<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K
___________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to___
Commission File Number 1-7936
NATIONAL CONVENIENCE STORES INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 74-1361734
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 WAUGH DRIVE
HOUSTON, TEXAS 77007
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (713) 863-2200
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------------------------- -----------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
</TABLE>
Title of Each Class
---------------------------------
Warrants to Purchase Common Stock
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
At August 31, 1995, 6,090,096 shares of the registrant's common stock, par
value $.01 per share, were outstanding and the aggregate market value (based on
the closing price quoted on the New York Stock Exchange) of the voting stock of
the Company, excluding shares held by affiliates, was approximately
$116,698,000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No ____
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for the 1995 Annual
Meeting of Stockholders: Part III.
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
Page
----
<S> <C> <C>
ITEM 1. BUSINESS
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Store Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Chapter 11 Bankruptcy Reorganization . . . . . . . . . . . . . . . . . . 7
Circle K Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Executive Officers of Registrant . . . . . . . . . . . . . . . . . . . . 9
ITEM 2. PROPERTIES
Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Corporate Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Support Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 3. LEGAL PROCEEDINGS
Circle K Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reorganization Proceedings Under Chapter 11 . . . . . . . . . . . . . . . 12
Other Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Liquidity and Capital Commitments . . . . . . . . . . . . . . . . . . . . 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . 52
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . 53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
(ii)
<PAGE> 4
PART I
ITEM 1. BUSINESS
GENERAL
National Convenience Stores Incorporated (the "Company" or "NCS") is the
largest operator of convenience stores in the state of Texas and one of the
twenty largest in the United States. At June 30, 1995, the Company operated
661 specialty convenience stores exclusively in four cities in the state of
Texas under the name Stop N Go. Eighty-two percent of the Company's stores are
located in the Houston and San Antonio areas where the Company is the largest
convenience store operator. NCS was originally organized as a Texas
corporation in 1959 and was reincorporated in Delaware in 1979.
As more fully described below under "Chapter 11 Bankruptcy Reorganization," the
Company filed for voluntary Chapter 11 bankruptcy reorganization on December 9,
1991 and emerged from such on March 9, 1993 as a result of the confirmation of
the Company's Revised Fourth Amended and Restated Joint Plan of Reorganization
(the "Plan of Reorganization"). For accounting purposes, the inception date for
the reorganized company is deemed to be March 1, 1993. As used in this Form
10-K, the term, "Reorganized Company," refers to NCS and its subsidiaries for
the periods subsequent to February 28, 1993; the term "Predecessor Company"
refers to NCS and its subsidiaries for the periods prior to March 1, 1993.
In the fourth quarter of fiscal 1994, the Company divested its 80 operating
convenience stores in the states of California and Georgia and acquired 88
stores in the Houston and Dallas/Fort Worth areas. With the consummation of
this transaction, the Company achieved its goal of geographically consolidating
its operations within the state of Texas.
On September 7, 1995, The Circle K Corporation ("Circle K") commenced an
unsolicited cash tender offer to purchase all the Company's outstanding common
stock (and associated rights to purchase preferred stock) and warrants to
purchase common stock at $20.00 per share and $2.25 per warrant, respectively
(the "Circle K Offer"). The Circle K Offer expires on October 4, 1995, unless
extended. On September 18, 1995, the Company's Board of Directors unanimously
determined to reject the Circle K Offer and recommended that NCS
securityholders not tender any of their securities. See Item 1. "Business -
Circle K Tender Offer" for additional information, including an additional
acquisition proposal at a price substantially higher than the Circle K Offer.
1
<PAGE> 5
The following table sets forth the distribution of the Company's stores by
market as of June 30, 1995:
<TABLE>
<CAPTION>
Stores
% Selling
Stores of Total Gasoline
------ -------- --------
<S> <C> <C> <C>
Houston/Gulf Coast . . . . . . . . . . . . . . . . . . . . . . . . 396 59.9% 347
San Antonio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 21.7 137
Dallas/Fort Worth . . . . . . . . . . . . . . . . . . . . . . . . . 94 14.2 91
Austin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.2 25
--- ----- ---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661 100.0% 600
=== ===== ===
</TABLE>
STORE OPERATIONS
The Company's convenience stores are extended-hour retail facilities,
emphasizing convenience to the customer. All the stores are open every day of
the year and 532 operate 24 hours a day. Typically, the Company's stores are
located in residential areas, on main thoroughfares, in small shopping centers
or on other sites selected for easy accessibility and customer convenience.
