. Pursuant to
the adoption of SFAS 109, deferred income taxes are provided for the temporary
differences between the tax basis and financial accounting reporting basis of
the Company's net assets and liabilities. The effect of adopting SFAS 109 had
no impact on the results of operations or financial position of the Company.
Deferred tax expense or benefit is the change in the computed tax asset or
liability balance. As of March 2, 1997 and March 3, 1996, the Company had total
deferred tax assets of approximately $790,000 and
F-10
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
5. Income Taxes -- (Continued)
$1,020,000, respectively, of which approximately $680,000 and $980,000 is
related to net operating loss carryforwards which are available to offset
income earned in future years, and approximately $230,000 and $140,000 in
deferred tax liabilities related to excess tax depreciation. However, the net
deferred tax assets were offset by a valuation allowance of an equal amount.
Accordingly, for the year ended March 2, 1997, no deferred income tax benefit
was recognized.
The Company utilized approximately $1,200,000, $1,700,000 and $-0- of net
operating loss carryforwards during fiscal 1997, 1996 and 1995, respectively,
the benefit of which offsets current income taxes payable. As of March 2, 1997,
the Company had available Federal net operating loss carryforwards of
approximately $2,000,000, of which the tax benefits of $1,000,000 when and if
realized, will be credited directly to additional paid-in capital.
The income tax expense amounts in the consolidated statements of
operations consist of state income taxes and Federal alternative minimum taxes.
The Federal statutory tax rate differs from the effective tax rate in
1997, 1996 and 1995, due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Federal statutory tax rate ............... 34.0% 34.0% 34.0%
Operating losses utilized ............... (34.0%) (34.0%) (34.0%)
State and Alternative Minimum Taxes ...... 4.0% 3.2% 17.4%
Effective tax rate ........................ 4.0% 3.2% 17.4%
</TABLE>
6. Debt
Credit Facility and Term Loan Agreement
On October 13, 1995, the Company entered into a five-year credit agreement
with European American Bank which replaced its previous credit agreement. The
new agreement includes a $1,000,000 revolving credit facility and $7,000,000
term loan. The new agreement, which permits borrowings based on the prime rate
plus 1.25%, contains covenants, representations and events of default typical
of credit facility agreements, including financial covenants which require the
Company to meet, among other things, debt service coverage ratios and fixed
charge coverage ratios and which limit advances to affiliates. Similar to the
Company's prior credit agreements, the new revolving credit facility and term
loan is secured by equipment, general intangibles and accounts receivable.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 2, 1997 March 3, 1996
--------------- ---------------
<S> <C> <C>
Loan payable to bank at prime plus 1.25% per annum (9.5% at
March 2, 1997), interest payable monthly in arrears, principal
payable in monthly installments of $100,000 beginning
November 13, 1995 (collateralized by certain assets of the
Company, including store equipment and leases) ............ $ 5,400,000 $ 6,600,000
Less: Current portion ....................................... (1,200,000) (1,200,000)
------------ ------------
$ 4,200,000 $ 5,400,000
============ ============
</TABLE>
Deferred financing costs related to the loan payable to bank are being
amortized over the life of the related debt. As a result of the refinancing of
the credit agreement, the Company wrote off deferred financing costs which
pertained to the previous credit agreement. The write-off of $88,674 is
reflected in the consolidated financial statements as an extraordinary item.
F-11
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
6. Debt -- (Continued)
Principal maturities of long-term debt follow:
1998 .............................. $1,200,000
1999 .............................. 1,200,000
2000 .............................. 1,200,000
2001 .............................. 1,800,000
-----------
$5,400,000
===========
7. Stockholders' Equity
On November 16, 1994, the Company declared a 10% stock dividend payable on
January 20, 1995 to stockholders of record on December 20, 1994.
Earnings per share and weighted average shares outstanding have been
restated to reflect the 10% stock dividend.
8. Retirement Plans
The Company participates in various defined contribution multi-employer
union pension plans which are administered jointly by management and union
representatives and which sponsor most full-time and certain part-time union
employees. The pension expense for these plans approximated $630,000, $800,000
and $702,000 in fiscal 1997, 1996 and 1995, respectively. The Company could,
under certain circumstances, be liable for unfunded vested benefits or other
expenses of jointly administered union/management plans.
9. Stock Option Plans
During fiscal 1990, the Company granted to the Chairman of the Board and
principal stockholder of the Company a nonqualified stock option to purchase an
aggregate of 200,000 shares of common stock at a price of $5.00 per share.
During fiscal 1993, the exercise price of these options had been reduced to
$2.00 per share (the fair market value at that date) by approval of the
Company's stockholders. During fiscal 1991, the Company granted the Chairman a
nonqualified stock option to purchase an aggregate of 250,000 shares of common
stock at a price of $1.50 per share. On October 20, 1994, the options were
exercised by the Chairman. The purchase price for the options exercised were
paid for by offsetting loans previously made to the Company by the Chairman or
by companies controlled by the Chairman.
On October 7, 1994, the Company granted the Chairman an aggregate of
250,000 shares of common stock at a price of $4.12 per share (the fair market
value at that date).
The Company currently has one incentive grant and four nonqualified grants
under which stock options may be granted to officers, directors and key
employees of the Company - the 1994 Employee Incentive Grant (the "1994
Grant"), the 1994 Nonqualified Grant (the "1994 NQ Grant"), the 1995 Chairman's
Nonqualified Options (the "Chairman's Grant"), the 1994 Director's Nonqualified
Grant (the "Directors' Grant"), and the 1994 Nonqualified Recruitment Grant
(the "1994 Recruitment Grant"). The options to purchase common shares generally
are issued at fair market value on the date of the grant, begin vesting on the
date of the grant, and expire ten years from issuance and are conditioned upon
continual employment during the vesting period.
Under the 1994 Grant and the 1994 NQ Grant, the Company granted options to
purchase up to 100,000 and 35,000 shares of common stock, respectively.
In addition to the one incentive grant, the Company has granted stock
options to certain key executives and directors. The vesting terms and
contractual lives of these grants are similar to that of the incentive grant.
F-12
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
9. Stock Option Plans -- (Continued)
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations for its
stock option grants. Generally, compensation expense is not recognized for
stock option grants.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), the Company discloses the
pro forma impact of recording compensation expense utilizing the Black-Scholes
model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the Black-Scholes model does not necessarily provide a
reliable measure of the fair value of its stock options.
Since no stock options were granted in the past two years, no pro forma
calculations pursuant to SFAS 123 have been presented.
A summary of the status of the Company's stock options is presented below:
Weighted Average
Shares Exercise Price
----------- ------------------
Balance, February 27, 1994 ...... -- $ --
Granted ........................ 473,000 4.29
Exercised ..................... -- --
Forfeited ..................... -- --
------- -----
Balance, February 26, 1995 ...... 473,000 4.29
Granted ........................ -- --
Exercised ..................... -- --
Forfeited ..................... (9,000) 5.63
------- -----
Balance, March 3, 1996 ......... 464,000 4.27
Granted ........................ -- --
Exercised ..................... -- --
Forfeited ..................... (8,000) 5.63
------- -----
Balance March 2, 1997 ............ 456,000 $4.24
======= =====
Options exercisable as of March 2, 1997, March 3, 1996 and February 26,
1995 were 442,800, 444,200 and 446,600, respectively.
The following table summarizes information as of March 2, 1997 concerning
outstanding and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------ ------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$3.75 275,000 6.69 $ 3.75 275,000 $ 3.75
5.63 33,000 6.81 5.63 33,000 5.63
5.63 85,000 6.81 5.63 85,000 5.63
3.81 30,000 7.69 3.81 30,000 3.81
3.81 33,000 2.69 3.81 19,800 3.81
---------- -------- ---- ------- -------- -------
$3.75-5.63 456,000 6.50 4.24 442,800 4.24
=========== ======== ==== ======= ======== =======
</TABLE>
F-13
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
10. Litigation
In June 1994, the United States Federal Trade Commission (the "FTC")
commenced an action alleging that the acquisitions by John Catsimatidis, the
Company and three other entities controlled by Mr. Catsimatidis (collectively,
the "companies") of 32 Sloan's Supermarkets between 1991 and 1993 violated
Federal antitrust laws because the effect of the acquisitions might be
substantially to lessen competition among supermarkets within four Manhattan
residential neighborhoods. The complaint indicated that the FTC could seek
divestiture of up to ten supermarkets owned by the companies.
In order to avoid the costs of protracted litigation in the matter and
without admitting that any antitrust law was violated as alleged in the
complaint, on November 21, 1994, the companies entered into a settlement
agreement with the Acting Director of the Bureau of Competition of the FTC
regarding the claims made by the FTC against them (the "Settlement Agreement").
The companies agreed in the Settlement Agreement that within twelve months from
the date of a final order in the proceeding they would divest themselves of an
aggregate of six supermarkets in Manhattan, chosen by them from a list of
sixteen supermarkets specifically designated in the Settlement Agreement (none
of which are owned by the Company) and certain alternate supermarkets
referenced in the Settlement Agreement (five of which were then owned by the
Company). Nothing in the Settlement Agreement required the Company to divest
itself of any of its supermarkets, but divestiture of supermarkets owned by the
Company would count towards satisfaction of the divestiture obligations.
An order embodying the Settlement Agreement was made effective March 6,
1995 (the "Order"). Pursuant to that Order, for a period of 10 years from March
6, 1995, the companies cannot, without prior FTC approval, acquire any interest
in any existing supermarket in a designated area. The order does not restrict
the companies from acquiring an interest in a supermarket by leasing or
purchasing a new location that at the time of merger (and for six months prior
to the merger) is not being operated as a supermarket.
In March 1996, an application (the "Application") was made to modify the
Order so as to lift the divestiture requirements other than with respect to one
store on the Upper West Side which was not owned by the Company. The FTC
approved the divestiture of that store and its divestiture was completed on May
9, 1996. On April 29, 1996, the Application was revised; and it was further
revised in August and September so as to seek relief solely with respect to the
requirements of divestiture of any supermarkets in the Chelsea section of
Manhattan.
On September 13, 1996, the FTC granted the Application as modified, and
deleted the requirements of divestiture in Chelsea. Simultaneously, the FTC
appointed a trustee to divest four supermarkets pursuant to the Order, as
modified. The trustee was not granted any authority to divest until the FTC
approved a trustee agreement between the trustee and the companies. An
agreement was entered into with the trustee which would have been effective
upon approval by the FTC.
Subsequent to the modification of the Order, Supermarket Acquisition Corp.
("SAC"), Red Apple Supermarket, Inc. ("RAS") and Gristede's Supermarkets, Inc.
("Gristede's") sold an aggregate of four stores in compliance with the
divestiture provisions of the Order, as modified. Based thereon, the trustee
agreement will not become effective.
A settlement of FTC claims relating to the divestiture provisions of the
Order has been agreed to pursuant to which $600,000 has been paid to the FTC.
No portion of such amount was borne by the Company.
On August 8, 1994, a lawsuit against the Company and Mr. Catsimatidis was
instituted in the United States District Court for the Southern District of New
York by RMED International, Inc. ("RMED"), a former stockholder of the Company.
The complaint alleges, among other things, that RMED and a purported class
consisting of persons who purchased the Company's common stock on or after
March 19, 1993 were damaged by alleged nondisclosures in certain filings made
by the Company with the Securities and Exchange Commission between January 1993
and June 1994 relating to an investigation by the FTC. The complaint alleges
that such nondisclosures constituted violations of Federal and New York State
securities laws, as well as common law fraud and seeks damages
F-14
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- (Continued)
10. Litigation -- (Continued)
(including punitive damages) in an unspecified amount (although in discovery
proceedings the named plaintiff has claimed that its damages were approximately
$800,000), as well as costs and disbursements of the action. On June 2, 1994,
the Company issued a press release which disclosed the FTC action.
On September 30, 1994, the defendants filed a motion to dismiss for
failure to state a cause of action and for lack of subject matter jurisdiction
over the state claims. The motion was denied. In June 1995, RMED filed a motion
for class certification, and discovery was held in abeyance pending disposition
of that motion. The motion was granted in March 1996 and discovery is now
proceeding. Management believes that the lawsuit is without merit and intends
to defend the action vigorously; however, the outcome cannot be determined.
F-15
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 1, 1997
<TABLE>
<S> <C>
Assets
Current assets:
Cash .............................................................................. $ 65,481
Accounts receivable - net of allowance for doubtful accounts of $30,000
at June 1, 1997 .................................................................. 741,709
Inventory ........................................................................ 5,706,520
Prepaid expenses and other current assets .......................................... 208,717
Due from related parties ......................................................... 1,668,982
-------------
Total current assets ............................................................ 8,391,409
-------------
Property and equipment:
Furniture, fixtures and equipment ................................................ 5,466,455
Leaseholds and leasehold improvements ............................................. 11,706,905
-------------
17,173,360
Less accumulated depreciation ...................................................... 4,921,753
-------------
Net property and equipment ...................................................... 12,251,607
-------------
Receivable from officer ............................................................ 342,129
Deposits and other assets ......................................................... 492,824
Deferred costs ..................................................................... 111,220
Noncompete agreement - net of accumulated amortization of $331,324 at June 1, 1997 .. 458,992
Deferred finance costs - net of accumulated amortization of $42,320 at June 1, 1997.. 376,528
-------------
Total assets ........................................................................ $ 22,424,709
=============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade ............................................................ $ 6,641,583
Accrued payroll, vacation, and withholdings ....................................... 345,805
Accrued expenses and other current liabilities .................................... 230,201
Revolving credit facility ......................................................... 1,000,000
Current portion of long-term debt ................................................ 1,200,000
-------------
Total current liabilities ...................................................... 9,417,589
Long-term debt ..................................................................... 3,900,000
Deferred rents ..................................................................... 846,887
-------------
Total liabilities ............................................................... 14,164,476
-------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $50 par-shares authorized 500,000; none issued
Common stock, $.02 par-shares authorized 10,000,000;
outstanding 3,132,289 shares issued at June 1, 1997 .............................. 62,646
Additional paid-in capital ......................................................... 18,248,286
Accumulated deficit ............................................................... (10,050,699)
-------------
Total stockholders' equity ...................................................... 8,260,233
-------------
Total liabilities and stockholders' equity .......................................... $ 22,424,709
=============
</TABLE>
F-16
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 1, 1997 AND JUNE 2, 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Sales ...................................................... $12,254,700 13,538,008
Cost of sales ............................................. 7,506,416 8,113,439
----------- -----------
Gross profit ................................................ 4,748,284 5,424,569
Store operating, general, administrative .................. 3,812,717 4,231,940
Management fee ............................................. 150,829 169,225
----------- -----------
Store operating profit .................................... 784,738 1,023,404
Depreciation and amortization .............................. 425,545 423,786
Non-store operating expense ................................. 65,046 88,218
----------- -----------
294,147 511,400
Interest income ............................................. 5,466 6,385
Other income (expense) .................................... (5,554) 4,495
Interest expense .......................................... (187,442) (178,021)
----------- -----------
(187,530) (167,141)
----------- -----------
Income from continuing operations before income taxes ...... 106,617 344,259
Provision for income taxes ................................. 4,500 14,006
----------- -----------
Net income ................................................ $ 102,117 $ 330,253
=========== ===========
Income per share .......................................... $ 0.03 $ 0.10
=========== ===========
Weighted Average Number of shares and equivalents outstanding. $ 3,132,000 $ 3,151,000
=========== ===========
</TABLE>
F-17
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 1, 1997 AND JUNE 2, 1996
<TABLE>
<CAPTION>
Three months ended Three months ended
June 1, 1997 June 2, 1996
-------------------- --------------------
<S> <C> <C>
Net income ......................................................... $ 102,117 $ 330,250
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................... 425,545 423,786
Changes in operating assets and liabilities:
Accounts receivable - net .......................................... (239,793) 43,287
Inventory ......................................................... 167,471 (108,956)
Prepaid expenses and other current assets ........................ 91,170 (14,899)
Receivable from related party - net .............................. 161,145 (345,399)
Due from related parties .......................................... (4,825) (4,825)
Other assets ...................................................... (212,238) (12,354)
Deferred credits ................................................... 0 (23,867)
Accounts payable, trade .......................................... 48,171 (167,912)
Accrued payroll, vacation and withholdings ........................ (146,052) (155,856)
Accrued expenses and other current liabilities ..................... (147,230) 305,770
Deferred rents ................................................... 52,242 64,338
---------- ----------
Net cash provided by operating activities ........................ 297,723 333,363
Capital expenditures - net ....................................... (2,479) (29,837)
---------- ----------
Net cash used in investing activities ........................... (2,479) (29,837)
Repayments of bank loan .......................................... (300,000) (300,000)
---------- ----------
Net cash used in financing activities ........................... (300,000) (300,000)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................................... (4,756) 3,526
CASH AND CASH EQUIVALENTS, beginning of period ..................... 70,237 71,242
---------- ----------
CASH AND CASH EQUIVALENTS, end of period ........................... $ 65,481 $ 74,768
========== ==========
</TABLE>
F-18
<PAGE>
SLOAN'S SUPERMARKETS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended June 1, 1997 and June 2, 1996 are not necessarily indicative
of the results that may be expected for the years ended March 1, 1998 and March
2, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended March 2, 1997.