The stores' exteriors are of a similar design and color, making them easily
recognizable. The Company emphasizes high-quality products, personal and
courteous service, and clean and modern stores. The stores attract lunch-time
customers, early and late shoppers, weekend and holiday shoppers and customers
who need only a few items at any time and desire rapid service. Thirty-five of
the stores are also targeted to attract the fast-food take-out customer via
easily recognized national brand name "eatery" fast-food offerings.
The Company's stores offer a diverse range of over 3,000 high-traffic consumer
items including take-out foods, traditional fast-foods, fountain beverages,
alcoholic beverages, tobacco products, soft drinks, candy, snacks, groceries,
health and beauty aids, magazines and newspapers, automotive products, seasonal
and promotional items, and school supplies. The Company sells lottery and
lotto tickets in substantially all of its stores. Substantially all of the
Company's stores sell money orders. Approximately 91% of the Company's stores
are equipped with self-serve gasoline-dispensing facilities and approximately
45% are equipped with automated teller machines ("ATMs"). The Company has
entered into an agreement with NationsBank of Texas, N.A. ("NationsBank") which
provides for the installation, by NationsBank, of ATMs in all of the Company's
stores. This is expected to generate over 21 million customer visits per year
and $22.5 million in operating income from ATM transaction fees over the term
of the six year contract ($16.5 million of which is guaranteed pursuant to the
agreement), without giving effect to incremental profits from increased
gasoline and merchandise sales. The Company's existing automated teller
machine agreement generates approximately $500,000 per year in store profits.
NCS and NationsBank intend to engage in an extensive marketing campaign to
promote the new strategic alliance.
The Company has entered into an agreement whereby, commencing in the second
quarter of fiscal 1996, all Stop N Go gasoline stores will begin accepting the
Wright Express(TM) Universal Fleet Card (the "Fleet Card"), thereby enabling
NCS to attract national fleets to its gasoline stores. Wright Express(TM) a
subsidiary of Ideon Group, Inc. (formerly SafeCard Services Inc.), is the
leading provider of information processing, financial and information
management services to commercial car, van and truck fleets throughout the
United States. The Fleet Card is the most widely accepted electronic universal
fleet management card in the United States. The Company believes that the
number and convenience of its gasoline stores and the Company's competitive
pricing, when coupled with Wright Express'(TM) leadership in fleet management
and control services, should enable Stop N Go to increase its gasoline volume
and market share in the Texas cities served.
2
<PAGE> 6
The following table sets forth certain statistical information regarding the
Company's sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------- -
Combined
1995 1994 1993(1)
--------- ---------- ------------
<S> <C> <C> <C>
Sales (millions) . . . . . . . . . . . . . $906.0 $ 880.4 $878.9
Percentage of sales contributed by:
Gasoline. . . . . . . . . . . . . . . . 44.4% 41.8% 42.4%
Alcoholic beverages . . . . . . . . . . 13.4% 13.2% 13.9%
Tobacco products . . . . . . . . . . . 13.3% 14.2% 15.2%
Other categories not individually
contributing more than 10% . . . . . 28.9% 30.8% 28.5%
------- ------- --------
100.0% 100.0% 100.0%
====== ======= ========
</TABLE>
(1) Reflects the combining of the four months ended June 30, 1993
(Reorganized Company) and the eight months ended February 28, 1993
(Predecessor Company).
---------------------------
The Company is continuing with its Neighborstore(R) merchandising strategy,
whereby each store's product mix is linked directly to its local demographics
and customer purchasing patterns. In certain instances, the stores' product
display and general appearance have been changed to match the demographics. The
Company currently operates 37 national brand name fast food "eateries" (smaller
scale versions of the branded food kiosks found in shopping malls and airports)
in 35 of its stores. Brands represented in these stores include Taco Bell(R),
Kentucky Fried Chicken(R), Burger King(R), Pizza Hut(R) and Dunkin Donuts(R).
The national brand name fast-food items are prepared in-store with identical
ingredients, packaging, procedures and quality standards as are used in the
branded partners' own free-standing restaurants.
In addition, the Company has a program for the continual updating of its older
stores. Consistent with the Neighborstore(R) merchandising strategy, the
program is flexible in both layout and product mix.
The Company recognizes that its future operations will be dependent in part on
the continual remodeling and upgrading of its store base. A store replacement
program will also eventually be required in order for the Company's stores to
continue to be geographically located near its target customers' residences and
workplaces.
The Company estimates that it serves, on average, approximately 700,000
customers per day. The Company's operations are benefited by warm, dry weather
since a large part of the Company's product mix is concentrated in items that
are consumed during periods when leisure-time activities are more prevalent.
The Company typically experiences higher sales and gross profits during the
summer months than during the winter months.
As is the norm in the convenience store industry, prices on most items are
somewhat higher than in supermarkets and certain other retail outlets; however,
the value placed by the customer on easy accessibility and convenience has
historically enabled the Company to receive premium prices for its products.
The Company does price-promote certain items in various key merchandise
categories to aid in building customer traffic. Most of the items sold are
nationally or locally advertised brands, which includes the Company's own
private label cigarette. Substantially all sales are for cash or check,
although the Company also accepts credit cards (VISA, MasterCard, American
Express(R) Card and Discover(R) Card) and debit cards.
3
<PAGE> 7
During the fourth quarter of fiscal 1994, the Company began the implementation
of a program to enhance and redefine the Company's focus on customer service
and employee effectiveness ("Project Breakthrough"). An integral component of
the program involves the upgrading of equipment and technology through the
installation of integrated state-of-the-art sales and inventory management
systems. These systems will significantly automate store operations by
capturing data on point-of-sale and scanning equipment. The Company initiated
the program in its 94 Dallas/Fort Worth stores during fiscal 1995 and has made
approximately $10.6 million of capital improvements in connection with these
stores, approximately two-thirds of which expenditures were financed through
operating lease transactions. Additionally, the Company has expended
approximately $5.1 million in consulting and other related expenses in
connection with the program, of which $2.0 million and $3.1 million were
incurred in fiscal 1994 and 1995, respectively. An additional $4.1 million has
been expended for software development costs required for the overall program's
implementation, of which $0.8 million and $3.3 million were incurred in fiscal
1994 and 1995, respectively. The costs associated with the program which have
not been financed through operating lease transactions have been and will be
funded by cash generated from operations as well as cash on hand. The Company
expects to begin the next phase of the program's implementation into 171 stores
in San Antonio and Austin during the third quarter of fiscal 1996 and in
connection therewith, expects to expend approximately $15.3 million,
approximately $11.0 million of which will be financed through operating lease
transactions.
The Company purchases a substantial portion of its groceries, candy, tobacco
and health and beauty aids through wholesale grocers. Soft drinks, beer, wine,
bakery and dairy products are usually purchased from local suppliers. The
Company also operates a kitchen facility in Houston where it prepares and
packages sandwiches, salads, snacks and other prepackaged foods for
distribution to its stores via one of its major suppliers.
The Company's inventories of gasoline turn over approximately every seven days.
The Company purchases substantially all of its gasoline supplies from an
independent petroleum refiner which provides the benefits of (i) a competitive
purchase price, due to the volume of gasoline purchased, (ii) a reliable
distribution system within the Company's geographic market area, and (iii)
consistent with the Company's strategic vision, the development of a long-term
relationship with a key vendor. While the Company believes that alternative
supplies of its petroleum products in the required volumes are readily
available in the event of a disruption in its current supply, over the
short-term, the Company would likely lose some of its current price advantage
until a new contract could be negotiated with another supplier. The Company
does not engage in speculative gasoline trading transactions or otherwise
assume unusual market risks with respect thereto. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Risks and Uncertainties" for additional discussion of certain market risks.