F-19
<PAGE>
THE FOOD GROUP
UNAUDITED STATEMENT OF ASSETS TO BE PURCHASED
AND LIABILITIES TO BE ASSUMED
JUNE 1, 1997
Assets
Accounts receivable ................................. $ 2,413,276
Inventories - merchandise ........................... 9,331,163
Notes receivable .................................... 2,321,434
Prepaid expenses and other current assets ............ 204,046
Deposits and other assets ........................... 307,306
Fixed assets, net .................................... 7,027,987
Capitalized leases, net .............................. 1,272,072
-----------
Assets purchased .................................... $22,877,284
===========
Liabilities
Accounts payable .................................... $10,310,129
Accrued payroll, vacation and withholdings ......... 922,077
Due to Sloan's Supermarkets, Inc. .................. 1,910,709
Due to related parties .............................. 4,000,000
Capitalized lease obligations due to affiliate ...... 2,706,382
-----------
Total liabilities ................................. 19,849,297
-----------
Net assets purchased .............................. $ 3,027,987
===========
F-20
<PAGE>
THE FOOD GROUP
UNAUDITED STATEMENT OF SALES AND EXPENSES
FOR THE THREE MONTHS ENDED JUNE 1, 1997 AND
FOR THE THREE MONTHS ENDED JUNE 2, 1996
1997 1996
----------- -----------
Sales .............................. $24,928,724 $26,937,532
Cost of Sales ..................... 15,349,822 16,178,033
----------- -----------
Gross profit ........................ 9,578,902 10,759,499
Direct operating expenses ......... 8,332,852 8,988,150
----------- -----------
1,246,050 1,771,349
Corporate overhead .................. 1,528,958 1,789,643
----------- -----------
(282,908) (18,294)
Depreciation and amortization ...... 523,111 564,168
----------- -----------
$ (806,019) $ (582,462)
=========== ===========
F-21
<PAGE>
THE FOOD GROUP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared for the purpose of complying with the rules and regulations for the
Securities and Exchange Commission (for inclusion in a proxy statement), and it
is not intended to be a complete presentation of The Food Group's financial
position or results of operations. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended June 1, 1997 and June 2, 1996 are not necessarily indicative
of the results that may be expected for the years ended March 1, 1998 and March
2, 1997. Further, the financial statements present certain net assets of the
business to be acquired, and accordingly, are not intended to comply with
generally accepted accounting principles. For further information, refer to the
financial statements for the last full three years included elsewhere herein.
(2) Related Parties Liabilities Assumed
At June 1, 1997, The Food Group has incurred $4,000,000 in amounts owed to
the principal shareholder and related parties which are owned directly or
indirectly by the principal shareholder. This assumption of liabilities will be
treated as a reduction of the equity which will then be absorbed into the
Combined Company.
F-22
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Sloan's Supermarkets, Inc.
We have audited the accompanying statements of assets to be purchased and
liabilities to be assumed of The Food Group as of March 2, 1997 and March 3,
1996 and the related statements of sales and expenses for each of the three
years in the period ended March 2, 1997. These financial statements are the
responsibility of The Food Group'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 audits 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.
The accompanying statements of assets to be purchased and liabilities to
be assumed and statements of sales and expenses were prepared for the purpose
of complying with the rules and regulations of the Securities and Exchange
Commission, and is not intended to be a complete presentation of The Food
Group's financial position or results of operations.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the intended assets to be purchased and liabilities
to be assumed of The Food Group at March 2, 1997 and March 3, 1996, and its
sales and expenses for each of the three years in the period ended March 2,
1997, in conformity with generally accepted accounting principles.
BDO SEIDMAN LLP
New York, New York
June 27, 1997
F-23
<PAGE>
The Food Group
Statements of Assets to be Purchased
and Liabilities to be Assumed
<TABLE>
<CAPTION>
March 2, 1997 March 3, 1996
------------- -------------
<S> <C> <C>
Assets
Accounts receivable ........................... $ 2,999,000 $ 1,947,712
Inventories .................................... 9,457,000 8,826,827
Notes receivable .............................. 1,634,000 592,000
Prepaid expenses and other current assets ...... 213,000 262,000
Security deposits .............................. 300,000 300,000
Fixed assets, net .............................. 7,187,000 6,667,042
Capital leases - net ........................... 1,329,000 1,556,873
----------- -----------
Assets purchased .............................. 23,119,000 20,152,454
----------- -----------
Liabilities
Accounts payable .............................. 11,192,000 9,931,539
Due to affiliated companies ..................... 4,000,000 4,000,000
Accrued vacation and sick pay .................. 993,000 917,000
Due to Sloan's Supermarkets, Inc. ............... 1,154,000 237,000
Capitilized lease obligations to affiliate ...... 2,675,000 2,535,000
----------- -----------
Total liabilities .............................. 20,014,000 17,620,539
----------- -----------
Net assets purchased ........................... $ 3,105,000 $ 2,531,915
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
The Food Group
Statements of Sales and Expenses
<TABLE>
<CAPTION>
Year ended
-----------------------------------------------------
March 2, 1997 March 3, 1996 February 26, 1995
--------------- --------------- -----------------
<S> <C> <C> <C>
Sales .............................. $104,168,864 $116,866,063 $116,862,727
Cost of sales ..................... 63,932,541 72,351,240 72,893,642
------------ ------------ ------------
Gross profit ..................... 40,236,323 44,514,823 43,969,085
Direct operating expenses ......... 33,821,475 37,566,143 36,738,453
------------ ------------ ------------
6,414,848 6,948,680 7,230,632
Corporate overhead .................. 6,207,930 6,405,593 8,269,408
------------ ------------ ------------
206,918 543,087 (1,038,776)
Depreciation and amortization ...... 2,092,403 2,257,714 2,747,641
Bad debt expense .................. 113,242 222,878 277,952
------------ ------------ ------------
Excess of expenses over sales ...... $ (1,998,727) $ (1,937,505) $ (4,064,369)
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
THE FOOD GROUP
Notes to Financial Statements
1. Basis of Presentation
The accompanying statements of assets to be purchased and liabilities to
be assumed and statements of sales and expenses relate to the combined
operations of twenty-eight (28) selected supermarkets and a wholesale
distribution business (the "acquisition stores" or "The Food Group") which are
currently owned by Supermarket Acquisition Corp., Red Apple Supermarkets, Inc.
and Gristede's Supermarkets, Inc. (collectively the members of the "Group").
The members of the Group are directly or indirectly owned by John Catsimatidis.
Mr. Catsimatidis is also a 37% shareholder of Sloan's Supermarkets, Inc. and
subsidiaries ("Sloan's"). On September 18, 1996, the Board of Directors of
Sloan's authorized, in principle, a transaction whereby the operations of
twenty-eight selected supermarkets operating in the New York City Metropolitan
area and a wholesale distribution business, including its accounts receivable
and inventory, leasehold improvements, fixtures, various notes receivable (see
Note 5) and certain other assets, net of payables, will be sold to Sloan's. The
transaction is subject to shareholder approval. The agreement also specifies
that payables, unpaid obligations that The Food Group has for vacation and sick
pay and intercompany liabilities owed by The Food Group will be assumed by
Sloan's in an aggregate amount that shall equal the sum of inventory,
receivables and certain other assets acquired at the date the transaction
closes. Such financial statements, rather than complete financial statements,
are presented because the business to be acquired consists of only certain net
assets of the stores and there are certain assets of The Food Group that will
not be acquired. Accordingly, the statements present only the assets to be
acquired and the liabilities to be assumed and the sales and expenses directly
attributable to The Food Group. The financial statements consist of a
historical consistent comparison of the operating results only of those stores
intended to be transferred to the public company (Sloan's). The Group, in
addition to owning the above stores, also has other operations included within
its consolidated group. Corporate overhead costs for the entire Group are
allocated to the Group's respective operations, including The Food Group.
Corporate overhead included in the accompanying statements of sales and
expenses include identified overhead costs for payroll and other directly
attributable overhead costs pertaining to the retail stores owned by the Group
which also includes costs incurred for selected stores not being sold. No tax
benefit has been recognized due to the fact that the losses remain with the
corporate parent of The Food Group.
2. Summary of Significant Accounting Policies
Fiscal Year
The Food Group's fiscal year is comprised of 52 or 53 weeks ending on the
Sunday closest to the last day of February. The 1997 year consisted of 52 weeks
and 1996 of 53 weeks and 1995 of 52 weeks.
Inventories
Store inventories are valued principally at the lower of cost or market
with cost determined using the retail inventory method.
Property and Equipment
Depreciation of furniture, fixtures and equipment is computed by the
straight-line method over the estimated useful lives of the assets, with lives
ranging from seven to ten years. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the lease term by the straight-line
method.
Leases
The Food Group charges the cost of noncancelable operating lease payments
and beneficial leaseholds to operations on a straight-line basis over the lives
of the leases.
Deferred Advertising
Advertising rebates and space allocation allowances are deferred and
recognized over the period of the agreement which historically have averaged
one to three years. Advertising costs are expensed as incurred.
F-26
<PAGE>
THE FOOD GROUP
Notes to Financial Statements -- (Continued)
2. Summary of Significant Accounting Policies -- (Continued)
Deferred advertising included in the balance sheet was $85,784 and
$329,385 respectively, for the years ended March 2, 1997 and March 3, 1996.
Advertising expense included in the income statement was $640,932 $575,752
and $610,767, respectively, for the years ended March 2, 1997, March 3, 1996
and February 26, 1995.
Fair Value of Financial Instruments
The carrying values of financial instruments including accounts receivable
and accounts payable approximate fair value at March 2, 1997, March 3, 1996 and
February 26, 1995 because of the relatively short maturities of these
instruments. The carrying values of notes receivable approximate their fair
market values because their terms approximate those that would be available
under current market conditions.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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.
Income Taxes
The accompanying statements do not include income tax expenses, due to The
Food Group's losses. No deferred tax assets or liabilities have been recognized
since only the operating assets and liabilities of the stores are being sold.
The losses incurred by these stores being sold remain with the Red Apple Group,
Inc.
Long-lived Assets
During 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed of" ("SFAS 121"), was issued. SFAS 121 requires The Food Group
to review long-lived assets and certain identifiable assets related to those
assets for impairment whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be recoverable. If the
undiscounted future cash flows of the enterprise are less than their carrying
amounts, their carrying amounts are reduced to fair value and an impairment
loss is recognized. The adoption of this pronouncement in fiscal 1997 did not
have a significant impact on The Food Group's financial statements.
3. Fixed Assets -- Net
Fixed assets -- net are comprised of the following:
March 2, 1997 March 3, 1996
------------- -------------
Fixtures and equipment ............... $ 7,679,000 $10,875,209
Leasehold improvements ............... 9,109,000 7,906,472
Leasehold acquired .................. 3,442,000 2,548,226
Automobile ........................... 30,000 29,620
----------- -----------
20,260,000 21,359,527
Less: Accumulated depreciation ...... 13,073,000 14,692,485
----------- -----------
Fixed assets -- net .................. $ 7,187,000 $ 6,667,042
=========== ===========
4. Commitments and Contingencies
Leases
The Food Group operates primarily in leased facilities under noncancelable
operating leases expiring at various dates through 2017. The transfer of these
leases pursuant to the agreement is subject to the landlord's consent. Certain
leases provide for contingent rents (based upon store sales exceeding
stipulated amounts or on the Consumer Price Index), escalation clauses and
renewal options ranging from five to fifteen years. The Food Group is obligated
under all leases to pay for taxes, insurance and common area maintenance
expenses.
F-27
<PAGE>
THE FOOD GROUP
Notes to Financial Statements -- (Continued)
4. Commitments and Contingencies -- (Continued)
Rent expense under noncancelable operating leases, including leases with
related parties for the fiscal years ended March 2, 1997, March 3, 1996 and
February 26, 1995, respectively, is as follows:
<TABLE>
<CAPTION>
Year ended
-------------------------------------------------------
March 2, 1997 March 3, 1996 February 26, 1995
--------------- --------------- -------------------
<S> <C> <C> <C>
Base rents ............ $5,373,000 $5,063,000 $4,814,000
Contingent rents ...... 28,000 24,000 26,000
----------- ----------- -----------
Rent expense ......... $5,401,000 $5,087,000 $4,840,000
=========== =========== ===========
</TABLE>
Future minimum lease commitments under noncancelable leases as of March 2,
1997 are:
Fiscal year ending
--------------------
1998 ................................. $ 5,597,000
1999 ................................. 5,332,000
2000 ................................. 5,088,000
2001 ................................. 4,848,000
2002 ................................. 3,611,000
Thereafter ........................... 25,129,000
-----------
$49,605,000
===========
Capitalized lease obligations due to affiliate
Certain stores included within The Food Group have entered into capital
and operating leases with an affiliate, Red Apple Leasing, Inc. (a company
wholly owned by John Catsimatidis). Such leases are primarily for store
operating equipment. Obligations under capital leases at March 2, 1997 and
March 3, 1996 were $1,411,000 and $1,692,000, respectively, and require monthly
payments of $35,114 through March 1, 2001. Obligations under operating leases
at March 2, 1997 require 84 monthly payments of $14,560. In addition, amounts
due under capital lease obligations totalling $1,264,000 and $843,000 at March
2, 1997 and March 3, 1996 are included in capitalized lease obligations to
affiliates.