REGULATORY MATTERS
Federal, state or local laws regulate the hours of operation and the sale of
certain products, typically including alcoholic beverages, gasoline, tobacco
products and lottery and lotto tickets. The most significant of such
regulations limits or governs the sale of alcoholic beverages and the storage
and sale of gasoline. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Risks and Uncertainties."
Sale of Alcoholic Beverages - State and local regulatory agencies have the
authority to approve, revoke, suspend or deny applications for and renewals of
permits and licenses relating to the sale of alcoholic beverages and to impose
various restrictions and sanctions. In many states and in Texas, retailers of
alcoholic beverages have been held responsible for damages caused by
intoxicated individuals who purchased alcoholic beverages from them. While the
potential exposure to the Company as a seller of alcoholic beverages is
substantial, the Company has adopted procedures to minimize such exposure and
to-date, Management believes liability for such
4
<PAGE> 8
sales has not had a material adverse effect on the Company's financial position
or results of operations.
Storage and Sale of Gasoline - The operation and ownership of underground
gasoline storage tanks ("USTs") are subject to federal, state and local laws
and regulations. The Environmental Protection Agency ("EPA") has issued
regulations that establish requirements for (i) maintaining leak detection
methods and equipment, (ii) upgrading USTs, (iii) taking corrective action in
response to releases, (iv) UST removal to prevent future releases, (v) keeping
appropriate records, and (vi) maintaining evidence of financial responsibility
for taking corrective action and compensating third parties for bodily injury
and property damage resulting from releases. These regulations also empower
states to develop, administer and enforce their own regulatory programs,
incorporating requirements which are at least as stringent as the federal
standards. In order to ensure compliance with the federal and state
environmental laws, the Company has developed a comprehensive gasoline storage
and dispensing plan. During fiscal 1993, the Company refined the plan such
that its primary focus is on upgrading gasoline dispensing equipment in
accordance with upcoming deadlines imposed by regulatory authorities and on
providing for the cleanup of existing and future contaminated sites. The
gasoline plan generally covers all properties owned and leased by the Company.
Management believes that its existing gasoline storage and dispensing
procedures and planned capital expenditures will keep the Company in compliance
with all federal and state environmental regulations.
Environmental Capital Commitments - The Company has adopted approved tank
system release detection methods on all owned or operated USTs and currently
utilizes the Statistical Inventory Reconciliation Method for the release
detection on its USTs located in Texas. This method involves statistical
analysis of gasoline inventory changes to detect UST releases.
All of the Company's USTs in Texas have been upgraded with the required
spill/overfill prevention equipment. By December 22, 1998, the Company's USTs
must be upgraded with corrosion protection equipment under applicable federal
regulations. The Company estimates that 63% of its USTs are currently in
compliance with such regulations, either through the installation of fiberglass
or steel fiberglass tanks or by adding cathodic protection to existing steel
tanks. In addition, the EPA has required that by January 1, 1996, UST
operators must install flow governors which restrict dispensing volumes per
minute. Management of the Company believes that the Company's long-range
capital budget contains sufficient funds necessary to make the required
equipment upgrades prior to the 1996 and 1998 deadlines.
In addition to the foregoing, the EPA has ranked the air quality in major
cities in the United States based on the level of ozone measured. Houston and
Dallas/Fort Worth are two areas in which the Company currently conducts
operations which are considered to be ozone non-attainment areas. The Houston
market is classified in the severe ozone non-attainment category while the
Dallas/Fort Worth area is classified in the moderate ozone non-attainment
category. Under rules promulgated by the EPA and the state of Texas, gasoline
dispensing facilities in the two areas were required to have Stage II Vapor
Recovery Equipment by November 15, 1994 on all units except those that have not
dispensed more than 10,000 gallons in any one month since January 1991. In
addition, the Clean Air Act mandated that UST operators in the non-attainment
areas adopt a "two point" fuel delivery unloading system which has been
installed in all of the Company's USTs which require the system (approximately
73% of the Company's USTs).
During fiscal 1995 and 1994, the Company spent $4.8 million and $6.6 million,
respectively, on environmental capital equipment, including $4.5 million and
$6.1 million, respectively, on Stage II Vapor Recovery Equipment. In order to
ultimately comply with the aforementioned regulations by the mandated
deadlines, the Company estimates it will be required to spend approximately
$6.0 million on additional equipment and installation through fiscal 1999.
Management believes that it has allocated sufficient resources in its long-term
capital budget to comply with the
5
<PAGE> 9
improvements required by the state of Texas and EPA regulations to be completed
by the end of 1999.
Environmental Remediation Contingency - The Company's environmental remediation
exposure is related to the cleanup of contaminated soil and ground water caused
by releases from underground gasoline storage tanks and underground piping
systems and claims for third party damages relating to such releases. The
Company spent $1.2 million in fiscal 1995 on environmental remediation
activities as compared to $1.3 million in fiscal 1994 and $1.3 million in
fiscal 1993. The Company estimates that it will incur approximately $5.7
million for environmental remediation expenditures through 1999. At June 30,
1995 and 1994, the accrued environmental liability totalled $19.6 million and
$20.8 million, respectively. The actual cost of remediating contaminated
sites, removing tanks and settling third party damage claims may be
substantially lower or higher than that accrued due to the difficulty in
estimating such costs and due to potential changes in the status of regulations
and state reimbursement programs. The Company does not believe that any such
amount below or in excess of that accrued can be reasonably estimated.
The state of Texas and other states in which the Company previously operated
have established trust funds for the reimbursement of costs related to certain
remediation activities. The Company has filed or expects to file claims
aggregating approximately $3.0 million with the states to recover a portion of
the funds which it has expended or expects to expend on remediation activities.
The Company believes the claims it has filed or expects to file will be paid,
although collection may occur over a period of several years.
The Company is required by state regulations to maintain evidence of financial
responsibility for taking corrective action on remediation activities. In
order to be in compliance with these requirements, the Company has successfully
established that it is self-insured with the Texas Natural Resource
Conservation Commission.
EMPLOYEES
As of June 30, 1995, the Company had approximately 4,800 employees, of whom
approximately 209 are executive and supervisory personnel, approximately 4,100
are full-time store employees, and the balance are full-time staff personnel
and part-time store employees. The Company experiences the high rate of
turnover of store employees prevalent in the convenience store industry. The
Company is not a party to any collective bargaining agreement and believes its
relations with its employees to be satisfactory.
COMPETITION
The convenience store industry is highly competitive, and the Company competes
with other convenience stores, local and national grocery store chains,
gasoline service stations, drug stores, fast food operations, vending machines,
discount stores and other types of retail outlets. The Company is the largest
operator, or among the largest operators, of convenience stores in its major
market areas. Each of the Company's stores competes primarily in its
surrounding neighborhood, and the ability of each store to compete is largely
dependent on location, access, signage, store size, population growth,
demographics and product mix.
The Company also encounters competition from gasoline service stations which
have installed facilities for the sale of other consumer items. These gasoline
service stations have become a significant competitor within the convenience
store industry.
Although competition from gasoline retailers has increased in recent years, the
Company's traditional convenience store competitors have significantly
curtailed their new store construction programs in, or withdrawn from, some of
the Company's major market areas as a result of poor
6
<PAGE> 10
operating performance. Nevertheless, the Company cannot predict the extent to
which its major competitors may further reduce or expand their operations in
cities where the Company operates.
CHAPTER 11 BANKRUPTCY REORGANIZATION
On December 9, 1991, the Company and substantially all of its wholly-owned
active subsidiaries (the "Debtor Group") filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Southern
District of Texas, Houston Division (the "Bankruptcy Court"). The filing was
precipitated by the loss of vendor credit which had become critical to the
Company's financing needs as a result of poor operating results.