5. Legal Proceedings and Contingent Liabilities
In June 1994, the United States Federal Trade Commission (the "FTC")
commenced an action alleging that certain acquisitions consummated by Mr. John
Catsimatidis, Sloan's, and three other entities (the "Red Apple entities")
controlled by Mr. Catsimatidis, including corporations which presently own the
acquisition stores (collectively, the "companies") of 32 Sloan's supermarkets
between 1991 and 1993 violated Federal antitrust laws because the effect of the
acquisitions might be substantially to lessen competition among supermarkets
within four Manhattan residential neighborhoods. The complaint indicated that
the FTC could seek divestiture of up to ten supermarkets owned by the
companies.
In order to avoid the costs of protracted litigation in the matter and
without admitting that any antitrust law was violated as alleged in the
complaint, on November 21, 1994, the companies entered into a settlement
agreement with the Acting Director of the Bureau of Competition of the FTC
regarding the claims made by the FTC against them (the "Settlement Agreement").
The companies agreed in the Settlement Agreement that within twelve months from
the date of a final order in the proceeding they would divest themselves of an
aggregate of six supermarkets in Manhattan, chosen by them from a list of
sixteen supermarkets specifically designated in the Settlement Agreement (none
of which were owned by Sloan's) and certain alternate supermarkets referenced
in the Settlement Agreement (five of which were then owned by Sloan's). Nothing
in the Settlement Agreement required Sloan's to divest itself of any of its
supermarkets, but any supermarkets divested by Sloan's counted towards
satisfaction of the divestiture obligations.
F-28
<PAGE>
THE FOOD GROUP
Notes to Financial Statements -- (Continued)
5. Legal Proceedings and Contingent Liabilities -- (Continued)
An order embodying the Settlement Agreement was made effective March 6,
1995 (the "Order"). Pursuant to that Order, for a period of ten years from
March 6, 1995, the companies cannot, without prior FTC approval, acquire any
interest in any existing supermarket in a designated area. The Order does not
restrict the companies from acquiring an interest in a supermarket by leasing
or purchasing a new location that at the time of acquisition (and for six
months prior to the acquisition) is not being operated as a supermarket.
In March 1996, an application (the "Application") was made to modify the
Order so as to lift the divestiture requirements other than with respect to one
store on the Upper West Side which was not owned by Sloan's. The FTC approved
the divestiture of that store and its divestiture was completed on May 9, 1996.
On April 29, 1996, the Application was revised; and it was further revised in
August and September so as to seek relief solely with respect to the
requirement of divestiture of any supermarkets in the Chelsea section of
Manhattan. On September 13, 1996, the FTC granted the Application as modified,
and deleted the requirement of divestiture in Chelsea. Simultaneously, the FTC
appointed a trustee to divest four supermarkets pursuant to the Order, as
modified. The trustee was not granted any authority to divest until the FTC
approves a trustee agreement between the trustee and the companies.
Subsequent to the modification of the Order, the Food Group sold an
aggregate of four stores in compliance with the divestiture provisions of the
Order, as modified. Based thereon, the trustee agreement will not become
effective.
A settlement of FTC claims based on the companies' failure to divest
supermarkets pursuant to the Order has been agreed to pursuant to which
$600,000 was paid to the FTC.
The companies may at times be involved in various legal proceedings which
are routine and incidental to the conduct of its business. The companies do not
believe that any of this litigation, either individually or in the aggregate,
could have a material adverse effect on the financial condition or results of
operations of the companies.
F-29
<PAGE>
EXHIBIT A
MERGER AGREEMENT
AGREEMENT, dated as of July 14, 1997 by and among RED APPLE GROUP, INC., a
Delaware corporation ("Group"), GRISTEDE'S SUPERMARKETS, INC., a Delaware
corporation ("Gristede's"), RED APPLE SUPERMARKETS, INC., a New York
corporation ("RAS"), CITY PRODUCE DISTRIBUTORS, INC., a New York corporation
("City Produce"), SUPERMARKET ACQUISITION CORP., a New York corporation
("SAC"), JOHN A. CATSIMATIDIS ("Catsimatidis"), SLOAN'S SUPERMARKETS, INC., a
Delaware corporation ("Sloan's"), GRISTEDE'S OPERATING CORP., a New York
corporation ("GOC"), RAS OPERATING CORP., a New York corporation ("RASOC"), SAC
OPERATING CORP. a New York corporation ("SACOC"), and CITY PRODUCE OPERATING
CORP., a New York corporation ("CPO").
W I T N E S S E T H :
WHEREAS, Gristede's is a corporation organized and existing under the laws
of the State of Delaware, its Certificate of Incorporation having been filed
with the Secretary of State of the State of Delaware on April 24, 1984;
WHEREAS, the authorized capital stock of Gristede's consists of 1,000
shares of Common Stock, par value $1.00 per share ("Gristede's Common Stock"),
of which on the date of this Agreement 100 shares are issued and outstanding,
all of which shares are owned by Group;
WHEREAS, RAS is a corporation organized and existing under the laws of the
State of New York, its Certificate of Incorporation having been filed with the
Department of State of the State of New York on June 15, 1973;
WHEREAS, the authorized capital stock of RAS consists of 200 shares of
Common Stock, no par value ("RAS Common Stock"), of which on the date of this
Agreement 200 shares are issued and outstanding, all of which shares are owned
by Group;
WHEREAS, City Produce is a corporation organized and existing under the
laws of the State of New York, its Certificate of Incorporation having been
filed with the Department of State of the State of New York on October 10,
1986;
WHEREAS, the authorized capital stock of City Produce consists of 200
shares of Common Stock, no par value ("City Produce Common Stock"), of which on
the date of this Agreement 10 shares are issued and outstanding, all of which
shares are owned by Group;
WHEREAS, SAC is a corporation organized and existing under the laws of the
State of New York, its Certificate of Incorporation having been filed with the
Department of State of the State of New York on March 1, 1991;
WHEREAS, the authorized capital stock of SAC consists of 200 shares of
Common Stock, no par value ("SAC Common Stock"), of which on the date of this
Agreement 200 shares are issued and outstanding, all of which shares are owned
by Catsimatidis;
WHEREAS, GOC is a corporation organized and existing under the laws of the
State of New York, its Certificate of Incorporation having been filed with the
Department of State of the State of New York on May 14, 1997;
WHEREAS, the authorized capital stock of GOC consists of 200 shares of
Common Stock, no par value ("GOC Common Stock"), of which on the date of this
Agreement 10 shares are issued and outstanding, all of which shares are owned
by Sloan's;
WHEREAS, RASOC is a corporation organized and existing under the laws of
the State of New York, its Certificate of Incorporation having been filed with
the Department of State of the State of New York on May 14, 1997;
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<PAGE>
WHEREAS, the authorized capital stock of RASOC consists of 200 shares of
Common Stock, no par value ("RASOC Common Stock"), of which on the date of this
Agreement 10 shares are issued and outstanding, all of which shares are owned
by Sloan's;
WHEREAS, SACOC is a corporation organized and existing under the laws of
the State of New York, its Certificate of Incorporation having been filed with
the Department of State of the State of New York on May 14, 1997;
WHEREAS, the authorized capital stock of SACOC consists of 200 shares of
Common Stock, no par value ("SACOC Common Stock"), of which on the date of this
Agreement 10 shares are issued and outstanding, all of which shares are owned
by Sloan's;
WHEREAS, CPO is a corporation organized and existing under the laws of the
State of New York, its Certificate of Incorporation having been filed with the
Department of State of the State of New York on May 14, 1997;
WHEREAS, the authorized capital stock of CPO consists of 200 shares of
Common Stock, no par value ("CPO Common Stock"), of which on the date of this
Agreement 10 shares are issued and outstanding, all of which shares are owned
by Sloan's;
WHEREAS, the holders of all of the outstanding capital stock of each of
Group, SAC, Gristede's, RAS and City Produce and the respective Boards of
Directors of each of Group, SAC, Gristede's, RAS and City Produce have approved
this Agreement;
WHEREAS, the respective Boards of Directors of each of Sloan's, GOC,
RASOC, SACOC and CPO have approved this Agreement, and Sloan's, as the sole
stockholder of each of GOC, RASOC, SACOC and CPO has approved this Agreement,
subject in each case to the approval of this Agreement by the stockholders of
Sloan's; and
WHEREAS, certain capitalized terms which are used herein and are not
immediately defined first where used are defined in Article I hereof.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
1.1 Accounts Receivable. "Accounts Receivable" shall mean with respect to
each Merging Corporation receivables from vendors only as of the Closing Date.
1.2 Acquiring Corporations. "Acquiring Corporations" shall mean GOC,
RASOC, SACOC and CPO, collectively.
1.3 Agreement. "Agreement" shall mean this Merger Agreement, together with
the Exhibits and Schedules attached hereto, as the same shall be amended from
time to time in accordance with the terms hereof which Exhibits and Schedules
are herein incorporated by reference.
1.4 Closing. "Closing" shall mean the closing to be held at 10:00 A.M.,
New York, New York time, on the date and at the place to be specified by the
parties, which shall be no later than the second business day following the
satisfaction or waiver of all of the conditions set forth in Article XI and
Article XII, at which the closing of the Mergers shall be consummated.
1.5 Closing Date. "Closing Date" shall mean the date the Closing shall
occur.
1.6 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
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1.7 Contracts. "Contracts" shall mean all agreements, service, utility and
maintenance contracts, commitments, purchase orders and work orders in
connection with the business of operating the Stores and the Warehouse (and any
other contracts pertaining to either the equipment located in any Store or the
Warehouse or to the provision of services to one or more Stores or the
Warehouse), a complete list of which is set forth in Schedule 1.7 attached
hereto.
1.8 Employee Plans. "Employee Plans" shall mean the employee benefit
plans, including, but not limited to, any bonus, profit sharing, retirement,
stock purchase, stock option, flexible compensation, hospitalization, medical
insurance, severance and pension plans established and maintained by the
Merging Corporations pursuant to the Union Contracts, or otherwise, a complete
list of which is set forth on Schedule 1.8 attached hereto.
1.9 ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.10 Fixed Assets. "Fixed Assets" shall mean all machinery, equipment,
furniture, fixtures, leasehold improvements and other items of tangible
personal property located at or used in the operation of the Stores on the
Closing Date (whether or not owned by any Merging Corporation on the date
hereof), and including transferable warranties, if any, pertaining thereto.
1.11 HSR Act. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder.
1.12 Intercompany Obligations. "Intercompany Obligations" shall mean with
respect to each Merging Corporation, all liabilities of such Merging
Corporation to Sloan's or any subsidiary of Sloan's on the Closing Date.
1.13 Inventory. "Inventory" shall mean all inventory of supplies and all
inventory of merchandise owned by the Merging Corporations and located at the
Stores for sale to customers in the ordinary course of business or, in the case
of City Produce, located at the Warehouse.
1.14 Inventory Value. "Inventory Value" shall mean the value of the
Inventory of each of the Merging Corporations as of the Closing Date. Such
value shall be calculated in accordance with Article X of this Agreement.
1.15 Laws. "Laws" shall mean all applicable laws, rules and regulations of
all authorities.
1.16 Licenses. "Licenses" shall mean all licenses, permits, certificates,
approvals, authorizations, variances and consents issued or granted by
governmental and quasi-governmental bodies, officers and authorities in respect
of the ownership, occupancy, use and operation of any of the assets of the
Merging Corporations which are assignable by operation of law in a merger. A
complete list of the Licenses is set forth on Schedule 1.16 attached hereto.
1.17 Lien. "Lien" shall mean any mortgage, lien, pledge, adverse claim,
levy, charge, security interest or other encumbrance in or on, or any interest
or title of any vendor, lessor, lender or other secured party to a party under
any conditional sale or other title retention agreement or lease in the nature
thereof with respect to any property or asset owned or held by such party.
1.18 Losses. "Losses" shall mean all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties and reasonable attorneys' fees, incurred by a
party to be indemnified under Article XV.
1.19 MPPAA. "MPPAA" shall mean the Multiemployer Pension Plan Amendments
Act of 1980, as amended.
1.20 Merging Corporations. "Merging Corporations" shall mean SAC, RAS,
Gristede's and City Produce.
1.21 Notes Receivable. "Notes Receivable" shall mean with respect to each
Merging Corporation all notes receivable of such Merging Corporation as of the
Closing Date. A list of the notes receivable of the Merging Corporations as of
the date of this Agreement is set forth on Schedule 1.21 attached hereto.
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1.22 Other Current Assets. "Other Current Assets" shall mean with respect
to each Merging Corporation, all current assets of the type set forth on
Schedule 1.22 attached hereto on the Closing Date.
1.23 PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
1.24 Post-Closing Adjustment Date. "Post-Closing Adjustment Date" shall
mean the date which is the sixtieth business day after the Closing Date or as
soon thereafter as practicable.
1.25 Pre-Merger Notification. "Pre-Merger Notification" shall mean a
pre-merger notification and report form filed pursuant to the HSR Act.
1.26 Proxy Statement. "Proxy Statement" shall mean the proxy statement in
definitive form of the Board of Directors of Sloan's relating, among other
things, to the approval of this Agreement at the Stockholders Meeting.
1.27 Real Property Leases. "Real Property Leases" shall mean all of the
right, title and interest in and to the leases of real property for the Stores
and the Warehouse, a complete list of which, setting forth the date of the
lease, the names of the tenant and landlord and the location and use of the
real property subject thereto, is set forth on Schedule 1.27 attached hereto.
1.28 Receivables. "Receivables" shall mean with respect to each Merging
Corporation the Accounts Receivable and the Notes Receivable collectively.
1.29 Records. "Records" shall mean all books, documents and records
relating to the operation of the Stores.
1.30 Selling Group. "Selling Group" shall mean Group and SAC collectively.
1.31 Stockholders Meeting. "Stockholders Meeting" shall mean a meeting of
stockholders of Sloan's at which, among other things, approval of this
Agreement by such stockholders shall be sought.
1.32 Stores. "Stores" shall mean the supermarkets and health and beauty
aid stores located at the addresses listed on Schedule 1.32 attached hereto.
1.33 Trade Payables. "Trade Payables" shall mean all trade payables of
each Merging Corporation as of the Closing Date.
1.34 Union Contracts. "Union Contracts" shall mean those contracts listed
on Schedule 1.34 attached hereto.
1.35 V&S Obligations. "V&S Obligations" shall mean with respect to each
Merging Corporation all accrued obligations to employees for vacation and sick
pay as of the Closing Date.
1.36 Warehouse. "Warehouse" shall mean the real property located at
1367-1369 Viele Avenue, Bronx, New York which is operated by City Produce as a
warehouse and distribution center.
ARTICLE II
MERGERS
2.1 In accordance with the provisions of the General Corporation Law of
the State of Delaware and the Business Corporation Law of the State of New York
(the "BCL"), at the Effective Time (as hereinafter defined) of the merger
contemplated in this Section 2.1 (the "Gristede's Merger"), Gristede's shall be
merged into GOC which shall be and is hereinafter sometimes referred to as the
"Gristede's Surviving Corporation." The parties intend that the transaction
shall qualify as a tax free reorganization under Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"). The parties agree that
they shall cooperate with one another and shall use their best efforts to
achieve such result.