On February 25, 1993, the Bankruptcy Court confirmed the Plan of
Reorganization, and the reorganization became effective March 9, 1993 (the
"Effective Date"). The Plan of Reorganization was designed to repay all
priority creditors in full on the Effective Date or thereafter (as provided in
the Plan of Reorganization) and to repay secured creditors in full over time
with interest. Pursuant to the Plan of Reorganization, allowed unsecured
claims totalling approximately $137.5 million were cancelled in exchange for
$9.3 million of cash, $1.0 million of new indebtedness and 5.91 million shares
of newly issued Common Stock of the Reorganized Company. All existing shares
of the Predecessor Company's Series E Preferred Stock and common stock were
exchanged for a total of 90,000 shares of the Reorganized Company's Common
Stock. In addition, warrants to purchase up to an additional 1.35 million
shares of the Reorganized Company's Common Stock at $17.75 per share were
distributed to the holders of the Predecessor Company's publicly-held
subordinated debentures, the Series E Preferred Stock and the Predecessor
Company's common stock. All alleged seniority rights arising under the
indentures relating to the publicly-held subordinated debentures were deemed
satisfied and cancelled as of the Effective Date.
On September 6, 1995, the Bankruptcy Court signed an Order Providing for
Closing Chapter 11 Cases. This Order closed the Chapter 11 cases of the Debtor
Group in the Bankruptcy Court.
See Item 3. "Legal Proceedings -- Reorganization Proceedings Under Chapter 11"
for further discussion with respect to the Company's Chapter 11 bankruptcy
filing, Plan of Reorganization and settlement of claims.
CIRCLE K TENDER OFFER
On August 8, 1995, the Company received an unsolicited acquisition proposal
from Circle K whereby Circle K offered to buy all of the Company's Common Stock
for $17.00 cash per share. On August 11, 1995, Circle K proposed an amendment
to the Company's by-laws to increase the number of directors from eight to
seventeen and to repeal any by-law amendments adopted since January 1, 1994.
The Company also received from Circle K a notice of the nomination of nine
Circle K officers, directors or affiliates to fill the vacancies created by the
proposed by-law amendment.
The Company's Board of Directors retained Merrill Lynch to advise it with
respect to the proposal and on August 31, 1995, the Company announced that
its Board had unanimously rejected Circle K's unsolicited proposal. Such
conclusion was based, in part, upon the opinion of Merrill Lynch that the
Circle K proposal was inadequate from a financial point of view. The Board of
Directors also adopted a Stockholder Rights Plan (the "Rights Plan") designed
to protect the Company from unfair or coercive takeover tactics and to assure
that all of the Company's stockholders receive fair treatment in the event of
any takeover proposal. The Board also authorized, in concept, certain
agreements and the amendment of certain employment contracts and benefit plans
of the Company. See Item 5. "Market for Registrant's Common Equity and Related
Stockholder Matters" for further discussion with respect to the Rights Plan.
7
<PAGE> 11
On September 7, 1995, Circle K commenced a tender offer for all outstanding
shares of the Company's common stock (and associated rights to purchase
preferred stock) and all outstanding stock purchase warrants at $20.00 and
$2.25 in cash, respectively. The tender offer is conditioned on the tender
of a minimum number of outstanding shares and warrants, as well as certain
other conditions.
On September 18, 1995, the Company's Board of Directors unanimously determined
to reject Circle K's tender offer and recommended that NCS securityholders not
tender any of their securities pursuant to the offer. The Board based its
decision in part upon the opinion of the Company's financial advisor, Merrill
Lynch & Co., that the consideration offered to NCS securityholders in the
Circle K offer was inadequate to NCS securityholders from a financial point of
view.
At the same meeting, the Board reviewed and discussed an unsolicited proposal
received after the close of business on September 14, 1995 from another party
to acquire the Company at a significantly higher price than the Circle K Offer.
The Board determined not to accept this proposal. However, given all of the
information available, including the unsolicited proposal, the Board has
instructed management and Merrill Lynch to explore the Company's strategic
alternatives, including the possible sale of the Company to a third party. The
Board intends to invite interested parties, including Circle K and the other
party, to participate in this process.
8
<PAGE> 12
EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth the names, ages and certain additional
information regarding the Company's executive officers:
<TABLE>
<CAPTION>
Name and Position Age Business Experience
----------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
V.H. Van Horn (1) 57 Director, President and Chief Executive Officer since
Director, President and February 1975; employee of the Company since March
Chief Executive Officer 1966. Director of Southdown, Inc. (cement and concrete
manufacturing).