2.2 In accordance with the provisions of the BCL, at the Effective Time of
the merger contemplated in this Section 2.2 (the "RASOC Merger"), RAS shall be
merged into RASOC which shall be and is hereinafter sometimes referred to as
the "RASOC Surviving Corporation." The parties intend that the transaction
shall qualify as a tax free reorganization under Section 368(a)(2)(D) of the
Code. The parties agree that they shall cooperate with one another and shall
use their best efforts to achieve such result.
A-4
<PAGE>
2.3 In accordance with the provisions of the BCL, at the Effective Time of
the merger contemplated in this Section 2.3 (the "SACOC Merger"), SAC shall be
merged into SACOC which shall be and is hereinafter sometimes referred to as
the "SACOC Surviving Corporation." The parties intend that the transaction
shall qualify as a tax free reorganization under Section 368(a)(2)(D) of the
Code. The parties agree that they shall cooperate with one another and shall
use their best efforts to achieve such result.
2.4 In accordance with the provisions of the BCL, at the Effective Time of
the merger contemplated in this Section 2.4 (the "City Produce Merger"), City
Produce shall be merged into CPO which shall be and is hereinafter sometimes
referred to as the "City Produce Surviving Corporation." The parties intend
that the transaction shall qualify as a tax free reorganization under Section
368(a)(2)(D) of the Code. The parties agree that they shall cooperate with one
another and shall use their best efforts to achieve such result.
2.5 The parties shall use their best efforts to file the Certificates of
Merger referred to in Sections 3.2(a), 3.2(b), 3.2(c) and 3.2(d) and to cause
each of the Gristede's Merger, the RASOC Merger, the SACOC Merger and the City
Produce Merger to become effective on the same day, which day shall not be
later than the business day following the Closing Date.
ARTICLE III
EFFECTIVENESS OF MERGERS
3.1 Except as herein specifically set forth, the identity, existence,
purposes, powers, objects, franchises, privileges, rights and immunities of
each of GOC, RASOC, SACOC and CPO shall continue in effect and unimpaired by
the Gristede's Merger, the RASOC Merger, the SACOC Merger and the City Produce
Merger, respectively, and (a) the corporate franchises, existence and rights of
Gristede's shall be merged into GOC, and GOC as the Gristede's Surviving
Corporation, shall be fully vested therewith; (b) the corporate franchises,
existence and rights of RAS shall be merged into RASOC, and RASOC as the RASOC
Surviving Corporation, shall be fully vested therewith; (c) the corporate
franchises, existence and rights of SAC shall be merged into SACOC, and SACOC,
as the SACOC Surviving Corporation, shall be fully vested therewith; and (d)
the corporate franchises, existence and rights of City Produce shall be merged
into CPO, and CPO, as the City Produce Surviving Corporation, shall be fully
vested therewith. The separate existence, and corporate organizations of
Gristede's, RAS, SAC and City Produce, except insofar as they may be continued
by statute, shall cease at the Effective Time of the Gristede's Merger, the
RASOC Merger, the SACOC Merger and the City Produce Merger, respectively.
3.2 (a) The Gristede's Merger shall not become effective until, and shall
become effective on the day and at the time when, the Certificate of Merger
permitted by Section 907 of the BCL shall have been executed and filed in
accordance with the laws of the State of New York.
(b) The RASOC Merger shall not become effective until, and shall become
effective on the day and at the time when, the Certificate of Merger permitted
by Section 904 of the BCL shall have been executed and filed in accordance with
the laws of the State of New York.
(c) The SACOC Merger shall not become effective until, and shall become
effective on the day and at the time when, the Certificate of Merger permitted
by Section 904 of the BCL shall have been executed and filed in accordance with
the laws of the State of New York.
(d) The City Produce Merger shall not become effective until, and shall
become effective on the day and at the time when, the Certificate of Merger
permitted by Section 904 of the BCL shall have been executed and filed in
accordance with the laws of the State of New York.
(e) The time when the Gristede's Merger, the RASOC Merger, the SACOC
Merger and the City Produce Merger (each of which is sometimes individually
referred to herein as a "Merger") shall become effective is herein called the
"Effective Time" of such respective Merger.
3.3 The Certificate of Incorporation and By-laws of GOC in effect
immediately prior to the Effective Time of the Gristede's Merger shall be the
Certificate of Incorporation and By-laws of the Gristede's Surviving
Corporation.
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3.4 The Certificate of Incorporation and By-laws of RASOC in effect
immediately prior to the Effective Time of the RASOC Merger shall be the
Certificate of Incorporation and By-laws of the RASOC Surviving Corporation.
3.5 The Certificate of Incorporation and By-laws of CPO in effect
immediately prior to the Effective Time of the City Produce Merger shall be the
Certificate of Incorporation and By-laws of the City Produce Surviving
Corporation.
3.6 The Certificate of Incorporation and By-laws of SACOC in effect
immediately prior to the Effective Time of the SACOC Merger shall be the
Certificate of Incorporation and By- laws of the SACOC Surviving Corporation.
3.7 At the Effective Time of the Gristede's Merger, the officers and
directors of GOC then in office shall continue to be the officers and directors
of the Gristede's Surviving Corporation.
3.8 At the Effective Time of the RASOC Merger, the officers and directors
of RASOC then in office shall continue to be the officers and directors of the
RASOC Surviving Corporation.
3.9 At the Effective Time of the SACOC Merger, the officers and directors
of GOC then in office shall continue to be the officers and directors of the
SACOC Surviving Corporation.
3.10 At the Effective Time of the City Produce Merger, the officers and
directors of CPO then in office shall continue to be the officers and directors
of the City Produce Surviving Corporation.
ARTICLE IV
MERGER CONSIDERATION
4.1 Each share of Gristede's Common Stock which shall be outstanding
immediately prior to the Effective Time of the Gristede's Merger, by virtue of
the Gristede's Merger and without any action on the part of the holder thereof,
except as set forth below, shall be converted into and exchanged for the number
of shares of Common Stock, par value $.02 per share of Sloan's ("Sloan's Common
Stock") determined in accordance with Schedule 4 attached hereto (the
"Gristede's Merger Per Share Consideration"). Each holder of any shares of
Gristede's Common Stock, after the Effective Time of the Gristede's Merger,
shall be entitled, upon the surrender by such holder to the Gristede's
Surviving Corporation for cancellation of the certificate or certificates
representing such shares, to receive in exchange the Gristede's Merger Per
Share Consideration for each share represented by the certificate or
certificates so surrendered. Until so surrendered, each such outstanding
certificate which immediately prior to the Effective Time of the Gristede's
Merger represented shares of Gristede's Common Stock shall be deemed for all
purposes to represent solely the right to receive the Gristede's Merger Per
Share Consideration for each share of Gristede's Common Stock represented by
such certificate. The Gristede's Merger shall not effect any changes in the
capital stock of GOC issued and outstanding or issued and held in the treasury
of GOC and each such share shall remain outstanding after the Effective Time of
the Gristede's Merger as a share of the capital stock of the Gristede's
Surviving Corporation.
4.2 Each share of RAS Common Stock which shall be outstanding immediately
prior to the Effective Time of the RASOC Merger, by virtue of the RASOC Merger
and without any action on the part of the holder thereof, except as set forth
below, shall be converted into and exchanged for the number of shares of
Sloan's Common Stock determined in accordance with Schedule 4 attached hereto
(the "RASOC Merger Per Share Consideration"). Each holder of any shares of RAS
Common Stock, after the Effective Time of the RASOC Merger, shall be entitled,
upon the surrender by such holder to the RASOC Surviving Corporation for
cancellation of the certificate or certificates representing such shares, to
receive in exchange the RASOC Merger Per Share Consideration for each share
represented by the certificate or certificates so surrendered. Until so
surrendered, each such outstanding certificate which immediately prior to the
Effective Time of the RASOC Merger represented shares of RAS Common Stock shall
be deemed for all purposes to represent solely the right to receive the RASOC
Merger Per Share Consideration for each share of RAS Common Stock represented
by such certificate. The RASOC Merger shall not effect any changes in the
capital stock of RASOC issued and outstanding or issued and held in the
treasury of RASOC and each such share shall remain outstanding after the
Effective Time of the RASOC Merger as a share of the capital stock of the RASOC
Surviving Corporation.
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4.3 Each share of SAC Common Stock which shall be outstanding immediately
prior to the Effective Time of the SACOC Merger, by virtue of the SACOC Merger
and without any action on the part of the holder thereof, except as set forth
below, shall be converted into and exchanged for the number of shares of
Sloan's Common Stock determined in accordance with Schedule 4 attached hereto
(the "SACOC Merger Per Share Consideration"). Each holder of any shares of SAC
Common Stock, after the Effective Time of the SACOC Merger, shall be entitled,
upon the surrender by such holder to the SACOC Surviving Corporation for
cancellation of the certificate or certificates representing such shares, to
receive in exchange the SACOC Merger Per Share Consideration for each share
represented by the certificate or certificates so surrendered. Until so
surrendered, each such outstanding certificate which immediately prior to the
Effective Time of the SACOC Merger represented shares of SACOC Common Stock
shall be deemed for all purposes to represent solely the right to receive the
SACOC Merger Per Share Consideration for each share of SAC Common Stock
represented by such certificate. The SACOC Merger shall not effect any changes
in the capital stock of SACOC issued and outstanding or issued and held in the
treasury of SACOC and each such share shall remain outstanding after the
Effective Time of the SACOC Merger as a share of the capital stock of the SACOC
Surviving Corporation.
4.4 Each share of City Produce Common Stock which shall be outstanding
immediately prior to the Effective Time of the City Produce Merger, by virtue
of the City Produce Merger and without any action on the part of the holder
thereof, except as set forth below, shall be converted into and exchanged for
the number of shares of Sloan's Common Stock determined in accordance with
Schedule 4 attached hereto (the "City Produce Merger Per Share Consideration").
Each holder of any shares of City Produce Common Stock, after the Effective
Time of the City Produce Merger, shall be entitled, upon the surrender by such
holder to the City Produce Surviving Corporation for cancellation of the
certificate or certificates representing such shares, to receive in exchange
the City Produce Merger Per Share Consideration for each share represented by
the certificate or certificates so surrendered. Until so surrendered, each such
outstanding certificate which immediately prior to the Effective Time of the
City Produce Merger represented shares of City Produce Common Stock shall be
deemed for all purposes to represent solely the right to receive the City
Produce Merger Per Share Consideration for each share of City Produce Common
Stock represented by such certificate. The City Produce Merger shall not effect
any changes in the capital stock of CPO issued and outstanding or issued and
held in the treasury of CPO and each such share shall remain outstanding after
the Effective Time of the City Produce Merger as a share of the capital stock
of the City Produce Surviving Corporation.
ARTICLE V
EFFECT OF MERGERS
5.1 At the Effective Time of the Gristede's Merger, all of the rights,
privileges, powers and franchises, of a public and private nature, and all the
property, real, personal and mixed, of each of Gristede's and GOC
(collectively, the "Gristede's Constituent Corporations"), and all debts due to
either of them on whatever account, including stock subscriptions and all other
things in action, or belonging to either of them, shall be taken and deemed to
be transferred to, and shall be vested in, the Gristede's Surviving Corporation
without further act or deed, and all property, rights, privileges, powers and
franchises and every other interest shall be thereafter as effectively the
property of the Gristede's Surviving Corporation as they were of the Gristede's
Constituent Corporations, and the title to any real estate vested by deed or
otherwise in either of the Gristede's Constituent Corporations shall not revert
or be in any way impaired by reason of the Gristede's Merger. At the Effective
Time of the Gristede's Merger, the Gristede's Surviving Corporation shall
thenceforth be liable for all debts, liabilities, obligations, duties and
penalties of each of the Gristede's Constituent Corporations, and all said
debts, liabilities, obligations, duties and penalties shall thenceforth attach
to the Gristede's Surviving Corporation and may be enforced against it to the
same extent as if said debts, liabilities, obligations, duties and penalties
had been incurred or contracted by it. No liability or obligation due or to
become due at the Effective Time of the Gristede's Merger, or any claim or
demand for any cause then existing against either of the Gristede's Constituent
Corporations or any stockholder, officer or director thereof, shall be released
or impaired by the Gristede's Merger and all rights of creditors, and all liens
upon any property of either of the Gristede's Constituent Corporations shall be
preserved. At the Effective Time of the Gristede's Merger, the assets,
liabilities, reserves and accounts of the Gristede's Constituent Corporations
shall be entered on the books of the Gristede's Surviving
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Corporation at the amounts at which they shall then be carried on the
respective books of the Gristede's Constituent Corporations, subject to such
adjustments, if any, as may be required to give effect to the Gristede's
Merger, and, subject to such action as may be taken by the Board of Directors
of the Gristede's Surviving Corporation in accordance with generally accepted
accounting principles.
5.2 At the Effective Time of the RASOC Merger, all of the rights,
privileges, powers and franchises, of a public and private nature, and all the
property, real, personal and mixed, of each of RAS and RASOC (collectively, the
"RASOC Constituent Corporations"), and all debts due to either of them on
whatever account, including stock subscriptions and all other things in action,
or belonging to either of them, shall be taken and deemed to be transferred to,
and shall be vested in, the RASOC Surviving Corporation without further act or
deed, and all property, rights, privileges, powers and franchises and every
other interest shall be thereafter as effectively the property of the RASOC
Surviving Corporation as they were of the RASOC Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the RASOC
Constituent Corporations shall not revert or be in any way impaired by reason
of the RASOC Merger. At the Effective Time of the RASOC Merger, the RASOC
Surviving Corporation shall thenceforth be liable for all debts, liabilities,
obligations, duties and penalties of each of the RASOC Constituent
Corporations, and all said debts, liabilities, obligations, duties and
penalties shall thenceforth attach to the RASOC Surviving Corporation and may
be enforced against it to the same extent as if said debts, liabilities,
obligations, duties and penalties had been incurred or contracted by it. No
liability or obligation due or to become due at the Effective Time of the RASOC
Merger, or any claim or demand for any cause then existing against either of
the RASOC Constituent Corporations or any stockholder, officer or director
thereof, shall be released or impaired by the RASOC Merger and all rights of
creditors, and all liens upon any property of either of the RASOC Constituent
Corporations shall be preserved. At the Effective Time of the RASOC Merger, the
assets, liabilities, reserves and accounts of the RASOC Constituent
Corporations shall be entered on the books of the RASOC Surviving Corporation
at the amounts at which they shall then be carried on the respective books of
the RASOC Constituent Corporations, subject to such adjustments, if any, as may
be required to give effect to the RASOC Merger, and, subject to such action as
may be taken by the Board of Directors of the RASOC Surviving Corporation in
accordance with generally accepted accounting principles.
5.3 At the Effective Time of the SACOC Merger, all of the rights,
privileges, powers and franchises, of a public and private nature, and all the
property, real, personal and mixed, of each of SAC and SACOC (collectively, the
"SACOC Constituent Corporations"), and all debts due to either of them on
whatever account, including stock subscriptions and all other things in action,
or belonging to either of them, shall be taken and deemed to be transferred to,
and shall be vested in, the SACOC Surviving Corporation without further act or
deed, and all property, rights, privileges, powers and franchises and every
other interest shall be thereafter as effectively the property of the SACOC
Surviving Corporation as they were of the SACOC Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the SACOC
Constituent Corporations shall not revert or be in any way impaired by reason
of the SACOC Merger. At the Effective Time of the SACOC Merger, the SACOC
Surviving Corporation shall thenceforth be liable for all debts, liabilities,
obligations, duties and penalties of each of the SACOC Constituent
Corporations, and all said debts, liabilities, obligations, duties and
penalties shall thenceforth attach to the SACOC Surviving Corporation and may
be enforced against it to the same extent as if said debts, liabilities,
obligations, duties and penalties had been incurred or contracted by it. No
liability or obligation due or to become due at the Effective Time of the SACOC
Merger, or any claim or demand for any cause then existing against either of
the SACOC Constituent Corporations or any stockholder, officer or director
thereof, shall be released or impaired by the SACOC Merger and all rights of
creditors, and all liens upon any property of either of the SACOC Constituent
Corporations shall be preserved. At the Effective Time of the SACOC Merger, the
assets, liabilities, reserves and accounts of the SACOC Constituent
Corporations shall be entered on the books of the SACOC Surviving Corporation
at the amounts at which they shall then be carried on the respective books of
the SACOC Constituent Corporations, subject to such adjustments, if any, as may
be required to give effect to the SACOC Merger, and, subject to such action as
may be taken by the Board of Directors of the SACOC Surviving Corporation in
accordance with generally accepted accounting principles.
5.4 At the Effective Time of the City Produce Merger, all of the rights,
privileges, powers and franchises, of a public and private nature, and all the
property, real, personal and mixed, of each of City Produce and CPO
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(collectively, the "City Produce Constituent Corporations"), and all debts due
to either of them on whatever account, including stock subscriptions and all
other things in action, or belonging to either of them, shall be taken and
deemed to be transferred to, and shall be vested in, the City Produce Surviving
Corporation without further act or deed, and all property, rights, privileges,
powers and franchises and every other interest shall be thereafter as
effectively the property of the City Produce Surviving Corporation as they were
of the City Produce Constituent Corporations, and the title to any real estate
vested by deed or otherwise in either of the City Produce Constituent
Corporations shall not revert or be in any way impaired by reason of the City
Produce Merger. At the Effective Time of the City Produce Merger, the City
Produce Surviving Corporation shall thenceforth be liable for all debts,
liabilities, obligations, duties and penalties of each of the City Produce
Constituent Corporations, and all said debts, liabilities, obligations, duties
and penalties shall thenceforth attach to the City Produce Surviving
Corporation and may be enforced against it to the same extent as if said debts,
liabilities, obligations, duties and penalties had been incurred or contracted
by it. No liability or obligation due or to become due at the Effective Time of
the City Produce Merger, or any claim or demand for any cause then existing
against either of the City Produce Constituent Corporations or any stockholder,
officer or director thereof, shall be released or impaired by the City Produce
Merger and all rights of creditors, and all liens upon any property of either
of the City Produce Constituent Corporations shall be preserved. At the
Effective Time of the City Produce Merger, the assets, liabilities, reserves
and accounts of the City Produce Constituent Corporations shall be entered on
the books of the City Produce Surviving Corporation at the amounts at which
they shall then be carried on the respective books of the City Produce
Constituent Corporations, subject to such adjustments, if any, as may be
required to give effect to the City Produce Merger, and, subject to such action
as may be taken by the Board of Directors of the City Produce Surviving
Corporation in accordance with generally accepted accounting principles.
ARTICLE VI
FURTHER ACTIONS
6.1 From time to time, as and when requested by the Gristede's Surviving
Corporation, or by its successors or assigns, Gristede's shall execute and
deliver or cause to be executed and delivered all such deeds and other
instruments, and shall take or cause to be taken all such further or other
action, as the Gristede's Surviving Corporation, or its successors or assigns,
may deem necessary or desirable in order to vest in and confirm to the
Gristede's Surviving Corporation, and its successors and assigns, title to and
possession of all the property, rights, privileges, powers and franchises
referred to in ARTICLE V hereof and otherwise to carry out the intent and
purposes of this Agreement.
6.2 From time to time, as and when requested by the RASOC Surviving
Corporation, or by its successors or assigns, RAS shall execute and deliver or
cause to be executed and delivered all such deeds and other instruments, and
shall take or cause to be taken all such further or other action, as the RASOC
Surviving Corporation, or its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to the RASOC Surviving Corporation,
and its successors and assigns, title to and possession of all the property,
rights, privileges, powers and franchises referred to in ARTICLE V hereof and
otherwise to carry out the intent and purposes of this Agreement.
6.3 From time to time, as and when requested by the SACOC Surviving
Corporation, or by its successors or assigns, SAC shall execute and deliver or
cause to be executed and delivered all such deeds and other instruments, and
shall take or cause to be taken all such further or other action, as the SACOC
Surviving Corporation, or its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to the SACOC Surviving Corporation,
and its successors and assigns, title to and possession of all the property,
rights, privileges, powers and franchises referred to in ARTICLE V hereof and
otherwise to carry out the intent and purposes of this Agreement.
6.4 From time to time, as and when requested by the City Produce Surviving
Corporation, or by its successors or assigns, City Produce shall execute and
deliver or cause to be executed and delivered all such deeds and other
instruments, and shall take or cause to be taken all such further or other
action, as the City Produce
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Surviving Corporation, or its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to the City Produce Surviving
Corporation, and its successors and assigns, title to and possession of all the
property, rights, privileges, powers and franchises referred to in ARTICLE V
hereof and otherwise to carry out the intent and purposes of this Agreement.
6.5 The Selling Group and the Merging Corporations shall use their best
efforts to secure any required consent to any assignment of a Real Property
Lease to the Acquiring Corporations where such consents to assignment by
operation of law in the case of a merger is required by the terms of such Real
Property Lease. In each case where consent is required, the Selling Group shall
use its best efforts to have the landlord under the applicable Real Property
Lease sign an estoppel and consent letter in form and substance satisfactory to
the applicable Acquiring Corporation. To the extent that the cooperation of any
of the Selling Group, the Merging Corporations or the Acquiring Corporations is
necessary or desirable to secure consent, it shall provide such cooperation,
including, but not limited to, providing financial statements and other
financial information and information regarding the intended use or disposition
of the applicable Store or Warehouse to any such lessor. However, no Acquiring
Corporation shall be obligated to accept any change to a term or provision of
any Real Property Lease in order to receive any necessary consent.
6.6 The Selling Group and the Merging Corporations shall use their best
efforts to secure all consents to the assignment of each Contract where such
consent to assignment by operation of law in the case of a merger is required
by the terms of such Contract, or otherwise. It is further understood by the
Selling Group and the Merging Corporations that third parties may not consent
to the assignment of Contracts without the cooperation of the Acquiring
Corporations in providing financial information and/or other information. If
requested, such information shall be supplied to any such third party by the
Acquiring Corporations. However, no Acquiring Corporation shall be obligated to
accept any change to a term or provision of a Contract in order to receive a
consent to the assignment thereof.
6.7 The Selling Group agrees to provide the Acquiring Corporations and
their representatives with copies of and/or access to all lease and other
relevant documents in their possession or readily capable of being obtained
relating to the Stores to be assigned to the Acquiring Corporations at all
times during the period beginning with the execution of this Agreement and
ending on the Closing Date.
6.8 The Merging Corporations shall make all material repairs required to
be made by them in accordance with the Real Property Leases to be acquired by
the Acquiring Corporations, provided that notice of the requirement to repair
has been validly given to them at least ten (10) days prior to the Closing Date
by the lessor or a governmental authority having jurisdiction of the premises
covered by the Real Property Lease.
6.9 Until the Closing Date, all risk of loss of or damage to the assets to
be acquired by the Acquiring Corporations in the Merger hereunder shall be
borne by the Merging Corporations. To the extent that the Real Property Leases
and Contracts require any Merging Corporation to maintain fire and extended
coverage insurance, such Merging Corporation represents that it maintains
insurance in accordance with its obligations thereunder.
6.10 If between the date hereof and the Closing Date there is any fire,
other casualty, loss or condemnation (any of the foregoing hereinafter called a
"Destruction") affecting any of the Stores or the Warehouse, then the following
provisions shall prevail:
(a) If there is a Destruction of the Warehouse or a Store, then if the
landlord under the Real Property Lease therefor does not terminate such Real
Property Lease, the Acquiring Corporation shall be entitled to retain any
condemnation award or the proceeds of any insurance policy or policies covering
such Destruction which have been paid or are payable to the Merging Corporation
(except for any portion of the recovery relating to merchandise, inventory or
business interruption occurring prior to the Closing) and there shall be
credited against the number of shares of Common Stock to be issued in
connection with the Merger of the Merging Corporation operating the Store or
the Warehouse affected by the Destruction, a number of shares of Common Stock
(based on the value of such Common Stock determined in accordance with this
Agreement) equal to the deductible or aggregate deductibles on all insurance
policies covering such Destruction.
(b) If as a result of a Destruction the landlord under any Real Property
Lease exercises its option to terminate the Real Property Lease, then the
parties shall agree upon a reduction in the consideration to be paid
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in connection with the Merger of the Merging Corporation operating such Store
or Warehouse. Such amount shall be credited against the number of shares of
Common Stock to be issued (based on the value of such Common Stock determined
in accordance with this Agreement).
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF GROUP AND CATSIMATIDIS
Each of Group and SAC represents, warrants, covenants and agrees (provided
that Group does not represent, warrant, covenant or agree as to anything with
respect to SAC, and SAC does not represent, warrant, covenant or agree as to
anything with respect to Group or any subsidiary of Group or any assets or
liabilities of any subsidiary of Group) that:
7.1 Organization, Standing and Power. Each of Group and the Merging
Corporations is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation, has
all requisite corporate power and authority necessary to own, lease and operate
its properties and to carry on its business as now being conducted, and is duly
qualified, and in good standing to own, lease and operate its properties and to
conduct business in each jurisdiction, in which the business it is conducting,
or the operation, ownership or leasing of its properties, makes such
qualification necessary, other than in such jurisdictions where the failure so
to qualify or be in good standing would not have an adverse economic impact on
the assets or business of such corporation or impair the right or ability of
the parties hereto to consummate the transactions contemplated hereby. Group
and each of the Merging Corporations has heretofore made available to Sloan's
true, complete and correct copies of its Certificate of Incorporation and
Bylaws as currently in effect together with all amendments thereto. No
resolution has been adopted to amend any of such Certificates of Incorporation
or Bylaws. None of Group or the Merging Corporations (a) has been dissolved,
adopted resolutions to dissolve or acted in any way to accomplish, request or
approve such dissolution, (b) is a party to any merger agreement or (c) has
been declared bankrupt, and no action or request is pending to declare it
bankrupt. Except for Sloan's Acquisition Corp., which is a wholly owned
subsidiary of RAS, none of the Merging Corporations has any subsidiary or
subsidiaries. Group and SAC have made available to Sloan's minute books for
each of Group and the Merging Corporations which contain complete and accurate
records in all material respects of all meetings, or consents in lieu thereof,
of the shareholders and the Board of Directors (including committees thereof)
of each such entity since its date of formation.
7.2 Capital Structure. As of the date hereof, the authorized capital stock
of (a) Gristede's consists of 1,000 shares of Common Stock, par value $1.00 per
share of which 100 shares are outstanding, all of which shares are owned by
Group, (b) RAS consists of 200 shares of Common Stock, no par value, of which
200 shares are issued and outstanding, all of which are owned by Group, (c)
City Produce consists of 200 shares of Common Stock, no par value, of which 10
shares are issued and outstanding, all of which are owned by Group and (d) SAC
consists of 200 shares of Common Stock, no par value, of which 200 shares are
outstanding, all of which are owned by Catsimatidis. As of the date hereof
there are no outstanding options, warrants, calls, rights (including preemptive
rights) commitments or agreements of any person obligating any Merging
Corporation to issue, deliver, sell, purchase, redeem or acquire or cause to be
issued, delivered, sold, purchased, redeemed or acquired, shares of capital
stock or other securities of any Merging Corporation.
7.3 Corporate Authority. Each of Group, Gristede's, RAS, City Produce and
SAC has full corporate power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby. The Board of Directors and the
stockholders of each of Group, Gristede's, RAS, City Produce and SAC have taken
all action required by law, its Certificate of Incorporation, as amended, its
By-Laws or otherwise to be taken by it to authorize the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby,
and this Agreement is a valid and binding agreement of each of Group,
Gristede's, RAS, City Produce and SAC enforceable in accordance with its terms,
except that:
(i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights; and
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(ii) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may be
brought.
7.4 Consent of Third Parties. The performance by each of Group and the
Merging Corporations of its respective obligations under this Agreement and the
documents contemplated hereunder and the consummation of the transactions
contemplated hereby or thereby will not conflict with or violate its
Certificate of Incorporation or By-laws. Subject to receipt of the consents and
approvals referred to in Article VI, the execution and delivery of this
Agreement, the performance by each of Group, Gristede's, RAS, City Produce and
SAC of its respective obligations under this Agreement and the documents
contemplated hereunder and the consummation of the transactions contemplated
hereby or thereby will not (a) violate or conflict with, or result in the
breach or termination of, or constitute a default or require any approval,
waiver or consent under, any lease, agreement, commitment or other instrument,
or any order, judgment or decree, to which any of Group or the Merging
Corporations is a party or by which it or any of its properties is bound or (b)
constitute a violation of any Law applicable to it. Except as set forth in
Schedule 7.4 attached hereto, no consent, registration, application, approval,
permit, license or authorization of, or designation, declaration or filing
with, any public or governmental authority is required on the part of any of
Group or the Merging Corporations in connection with the execution and delivery
of this Agreement and the documents contemplated hereunder and the consummation
of the transactions contemplated hereby and thereby.
7.5 Title to Assets. Each of the Merging Corporations has on the date
hereof good and marketable title to all of its assets free and clear of all
Liens except those Liens set forth on Schedule 7.5 attached hereto. Each of the
Merging Corporations on the Effective Time of its Merger, will have good and
marketable title to all of its assets, free and clear and all Liens.
7.6 Financial Information. The statements of assets to be purchased and
liabilities to be assumed of The Food Group as of March 3, 1996 and March 2,
1997 and the related statements of sales and expenses for the years ended
February 26, 1995, March 3, 1996 and March 2, 1997, all accompanied by reports
thereon containing opinions without qualification by BDO Seidman LLP,
independent certified public accountants, copies of which in each case have
been delivered to Sloan's and the Acquiring Corporations have been prepared in
accordance with generally accepted accounting principles consistently applied
and present fairly the financial position of Food Group as of such dates and
for such periods, subject in the case of such unaudited statements to normal
year and adjustments.
7.7 Real Property Leases. The Real Property Leases, copies of which have
been delivered to Sloan's and originals or copies thereof which have been
certified as true and complete by Group or Catsimatidis if they cannot locate
originals, are, and as of the Closing Date, will be, true, accurate and
complete and have not been modified, amended or changed from their original
terms, except as set forth on Schedule 1.27 attached hereto; said Real Property
Leases shall not be modified, amended or changed prior to the Closing Date,
except with the prior written consent of Sloan's which consent shall not be
unreasonably withheld; none of the Merging Corporations is now, nor, with the
passage of time, will it be, in default and none of such corporations has
received notice of any default under any of its Real Property Leases. Each of
Merging Corporations is now and on the Closing Date will be, in substantial
compliance with all of the terms and conditions of such Real Property Leases on
its part to be performed or observed. Each of the Real Property Leases is now,
and on the Closing Date will be, in full force and effect in accordance with
its terms. Except for the real property subject to the Real Property Lease
listed on Schedule 1.27 attached hereto which is indicated thereon as not being
currently operated, the real properties subject to the Real Property Leases are
all being operated as supermarkets or health and beauty aid stores, or in the
case of the Real Property Lease under which City Produce is the tenant, as a
wholesale warehouse.