A.J. Gallerano (1) 53 Senior Vice President, General Counsel and Secretary
Senior Vice President, General since September 1989; Vice President, General Counsel
Counsel and Secretary and Secretary from October 1979 to August 1989.
Arnold Van Zanten (1) 53 Senior Vice President - Administration since May 1992;
Senior Vice President- Vice President - Systems from April 1989 to April 1992.
Administration
C.R. Wortham, Jr. (1) 56 Senior Vice President - Real Estate and Gasoline since
Senior Vice President - Real Estate August 1989; Vice President - Real Estate and Gasoline
and Gasoline from July 1988 to July 1989; Vice President - Real
Estate from June 1985 to June 1988.
Brian Fontana (1) 37 Vice President - Chief Financial Officer since December
Vice President - Chief 1993; Vice President and Treasurer from August 1993 to
Financial Officer November 1993; Treasurer from February 1992 to July
1993; Assistant Treasurer from April 1990 to February
1992.
Douglas B. Binford (1) 51 Vice President - Marketing since November 1994. Senior
Vice President - Marketing Vice President of Sales and Merchandising for Red Food
Stores Incorporated (grocery store chain) from July
1989 through October 1994.
Janice E. Bryant (1) 44 Vice President - Controller since February 1995. Vice
Vice President - Controller President and Controller of Continental Airlines, Inc.
from August 1993 through January 1995. Controller and
various positions with Continental Airlines Holdings,
Inc. (formerly Texas Air Corporation; airline holding
company) from October 1981 through July 1993.
</TABLE>
___________________
(1) Mr. Van Horn and the Company have entered into a contract pursuant to
which Mr. Van Horn will serve as President and Chief Executive Officer until at
least June 2000. All other officers serve pursuant to three year contracts
that expire in August 1998, except Ms. Bryant and Mr. Binford, who serve
pursuant to one year contracts that expire in August 1996. All of the
executive officers, except Messrs. Fontana and Binford and Ms. Bryant,
9
<PAGE> 13
were executive officers of the Company as of December 9, 1991 when the Company
and substantially all of its wholly-owned active subsidiaries filed petitions
for voluntary reorganization under Chapter 11 of the United States Bankruptcy
Code.
ITEM 2. PROPERTIES
STORES
The Company had 661 stores in operation at June 30, 1995, of which
approximately 74% were leased. Virtually all of the Company's owned properties
are mortgaged.
The Company's stores vary in size. Approximately 84% of the Company's stores
are 2,600 square foot, rectangularly-shaped stores and 13% are
hexagonally-shaped 3,100 square foot stores. The Company also operates 20
"Superstores," a 3,600 square foot store design which was superseded by the
hexagonally-shaped store.
In September 1995, the Company opened a new 4,000 square foot prototype store
in Richmond, Texas. The store features a larger store front with a vaulted
roof and skylight, an expanded customer parking area and a dedicated vendor
delivery entrance. The store also incorporates the best merchandising concepts
developed in Project Breakthough, including state-of-the-art sales and
inventory management systems and enhanced lighting. An entire corner of the
store is dedicated to a Taco Bell(R) eatery; the store also features Fountain
Express (providing a wide choice of soft drinks) and The Donut Stop (where a
variety of donuts are baked fresh daily). The store's larger gasoline island
features pay-at-the-pump units with video monitors capable of relaying product
messages to customers and the industry's first-ever automated soft drink
dispensers, where a soft drink purchase can be added to a gasoline charge. The
new store also introduces the Company's new identity, featuring the Company's
newly designed logo and the creation of the "GP2000" (Go Power and Guaranteed
Performance) gasoline brand. The Company plans to build an additional four new
stores during fiscal 1996.
CORPORATE OFFICES
The Company leases the building at 100 Waugh Drive, Houston, Texas, in which
its corporate and Gulf Coast Division offices are located. Such lease extends
through February 28, 1999. The building contains approximately 124,000 square
feet, of which the Company utilizes approximately 106,000 square feet and
subleases approximately 18,000 square feet to an unaffiliated company under a
lease which expires February 28, 1999.