7.8 Absence of Certain Changes or Events. Since March 2, 1997 each of the
Merging Corporations have conducted its business in all material respects only
in the ordinary and usual course consistent with past practice and there has
not been any material adverse change, or any development that is reasonably
likely to result in a material adverse change in the financial condition,
results of operations, properties, businesses or prospects of any Merging
Corporation.
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7.9 Notice of Condemnation. As of the date hereof, none of Group or any of
the Merging Corporations has received notice of any existing or proposed
condemnation proceedings in respect of all or any portion of any property
relating to the Stores which would have a material adverse effect on the use of
such leased premises; any such notice received subsequent hereto and prior to
the Closing Date will be delivered promptly to Sloan's.
7.10 Litigation. Except as set forth on Schedule 7.10 attached hereto, as
of the date hereof, none of Group or any of the Merging Corporations has
received notice of or is a party to, any lawsuit, action, proceeding or
investigation pending or, to its knowledge, threatened, before any court,
government, department, agency, commission or arbitration panel, examiner or
governmental authority, in respect of any matter involving a Merging
Corporation, including, but not limited to, the business conducted in the
Stores or by City Produce, in each case which could have a material adverse
effect upon any Merging Corporation.
7.11 Information Supplied. None of the information supplied by Group,
Catsimatidis or any Merging Corporation for inclusion in the Proxy Statement
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
7.12 Intellectual Property. Except as set forth on Schedule 7.12 attached
hereto, no Merging Corporation owns or possesses any patent, copyright,
trademark, service mark, trade name, brand name or logo. No claim is pending,
or to the knowledge of Group, Catsimatidis or any Merging Corporation, after
due inquiry, threatened, asserting that (a) the business and operations of any
Merging Corporation infringes upon, conflicts with, is adverse to, impairs or
otherwise constitutes the direct or indirect appropriation of, the actual or
asserted rights, title or interest under or in respect of any intellectual
property of any other person or entity or (b) any intellectual property right
licensed to any Merging Corporation or which any Merging Corporation otherwise
has the right to use or appropriate, is invalid or unenforceable by it; and,
after due inquiry, neither Group, Catsimatidis or any Merging Corporation knows
of any basis for any such claim.
7.13 Compliance with Laws. The business of each of the Merging
Corporations have been, and are, on the date hereof, being conducted in
accordance with all applicable Laws, except those which do not (either
individually or in the aggregate) materially, adversely affect any Merging
Corporation or their respective businesses. Performance of this Agreement will
not result in any breach of, or constitute a default under, or result in the
imposition of, any Lien upon the assets of any Merging Corporation under any
arrangement, agreement, lease or other financial instrument to which any of
Group or any Merging Corporation is a party or by which it is bound or affected
and will not violate the Certificate of Incorporation, or the By-Laws, of Group
or any Merging Corporation.
7.14 Contracts and Union Contracts. True, accurate and complete copies of
all of the Contracts and the Union Contracts have been furnished to Sloan's or
will be furnished to Sloan's prior to the Closing Date. Such Contracts and
Union Contracts have not been and, prior to the Closing Date, will not be,
amended, modified or changed and are and as of the Closing Date, will be, in
full force and effect. There has been no claim of default under any Contract or
Union Contract by any party thereto which has not been cured and there exists
no event which alone, or with notice or the lapse of time or both, would
constitute a default under any Contract or Union Contract by any party thereto.
All sums due and payable under the Contracts up to the Closing Date have been
or will be paid in full.
7.15 Work Stoppages. Other than as set forth on Schedule 7.15 attached
hereto, there are no current work stoppages, strikes or any material violations
of any Union Contracts with respect to the Stores herein and none which
occurred within the past six (6) months.
7.16 Safety Violations. To the extent that Group, Catsimatidis or any
Merging Corporation has received any notification from any governmental
authority or is otherwise aware that any Merging Corporation is in material
violation of any applicable health, sanitation, fire, environmental, safety,
building, zoning or other law, ordinance or regulation in respect of its
business, including the operation of any of the Stores or the Warehouse or the
structures or equipment relating thereto which violation has not been remedied,
such violation shall be remedied prior to the Closing Date; provided, however,
that if Group, Catsimatidis or any Merging Corporation receives such
notification not more than 10 days prior to the Closing Date, in lieu of
remedying the violation, Group or Catsimatidis, and Sloan's shall in good faith
negotiate an adjustment to the merger consideration based upon the anticipated
cost of remedying the violation.
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7.17 Court Orders and Judgments. Other than as set forth on Schedule 7.17
attached hereto, there are, as of the date hereof, no court orders or judgments
negatively impacting the Merging Corporations, including, but not limited to,
the operation of the Stores or the Warehouse in the ordinary course.
7.18 Licenses. The Licenses, which, among other licenses, do not include
licenses to sell alcoholic beverages, held as of the Closing Date, will
constitute all licenses needed or required by each Merging Corporation in
connection with the ownership, occupancy, and operation of its assets for their
present uses. Except as otherwise indicated on Schedule 1.15 attached hereto,
the Licenses (a) have been issued to and fully paid for by each Merging
Corporation, (b) are in full force and effect and no Merging Corporation is in
default of any term or provision thereof or of any condition upon which the
existence or validity of the License is based and (c) are transferable and will
not be revoked, invalidated, violated or otherwise adversely affected by the
consummation of the transactions contemplated hereby.
7.19 Insurance. Each of the Merging Corporations maintains with insurers
reputed to be financially sound, insurance policies with respect to its
properties and business (including insurance against loss or damage from all
hazards and risks commonly insured against by companies engaged in the
supermarket business or, in the case of City Produce, the produce distributing
business). Attached hereto as Schedule 7.19 is a list of all such insurance
setting forth the name and address of the carrier, the risks insured against,
coverage amounts and deductibles.
7.20 Fixed Assets. All of the Fixed Assets including, all of the
electrical, mechanical, plumbing, HVAC and fire detection systems, if any, in
each of the Stores, and the Warehouse are and, as of the Closing Date, will be,
in working order and operable condition.
7.21 Hazardous Waste. To the best knowledge of each of Group and
Catsimatidis after reasonable inquiry, there are no hazardous wastes or toxic
substances located on, in or under the Stores or the Warehouse and the Stores
and the Warehouse have not been used for the storage of any oils, petroleum
by-products (other than cleaning agents, insecticides and similar substances
customarily utilized by building maintenance personnel or customarily sold in
supermarkets in New York City) or other hazardous materials. For purposes of
this Agreement, hazardous waste shall include, without limitation, any
hazardous substance as defined in 42 U.S.C.A. Section9601(14), as amended from
time to time through the Closing Date. During the lease thereof by one of the
Merging Corporations, the Stores and the Warehouse have not been used as a
waste storage or disposal site and, to the best knowledge of Group and
Catsimatidis after reasonably diligent inquiry, the Stores and the Warehouse
have not been used as a waste storage or disposal site prior to their ownership
by one of the Merging Corporations or SAC.
7.22 Utilities. All utilities that are required for the full and complete
occupancy and use of the Stores and the Warehouse, including, without
limitation, electricity, sanitary sewers, storm sewers and drainage, water,
public telephones and similar systems have been connected to the Stores and the
Warehouse and are and, as of the Closing Date will be, in working order.
7.23 Employee Benefit Plans. Except for the Employee Plans, no Merging
Corporation maintains any other bonus, pension, profit sharing, retirement,
stock purchase, stock option, flexible compensation, hospitalization, medical
insurance, vacation pay, severance pay or any other similar plan or practice,
including, but not limited to, any welfare or pension benefit plan as defined
in Section 3(1) and 3(2) of ERISA, respectively, whether formal or informal or
written or unwritten, which is in effect with respect to any of its employees
or former employees or which is maintained by it or to which it contributes or
is required to contribute. To the best knowledge of Group and Catsimatidis,
with respect to all Employee Plans: (a) all contributions required to be made
(including obligations accrued up to the Closing Date) to all Employee Plans by
any of the Merging Corporations up to the Closing Date, have been paid or will
be paid by it on or before the Closing Date, (b) consummation of the
transactions contemplated herein will not give rise to any material withdrawal
liability with respect to a multiemployer plan under MPPAA regarding the
Employee Plans, (c) neither any of such Employee Plans, nor any trust created
thereunder, nor any trustee or administrator thereof (including any of the
Merging Corporation or SAC or any of their affiliated companies) has engaged in
any prohibited transaction which has subjected or could subject any of such
Employee Plans to any liability which is material to such Union Plan for any
tax imposed under Section 4975 of the Code or penalty imposed under Section
502(i) of ERISA, (d) no "reportable event," within the meaning of Section 4043
of ERISA, or any other event or condition, has occurred with
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respect to any such Employee Plan which presents a material risk of the
termination of any such Employee Plan, including, but not limited to, a
termination by action of the PBGC and (e) no suits, actions or other
litigations (excluding claims for benefits incurred in the ordinary course of
Employee Plan activities) are pending or threatened with respect to any such
Employee Plan which individually or in the aggregate are reasonably likely to
have a material adverse impact on any such Employee Plan or the business of the
Seller.
7.24 COBRA Indemnification and Information. Group shall be liable to
Sloan's and shall assume, indemnify, defend, and hold harmless Sloan's,
Gristede's Surviving Corporation, RASOC Surviving Corporation, SACOC Surviving
Corporation and City Produce Surviving Corporation from and against and in
respect of any and all losses, damages, liabilities, taxes, and sanctions
imposed upon, incurred by, or assessed against any of them and any of their
respective employees that arise under the Consolidated Omnibus Budget
Reconciliation Act of 1984 ("COBRA") and the Code, interest and penalties,
costs, and expenses (including, without limitation, disbursements and
reasonable legal fees incurred in connection therewith, and in seeking
indemnification therefor, in any amounts or expenses required to be paid or
incurred in connection with any action, suit, proceeding, claim, appeal,
demand, assessment, or judgment) arising by reason of or relating to any
failure to comply with the continuation health care coverage of COBRA and
Section 601 through 608 of ERISA which failure occurred with respect to any
current or prior employee of any of the Merging Corporations or any qualified
beneficiary of such employee (as defined in COBRA) on or prior to the Closing
Date or as otherwise required as a result of the transactions or matters
contemplated by this Agreement.
7.25 Brokers' Commissions. It has not incurred any obligation for finders'
fees or brokers' commissions in connection with this transaction to any other
person or entity.
7.26 Disclosures. No representation or warranty by Group or Catsimatidis
in this Agreement or any other document furnished by any of them in connection
herewith contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact required to be disclosed hereunder
or thereunder.
ARTICLE VIII
REPRESENTATIONS, WARRANTIES AND REPRESENTATIONS
OF SLOAN'S AND ACQUIRING CORPORATIONS
Each of Sloan's and the Acquiring Corporations jointly and severally
represents and warrants that:
8.1 Organization, Standing and Power. Each of Sloan's and the Acquiring
Corporations is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation, has
all requisite corporate power and authority necessary to own, lease and operate
its properties and to carry on its business as now being conducted, and is duly
qualified, and in good standing to own, lease and operate its properties and to
conduct business in each jurisdiction, in which the business it is conducting,
or the operation, ownership or leasing of its properties, makes such
qualification necessary, other than in such jurisdictions where the failure so
to qualify or be in good standing would not have an adverse economic impact on
the assets or business of such corporation or impair the right or ability of
the parties hereto to consummate the transactions contemplated hereby. Sloan's
and each of the Acquiring Corporations has heretofore made available to Group
and Catsimatidis true, complete and correct copies of its Certificate of
Incorporation and Bylaws as currently in effect together with all amendments
thereto. No resolution has been adopted to amend any of such Certificates of
Incorporation or Bylaws. None of Sloan's or the Acquiring Corporations (a) has
been dissolved, adopted resolutions to dissolve or acted in any way to
accomplish, request or approve such dissolution, (b) is a party to any merger
agreement or (c) has been declared bankrupt, and no action or request is
pending to declare it bankrupt.
8.2 Corporate Authority. It has full corporate power and authority to
enter into this Agreement and to carry out the transactions contemplated
hereby. The Board of Directors of each of Sloan's and the Acquiring
Corporations has taken all action required by law, its Certificate of
Incorporation, its By-Laws or otherwise to be taken by it to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and this Agreement is a valid and binding
agreement of each of Sloan's and the Acquiring Corporations enforceable in
accordance with its terms, except that:
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(a) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights; and
(b) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
8.3 Capital Stock. Each share of Sloan's Common Stock to be issued in
consideration of the Mergers, will, upon issuance in accordance with the terms
of this Agreement, be duly authorized, validly issued, fully paid and
non-assessable.
8.4 No Restrictions on Authority. As of the date hereof, there are no
corporate or statutory restrictions and, except as set forth in Schedule 8.4
attached hereto, there are no contractual or other restrictions, of any kind
upon the power and authority of Sloan's or any Acquiring Corporation to
consummate any of the Mergers, as contemplated by this Agreement, and no action
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality is necessary to provide such power or
authority.
8.5 Brokers' Commissions. It has not incurred any obligation for finders'
fees or brokers' commissions in connection with this transaction to any other
person or entity.
8.6 Disclosures. No representation or warranty by Sloan's or any
Acquisition Corporation in this Agreement or any other document furnished by
any of them in connection herewith contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
required to be disclosed hereunder or thereunder.
ARTICLE IX
CONDUCT OF BUSINESSES PENDING CLOSING
Until the Closing, each of the Merging Corporations shall, and Group shall
use its best efforts to cause each of the Merging Corporations to, comply with
the covenants set forth below:
9.1 No Merging Corporation shall take or fail to take any action that
would cause any of the representations and warranties made by Group or SAC in
this Agreement not to be true and correct in any material respect on and as of
the Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date, and Group and SAC shall
promptly notify Sloan's in writing of, and furnish to Sloan's any information
Sloan's may request with respect to, the occurrence of any event or the
existence of any state of facts that would result in any of representations and
warranties of Group or SAC so to be not true and correct or that otherwise
shall be necessary to supplement the information contained herein or made a
part hereof in order that the information herein be complete and accurate in
all material respects;
9.2 Each of the Merging Corporations shall maintain in full force and
effect all insurance policies, including self-insured plans, in an amount not
less than is currently in effect;
9.3 Each of the Merging Corporations will cause its business to be
continued in the ordinary course consistent with prior practice, including,
without limitation, the sale of inventory in the ordinary course of business,
the purchase of inventory and supplies, the maintenance of books and records,
the timely performance and observance of its obligations under its contracts,
the continuation of advertising, the hiring and termination of employees, and
customary repair and maintenance activities, and in connection therewith
maintain its Fixed Assets in good and safe working order, condition and repair,
subject to ordinary wear and tear;
9.4 Each of Group, the Merging Corporations and Catsimatidis shall
cooperate with Sloan's to cause the transactions contemplated by this Agreement
to be consummated and, without limiting the generality of the foregoing, each
of them shall use his or its best efforts to obtain all necessary third party
consents and governmental and judicial approvals, and to make all filings with
and give all notices to third parties (and governmental authorities) which may
be necessary or reasonably required in order to consummate the transactions
contemplated hereby;
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9.5 Each of the Merging Corporations and Catsimatidis will use its or his
best efforts to maintain and preserve and cause to be maintained and preserved
its business operations, including the preservation of the Real Property Leases
(by exercising all renewal rights unless directed otherwise in writing by one
of the Acquiring Corporations), its fixed assets and the Contracts and the
goodwill of its present employees, customers, suppliers and others having
business relations with it;
9.6 Each Merging Corporation shall pay or cause to be paid, before
becoming delinquent, all sales, use, income or other taxes and indebtedness
owed or incurred by it as to any of its property, assets or business except
amounts being contested by it in good faith or for which it has provided
adequate reserves for payment;
9.7 No Merging Corporation shall:
(a) enter into any employment agreement with any employee; announce or
implement any general wage or salary increase; increase the salary of any
managerial employee; promote or transfer any of its managerial employees; or
become liable for any bonus, profit-sharing or incentive payment to any
employee, except pursuant to presently existing plans, arrangements or
agreements disclosed herein;
(b) mortgage, pledge or otherwise encumber any part of its assets;
(c) make any material changes in its customary method of operations,
including marketing and pricing policies;
(d) enter into any new contracts or alter the terms of any supplier
relationships or any of the contracts without the written consent of Sloan's,
which consent will not be unreasonably withheld;
(e) purchase, sell, transfer, assign or pledge any of its assets or
properties, except purchases and sales of inventory in the ordinary course of
business or Fixed Assets which are rendered substantially valueless by reason
of casualty or as may be retired in the ordinary course of business; or
(f) do or fail to do any act which will materially impair the value of any
Store or the assets being acquired from it by an Acquiring Corporation.
9.8 Within two business days prior to the Closing Date, Group and
Catsimatidis will supplement or amend any Schedules annexed hereto with respect
to any matter hereafter arising or discovered which, if existing or known at
the date of this Agreement, would have been required to be set forth or
described on such Schedules.
ARTICLE X
INVENTORY PROCEDURE
Physical inventories of the merchandise and supplies of each of the
Merging Corporations shall be taken on the two days immediately preceding the
Closing Date. Such inventories shall be observed by representatives of the
Merging Corporations and the applicable Acquiring Corporations at each
location. Group, on one hand, and the Acquiring Corporations, on the other
hand, shall equally share the cost of the taking of the physical inventories.
It is further agreed as follows:
10.1 The inventory of grocery items, health and beauty aids, frozen food,
dairy and housewares shall be taken by a mutually designated inventory company
in a manner that is usually employed by such company in their taking of
inventory in the supermarket industry. At the completion of the inventory
taking the inventory company shall present to the representatives of the
parties in writing as separate numbers the current retail value of all grocery
items, health and beauty aids, frozen food, dairy, and housewares at retail.
This includes shelf stock and reserve stock.
10.2 The inventory of produce, meat, deli stock and supplies shall be
taken jointly by product supervisors of the Merging Corporations and the
Acquiring Corporations. The inventory takers shall report as separate numbers
the following:
(a) The current value of meat in the retail sale refrigeration display
cases at retail.
(b) The current wholesale value of all reserve stock of fresh and frozen
meat products, and the current wholesale value of all produce and deli
stock (whether in refrigeration display cases or reserve stock).
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(c) The current cost value of meat trays, produce trays, meat film,
produce film, lids, cups and bags (supplies).
Item or pound value, except as otherwise stated shall be as set forth in the
current wholesale price book or inventory price sheet supplied by the Merging
Corporation.
10.3 The inventory at the Warehouse shall be taken jointly by a warehouse
supervisor of City Produce and a designee of CPO.
10.4 The following formulas shall apply to the determination of the
Inventory Value.
(a) All retail prices used in the taking of the inventory shall be those
prices that were charged by the Merging Corporation in its ordinary course
of business for the day seven days prior to the date the inventory is
taken. Prices shall be determined by using any and all of the price books
or price sheets used by the Merging Corporation in its ordinary course of
business. All items in the selling area shall be price marked. Price books
shall be available at each location for verification.
(b) The value of grocery items, health and beauty aids, housewares,
frozen foods and dairy products shall be calculated at cost by marking
down the inventory of such items at retail by 34.5%.
(c) The value of the sales case inventory of fresh and frozen meat
products, produce and deli shall be calculated at cost by the method used
by the Merging Corporation on the week ending prior to week in which the
Closing occurs.
(d) The reserve stock inventory of meat (frozen and fresh), deli and
produce shall be calculated by the pricing of each inventory at actual
cost by brand, by item. The price paid for each item on the last date of
purchase of each item shall be determinative. Price books and/or cost
sheets shall be made available to the Acquiring Corporations at the time
of the inventory taking.
(e) The inventory at the Warehouse shall be priced at average cost based
on the first in first out method.
10.5 A preliminary compilation of the Inventory Value shall be completed.
A written record shall be prepared by the inventory company and the product or
warehouse supervisors identifying the Store or Warehouse location or otherwise,
and quantity and dollar value of inventory at such location, the accuracy of
which will be confirmed and then signed by authorized representatives of the
Merging Corporations and the Acquiring Corporations.
10.6 Adjustments to the Inventory Value shall be made on or prior to the
Post-Closing Adjustment Date only in the following circumstances:
(a) a material error in count or calculation of Inventory Value has
occurred;
(b) the written substantiation by the inventory taker on an aisle by
aisle does not support the gross calculation of the inventory; or
(c) that any Merging Corporation has knowingly and willfully added items
that it formerly did not carry as to damage the Acquiring Corporations,
with the understanding that common trade practices be a guide to the
application of this section.
ARTICLE XI
CONDITIONS OF SLOAN'S' AND
ACQUIRING CORPORATIONS' OBLIGATIONS
Unless waived in writing by Sloan's, the obligations of Sloan's and the
Acquiring Corporations hereunder shall be subject to the performance by each
member of the Selling Group and the Merging Corporations of all of its
covenants and agreements to be performed hereunder at or prior to the Closing,
and to the following further conditions:
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11.1 (a) The representations and warranties of such member of the Selling
Group and the applicable Merging Corporation are true and correct in all
respects at and as of the Closing Date.
(b) The applicable member of the Selling Group and the applicable
Merging Corporation has performed all agreements herein contained to be
performed by it at or prior to the Closing Date.
(c) The applicable Acquiring Corporation shall have received a
certificate of the applicable Chief Executive Officer of the member of the
Selling Group (Group in the case of RAS, Gristede's and City Produce and
Catsimatidis the case of SAC) dated the Closing Date to the effect
Sections 11.1(a) and 11.1(b).
11.2 On or prior to the date of this Agreement Sloan's shall have received
an opinion from Coopers & Lybrand Securities, L.L.C. or such other firm
acceptable to Sloan's that the consideration to be issued to the Acquiring
Corporations pursuant to this Agreement is fair from a financial point of view
to the Company and such opinion shall have been reaffirmed as of a date not
earlier than one day prior to the date of the Stockholders Meeting.
11.3 There shall be no effective injunction, writ, preliminary restraining
order or any order of any nature (including, but not limited to, injunctions or
preliminary restraining orders issued in connection with any labor dispute)
issued by a court or other governmental authority of competent jurisdiction
directing that the transactions provided for in this Agreement (or any of them)
not be consummated as so provided or imposing any material conditions on the
consummation of the transactions contemplated hereby.
11.4 On or before the Closing Date, the applicable Acquiring Corporation
shall not have discovered any material error, mistake or omission in the
representations and warranties made hereby by any member of the Selling Group
or any Merging Corporation.
11.5 Each Acquiring Corporation shall have received the Records applicable
to it.
11.6 Any consent required from the lessor of any Real Property Lease with
respect to the assignment thereof or the Merger of any Merging Corporation
shall have been obtained and an executed original thereof delivered to the
Acquiring Corporation.
11.7 Each Merging Corporation shall have executed and delivered to the
appropriate Acquiring Corporation all New York City and New York State Real
Property Transfer Tax Returns with respect to the assignment of its interest in
the Stores to the Acquiring Corporation, together with checks payable for any
transfer taxes required to be paid thereby, all in such form (including the
calculation of tax due) as shall be reasonably acceptable to the Acquiring
Corporation. Such checks shall be issued by Group in the case of Gristede's,
RAS and CPO and Catsimatidis in the case of SAC.
11.8 All of the Exhibits and Schedules to this Agreement which are not
attached to this Agreement on the date hereof shall be in form and substance
reasonably satisfactory to the parties.
11.9 The Merging Corporations shall have delivered to the applicable
Acquiring Corporation the consents and estoppel certificates required under
Section 6.6.
11.10 The stockholders of Sloan shall have approved this Agreement at a
stockholders meeting by the affirmative vote of the holders of a majority of
the shares voted at such meeting on the proposal to approve the Agreement
provided a quorum is present or represented by proxy at the stockholders
meeting.
11.11 The Management Agreement, dated March 19, 1993 between the Company
and Group shall be terminated.
11.12 If as a result of a Destruction of any Store or the Warehouse, the
landlord under the Real Property Lease for such Store exercises its option to
terminate such Real Property Lease, the parties shall have agreed upon a
reduction in the consideration payable in respect of Merger of the Merging
Corporation operating such Store or Warehouse.
11.13 All approvals or orders by governmental entities required to be
obtained and all filings, notices or declarations required to be made before
any governmental entity by any party prior to the consummation of the
transactions contemplated hereunder shall have been obtained or made,
including, but not limited to, the filing of a Pre-Merger Notification and the
expiration or termination of the applicable waiting period thereunder.
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ARTICLE XII
CONDITIONS OF OBLIGATIONS OF
THE SELLING GROUP AND THE MERGING CORPORATIONS
Unless waived in writing by it, the obligations of each member of the
Selling Group and the Merging Corporations hereunder shall be subject to the
performance by Sloan's and the Acquiring Corporations of all of their covenants
and agreements to be performed hereunder at or prior to the Closing Date and to
the following further conditions:
12.1 (a) the representations and warranties of Sloan's and the Acquiring
Corporations herein are true and correct in all material respects at and as
of the Closing Date;
(b) Sloan's and each Acquiring Corporation has performed all agreements
herein contained to be performed by it at or prior to the Closing Date.
(c) Each member of the Selling Group shall receive a certificate of an
executive officer of Sloan's dated the Closing Date to the effect of
Sections 12.1(a) and 12.1(b).
12.2 The members of the Selling Group shall have received the
consideration for the Mergers provided for in this Agreement.
12.3 There shall be no effective injunction, writ, preliminary restraining
order or any order of any nature (including, but not limited to, injunctions or
preliminary restraining orders issued in connection with any labor dispute)
issued by a court or other governmental authority of competent jurisdiction
directing that the transactions provided for in this Agreement (or any of them)
not be consummated as so provided or imposing any material conditions on the
consummation of the transactions contemplated hereby.
12.4 As of the Closing Date, there are no restrictions upon the power and
authority of Sloan's or any Acquiring Corporation to consummate such Merger,
except such restrictions as to which written waivers have been obtained from
all appropriate persons, copies of which waivers shall have been delivered to
the Selling Group.
12.5 Namdor Inc., S Remainder Corp. and G Remainder Corp. shall have
entered into a management agreement, in the form of Exhibit A attached hereto.
12.6 G Remainder Corp. and S Remainder Corp. shall have entered into
license agreements with GOC and SACOC in the form of Exhibits B and C attached
hereto with respect to the names "Gristede's" and "Sloan's."
12.7 Sloan's, Group and Catsimatidis shall have entered into a
registration rights agreement in the form of Exhibit D attached hereto with
respect to the Sloan's Common Stock to be issued pursuant to this Agreement.
12.8 All approvals or orders by governmental entities required to be
obtained and all filings, notices or declarations required to be made before
any governmental entity by any party prior to the consummation of the
transactions contemplated hereunder shall have been obtained or made,
including, but not limited to, the filing of a Pre-Merger Notification and the
expiration or termination of the applicable waiting period thereunder.
ARTICLE XIII
SALES AND USE TAXES; TRANSFER TAXES
13.1 Each Acquiring Corporation shall be solely responsible for any sales
and uses taxes (including interest and penalties) applicable to the transfer of
assets as a result of a Merger in which it is the surviving corporation. The
party responsible for such tax will pay such tax directly to the taxing
authority and will hold the Selling Group harmless from and against any claims
arising as a result of the imposition of the tax, its collection and/or
remittance.
13.2 The members of the Selling Group shall be solely responsible, absent
any available exemption, for any transfer taxes payable in connection with the
Mergers. The members of the Selling Group shall pay such taxes directly to the
taxing authority and will hold the Acquiring Corporations harmless from and
against any claims arising as a result of the imposition of the taxes, their
collection and/or remittance.
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ARTICLE XIV
POST-CLOSING ADJUSTMENTS
14.1 Pursuant to Section 10.6 of this Agreement, at least five days prior
to the Post-Closing Adjustment Date the Acquiring Corporations shall compile
the Inventory Value of the merchandise and supplies acquired from the Merging
Corporations and deliver such compilation to the Selling Group. In addition, at
least five days prior to the Post-Closing Adjustment Date the Acquiring
Corporations shall prepare and deliver to the Selling Group a listing setting
forth all of the Receivables and Other Current Assets acquired and all of the
Trade Payables, Intercompany Obligations and V&S Obligations assumed by the
Acquiring Corporations pursuant to the Mergers. The value of the Accounts
Receivable shall be the face amount thereof. The value of the Notes Receivable
shall be the outstanding principal thereof and accrued interest thereon. The
value of the Intercompany Obligations and the V&S Obligations shall be the
values thereof according to the books and records of Sloan's and the Merging
Corporations, respectively. The value of Trade Payables shall be the face
amount thereof. The Selling Group shall promptly review the compilation and
listings. The Acquiring Corporations and the Selling Group shall use their best
efforts to resolve any objections raised by the Selling Group concerning the
foregoing prior to the Post-Closing Adjustment Date.
14.2 (a) If the aggregate amount of Trade Payables, Intercompany
Obligations and the V&S Obligations assumed by the Acquiring Corporations
pursuant to Mergers exceeds the aggregate Inventory Value plus the aggregate
value of Receivables and Other Current Assets acquired by such Acquiring
Corporations pursuant to the Mergers, then on the Post-Closing Adjustment Date,
Group shall deliver to one or more of the Acquiring Corporations (as Group is
directed in a letter signed by each of Acquiring Corporations) a check or
checks in the aggregate amount of such excess.
(b) If the aggregate amount of Trade Payables, Intercompany Obligations
and the V&S Obligations assumed by the Acquiring Corporations pursuant to the
Mergers is less than the aggregate Inventory Value plus the aggregate value of
Receivables and Other Current Assets acquired by such Acquiring Corporations
pursuant to the Mergers, then on the Post-Closing Adjustment Date, one or more
of such Acquiring Corporations (as they shall agree) shall deliver to Group a
check or checks in the aggregate amount of such deficiency.
14.3 Each of the Merging Corporations shall prepay rent under each Real
Property Lease to which it is a party and fees and other charges under each
Contract to which it is a party through the end of the calendar month or such
other period in which the Closing Date occurs.
ARTICLE XV
INDEMNIFICATION
15.1 Group shall indemnify, defend and hold harmless Sloan's and each of
the Acquiring Corporations against any and all Losses (other than economic
Losses from unprofitable operations of the Stores for any period of time after
the Closing Date provided that such Losses are not the result of or related to
the breach by any member of the Selling Group of any representation made by it
hereunder) that Sloan's or the Acquiring Corporations shall incur or suffer,
which arise out of, result from or relate to any breach of any representation
or warranty made by a member of the Selling Group in this Agreement or any
schedule, certificate, exhibit or other instrument furnished or to be furnished
under this Agreement or the failure by any member of the Selling Group to
perform any of its covenants or agreements in this Agreement or any exhibit or
other instrument furnished or to be furnished under this Agreement in each case
during the period set forth in Section 17.3 of this Agreement in which such
representation, warranty, covenant or agreement shall survive the Closing Date.
15.2 Sloan's and each Acquiring Corporation shall jointly and severally
indemnify, defend and hold harmless Group and Catsimatidis against any and all
Losses that Group or Catsimatidis shall incur or suffer, which arise out of,
result from, or relate to:
(a) the operation of the Stores acquired by the Acquiring Corporations
or other business conducted by the Acquiring Corporation from and after
the Closing Date, and
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(b) any breach of any representation or warranty made by Sloan's or any
Acquiring Corporation in this Agreement or any schedule, certificate,
exhibit or other instrument furnished under this Agreement or the failure
by Sloan's or the Acquiring Corporations to perform any of its covenants
or agreements in this Agreement or any exhibit or other instrument
furnished under this Agreement in each case during the period set forth in
Section 17.3 of this Agreement in which such representation, warranty,
covenant or agreement shall survive the Closing Date.
15.3 In determining the amount of any Loss, there shall be excluded
therefrom the amount attributable thereto of any insurance recoveries (net of
deductibles) by the party seeking indemnification hereunder ("Indemnified
Party"). The total amount of potential liability of Group for all Losses (other
than Losses resulting from the assertion of liability against the Acquiring
Corporations by third parties, the indemnification of which shall not be
subject to any limitation) shall not exceed the total consideration paid by the
Acquiring Corporations pursuant to this Agreement.
15.4 The Indemnified Party shall notify each party against which it seeks
indemnification (the "Indemnifying Party") within 15 days after receiving
notice thereof of the existence of any claim, demand or other matter to which
the Indemnifying Party's indemnification obligation would apply and shall give
such Indemnifying Party a reasonable opportunity to defend the same at its own
expense and with counsel of its own selection; provided, that the Indemnified
Party shall also have the right to participate in the defense at its own
expense. If the Indemnifying Party shall fail to defend, the Indemnified Party
shall have the right, but not the obligation, to undertake the defense of, and
to compromise or settle (exercising reasonable business judgment), the claim or
other matter on behalf of and for the account of the Indemnifying Party.
ARTICLE XVI
TERMINATION
16.1 This Agreement may be terminated at any time prior to the Closing
Date by (a) mutual written agreement of the parties, (b) by Sloan's, if,
through no fault of Sloan's or any Acquiring Corporation any Merging
Corporation or Group shall be unable to satisfy any of the closing conditions
of Sloan's and the Acquiring Corporations set forth in Article XI hereof on or
before ninety days after the date hereof or (c) by Group or Catsimatidis, if
Sloan's or the Acquiring Corporations, through no fault of any member of the
Selling Group, shall be unable to satisfy any of the closing conditions of the
Selling Group set forth in Article XII hereof on or before ninety days after
the date hereof.
16.2 In the event of termination of this Agreement pursuant to Section
16.1(a):
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the
party furnishing the same; and
(b) No party hereto shall have any liability or further obligation to
any other party to this Agreement.
16.3 In the event of termination of this Agreement pursuant to Section
16.1(b) or (c):
(a) The party electing to terminate this Agreement shall give written
notice thereof to each of the other parties; and
(b) Each of the parties shall comply with Section 16.2.
ARTICLE XVII
MISCELLANEOUS
17.1 Prior to the Closing, no party shall make any public statement,
announcement or disclosure concerning this Agreement or the transactions
contemplated hereby without the consent of the other parties, except as may be
required by law or required by an opinion of counsel to Sloan's in order to
comply with Sloan's' federal securities laws disclosure requirements.
A-22
<PAGE>
17.2 From time to time, without further consideration, each of the parties
hereto will execute and deliver such documents as the other party hereto may
reasonably request in form and substance reasonably satisfactory to the other
parties in order more effectively to consummate the transactions contemplated
hereby.
17.3 All representations, warranties, covenants and agreements made by any
party in this Agreement or pursuant hereto shall survive for a period of three
years from the close of business on the Closing Date, except that there shall
survive indefinitely all representations, covenants and agreements with respect
to the payment of taxes and all indemnification obligations hereunder (provided
that prior to the expiration of the relevant survival period with respect to
any indemnifiable matter or matters the Indemnified Party shall have given the
Indemnifying Party notice that the Indemnified Party seeks indemnification with
respect to such particular matter or matters).
17.4 This Agreement contains the entire agreement between the parties
hereto and may not be modified except by a writing signed by the party to be
bound thereby.
17.5 This Agreement shall be construed in accordance with, and be governed
by, the laws of the State of New York, except insofar as the Gristede's Merger
shall be governed by the corporation laws of the State of Delaware.
17.6 This Agreement may not be assigned by any party.
17.7 This Agreement may be executed in counterparts at one time or at
different times and irrespective of the date of execution between the parties
named herein, it shall be deemed to have been executed as of the date first
above written and constitute one agreement.
17.8 Any exhibit which is not attached to this Agreement or which has not
been completed at the time of the execution of this Agreement shall, at the
time of its attachment, be deemed to be a part hereof for all purposes as of
the date of this Agreement.
17.9 All notices provided for in this Agreement shall be in writing and
sent by certified mail, return receipt requested, by Federal Express, Express
Mail or other overnight delivery service reputed to be reliable, or by personal
delivery to the parties at 823 Eleventh Avenue, New York, New York 10019-3535
or to such other addresses of which one party shall have given notice to the
other party in the manner prescribed herein. Notices shall be deemed given when
sent.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
RED APPLE GROUP, INC.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
GRISTEDE'S SUPERMARKETS, INC.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
A-23
<PAGE>
CITY PRODUCE DISTRIBUTORS, INC.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
SUPERMARKET ACQUISITION CORP.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
SLOAN'S SUPERMARKETS, INC.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
RAS OPERATING CORP.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
GRISTEDE'S OPERATING CORP.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
SAC OPERATING CORP.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
CITY PRODUCE OPERATING CORP.
By:-----------------------------
John A. Catsimatidis
Chairman of the Board
A-24
<PAGE>
EXHIBIT B
July 14, 1997
Board of Directors
Sloan's Supermarkets, Inc.
823 Eleventh Avenue
New York, NY 10019-3535
To the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, of the consideration to be paid by Sloan's Supermarkets, Inc. (the
"Company") in connection with the purchase of the business of City Produce
Distributors, Inc. ("City Produce"), 28 supermarkets located in New York City
and the leasehold of one non-operating retail location. It is our understanding
that the supermarkets to be acquired as a result of the proposed transaction
are currently owned by one of three separate corporations -- Gristede's
Supermarkets, Inc., Red Apple Supermarkets, Inc. (each of which is a
wholly-owned subsidiary of Red Apple Group, Inc. ("RAG") which is in turn
wholly-owned by John Catsimatidis, the Chairman and Chief Executive Officer and
Treasurer of the Company), and Supermarket Acquisition Corp., which is directly
wholly-owned by Mr. Catsimatidis (hereafter referred to as "Seller"). The
transaction described above is referred to herein as the "Transaction" and the
assets to be acquired as a result of the Transaction are referred to herein as
the "Seller's Assets."
The merger agreement, dated as of July 14, 1997 (the "Agreement"), between
the Seller and the Company sets forth the structure of the Transaction. The
aggregate consideration to be paid by the Company for the Seller's Assets is
$40.0 million, consisting of $36.0 million of Company common stock and $4.0
million in assumption of certain indebtedness to Seller and affiliates of Seller
(the "Aggregrate Consideration").
In connection with our opinion, we have:
(a) reviewed the Agreement;
(b) reviewed certain financial and other information relating to the
Seller's Assets that was publicly available or furnished to us by the Company
and the management of RAG including financial forecasts;
(c) met with the management of the Company and RAG to discuss the nature
of the market in which the Seller's Assets compete, the scope of operations,
historical financial results and future prospects of the Seller's Assets;
(d) conducted a physical inspection of each location comprising the
Seller's Assets including photographs and a qualitative assessment of each
store;
(e) considered certain financial data of the Seller's Assets and compared
that data with similar data for publicly-held companies in businesses
comparable to the Seller's Assets;
(f) considered the financial terms of certain recent acquisitions of
companies in businesses similar to the Seller's Assets; and
(g) performed a discounted cash flow analysis utilizing financial and
operating projections and/or assumptions provided by the management of the
Seller's Assets and including an analysis of management's expected reduction in
corporate overhead expense from its planned streamlining of back office
operations.
The opinion expressed below is subject to the following qualifications and
limitations:
i) In arriving at our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial and
other historical and prospective operating information that was publicly
available or furnished to us by the Company and RAG. With respect to the
financial forecasts used by us, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of management as to the future financial performance of the Seller's
Assets. We have assumed that certain store remodeling plans will be carried out
as represented to us by Company management. We have analyzed the financial
forecasts and nothing has come to our attention which causes us to believe that
such assumption is unreasonable.
B-1
<PAGE>
ii) We have not made an independent evaluation or appraisal of the assets
which constitute the Seller's Assets, nor have we been furnished with any such
appraisals. We have not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Seller's Assets.
iii) Our services with respect to the Transaction do not constitute, nor
should they be construed to constitute in any way, a review or audit of, or any
other procedures with respect to, any financial information of the Seller's
Assets, nor should the services we have rendered during the course of this
engagement be relied upon by any person to disclose weaknesses in internal
controls or financial statement errors or irregularities.
iv) Our opinion does not address, and should not be construed to address,
either the underlying business decision to effect the Transaction or whether
the consideration to be paid by the Company in the Transaction represents the
lowest price negotiable. We express no view as to the federal, state or local
tax consequences of the Transaction.
v) Our opinion is based on business, economic, market and other conditions
as they exist as of the date hereof or as of the date of the information
provided to us. We have not valued the Aggregate Consideration, and express no
opinion as to the value of the Aggregate Consideration.
vi) This opinion is effective as of the date hereof. As such, this opinion
must be reaffirmed as of the date on or about the closing date of the
Transaction.
vii) Our services with respect to the Transaction do not constitute, nor
should they be construed to constitute in any way, an opinion of the solvency
of the Company subsequent to the closing of the Transaction contemplated by the
Agreement. For purposes of this paragraph, "solvency" means that: 1) the fair
salable value of the Company's assets exceeds the Company's liabilities, 2) the
Company is able to pay its debts when due, and 3) the Company has sufficient
capital to carry on its business.
viii) Our opinion is based on prevailing interest rates, dividend rates
and market conditions, and other circumstances and conditions existing, on the
date of our opinion, and our opinion does not represent our view as to what the
value of the Company's issued and outstanding common stock, warrants and/or
options actually will be upon completion of the Transaction.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the consideration to be paid by the Company is fair from a
financial point of view.
We will receive a fee as compensation for our services in rendering this
opinion. Neither the employment to conduct this analysis, nor the compensation
for this engagement is contingent upon conclusions ultimately reported.
This letter is intended for the information of the Board of Directors of
the Company in connection with the Transaction contemplated by the Agreement.
This opinion may not be quoted or referred to, in whole or in part, filed with,
or furnished or disclosed to any other party, or used for any other purpose,
without our prior written consent, except as otherwise agreed upon in writing
between Coopers & Lybrand Securities, L.L.C. and the Company.
Very truly yours,
Coopers & Lybrand Securities, L.L.C.
B-2
<PAGE>
- --- Please mark your
|X| votes as in this
- --- example.
1. To approve a Merger Agreement dated as of July 14, of 1997 by and among Red
Apple Group, Inc., Red Apple Supermarkets, Inc., Gristede's Supermarkets,
Inc., City Produce Distributors, Inc., Supermarket Acquisition Corp., John
A. Catsimatidis, the Company and certain wholly owned subsidiaries of the
Company.
FOR AGAINST ABSTAIN
/ / / / / /
2. To approve an amendment to the Company's Certificate Incorporation to
increase from 10,000,000 to 25,000,000 the authorized number of shares of
Common Stock.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve an amendment to the Company's Certificate of Incorporation to
change the name of the Company to Gristede's Sloan's, Inc.
FOR AGAINST ABSTAIN
/ / / / / /
4. Election of one Class 3 Director to serve until 1998 Annual Meeting.
John Casimatidis
WITHHOLD
FOR AUTHORITY
the nominee to vote for the
listed below nominee listed below
/ / / /
5. Election of two Class 1 Directors to serve until 1999 Annual Meeting.
(Instruction: To withhold authority to vote for any individual nominee,
strike the nominee's name in the list below.)
Leroy Hemingway II
Kishore Lall
FOR all the WITHHOLD
nominees listed AUTHORITY
below (except as marked to the to vote for the two
contrary below) nominees listed below
/ / / /
6. To ratify the grant to John Catsimatidis of non-qualified stock options to
purchase an aggregate of 250,000 shares of Common Stock at $2.875 per share
through the earlier of August 11, 2006 or 90 days after the termination of
Mr. Catsimatidis' employment by the Company.
FOR AGAINST ABSTAIN
/ / / / / /
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. This proxy, when properly
executed, will be voted in the manner directed herein by the undersigned
stockholder.
If no direction is made, this proxy will be voted for Proposals 1, 2, 3 and 6,
FOR the election of John Catsimatidis as the Class 3 Director and FOR the
election of each of Leroy Hemingway and Kishore Lall as the Class 1 Directors.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign name by authorized person.
<TABLE>
<CAPTION>
<S> <C> <C>
Dated: Signature Signature if held jointly
------------------- ----------------------------- ---------------------------
Please mark, sign, date and return this Proxy card promptly using the enclosed envelope.
</TABLE>
<PAGE>
PROXY
SLOAN'S SUPERMARKETS, INC.
823 Eleventh Avenue
New York, New York 10019-3535
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Sloan's Supermarkets, Inc. (the "Company")
hereby constitutes and appoints John Catsimatidis and Martin Bring, and each of
them the true and lawful attorneys, agents and proxies of the undersigned, each
with full power of substitution, to vote, at the meeting, if only one shall be
present and acting at the meeting, then that one, all of the shares of common
stock of the Company that the undersigned would be entitled, if personally
present, to vote at the annual meeting of stockholders of the Company to be
held on October 30, 1997 at 10:00 a.m., local time, at The New York Hilton and
Towers Hotel, 1335 Avenue of the Americas, New York, New York 10019, or any
adjournments thereof.