SUPPORT FACILITIES
Corporate Kitchen - The Company leases 36,550 square feet in an industrial park
in Houston, in which its kitchen facility is located. The lease on this
facility extends through March 1996 with an option to renew for an additional
five years.
Maintenance Facilities -The Company leases various sites for maintenance
facilities in Houston, Dallas and San Antonio. The remaining terms on these
leases range from less than one year to five years with options to renew,
ranging from three to five years, on certain of the locations. The square
footage of these locations ranges from approximately 2,500 square feet to
21,000 square feet.
Other - The Company also leases various facilities for district/division
support in each of its major markets. The remaining terms of these leases
range from less than one year to four years with options to renew, primarily
for an additional five years per option. The square footage of the locations
ranges from approximately 2,000 square feet to 8,500 square feet.
10
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
CIRCLE K TENDER OFFER
On August 8, 1995, the Company received an unsolicited cash acquisition
proposal at $17.00 per share from Circle K. The Board of Directors of the
Company subsequently engaged Merrill Lynch to undertake an in-depth financial
analysis of the Circle K offer. On August 10, 1995, the Board of Directors of
the Company adopted an amendment to the Company's Restated By-Laws (the
"By-Laws") to increase the vote required to amend the section of the By-Laws
dealing with the number of directors of the Company or to adopt a By-Law
inconsistent with that section to 75% of the shares of Common Stock eligible to
vote at a stockholders' meeting (the "By-Law Amendment").
Delaware Chancery Court. On August 11, 1995, a purported class action lawsuit
was filed in the Chancery Court of New Castle County, Delaware against the
Company and its directors alleging that the directors, by adopting the By-Law
Amendment, carried out a preconceived scheme to entrench themselves in office,
infringed upon the stockholders' ability to choose between competing slates for
control of the Company and, therefore, breached or aided and abetted breaches
of their fiduciary duties to the Company and its stockholders. The Complaint
requested, among other things, that the By-Law Amendment be declared void and
that the directors be ordered to carry out their fiduciary duties to the
plaintiff stockholder and the other members of the class. The case is styled
Thomas J. McKula, Jr., on behalf of himself and all other similarly situated
v. William K. Wilde, et al., C.A. 14481 (the "McKula Case").
On September 5, 1995, Circle K filed a lawsuit against the Company and its
directors in the Chancery Court of New Castle County, Delaware alleging, among
other things, that the directors improperly refused to negotiate or consider
any bona fide offer for the Company and that such action, the By-Law Amendment
and the adoption by the directors of the Rights Agreement constituted unfair
dealing, improper interference with shareholder voting rights, a manipulation
of corporate machinery for personal purposes, an effort by the directors to
entrench themselves in their positions with the Company and a breach of the
directors' fiduciary duties to the Company's stockholders. The Complaint
requests, among other things, that the Court declare the By-Law Amendment and
the Rights Agreement void or enjoin the enforcement thereof and award
unspecified damages. This case is styled The Circle K Corporation v. National
Convenience Stores Incorporated, et al., C.A. 14518 (the "Circle K Case").
Counsel for the plaintiffs and the Company in the McKula Case and the Circle K
Case have agreed to an expedited discovery schedule in preparation for a trial
limited to the By-Law Amendment issue in Chancery Court that has been scheduled
by the Court for October 18, 1995. The Company intends to defend these cases
vigorously.
On August 18, 1995, another purported class action lawsuit was filed in the
Chancery Court of New Castle County, Delaware against the Company and its
directors alleging, among other things, that the directors improperly refused
to negotiate or consider any bona fide offer for the Company including the
Circle K Proposal and that such action and the By-Law Amendment constituted
unfair dealing, improper interference with shareholder voting rights, a
manipulation of corporate machinery for personal purposes, an attempt by the
directors to entrench themselves in their positions with the Company and a
breach of the directors' fiduciary duty to maximize shareholder value. The
Complaint seeks, among other things, injunctive relief against enforcement of
the By-Law Amendment, an order compelling the directors of the Company to carry
out their fiduciary duties to the plaintiff stockholder and the other members
of the class, and unspecified damages. The case is styled Crandon Capital
Partners v. V. H. Van Horn, et al., C.A. 14489, and as of September 18, 1995
service of process has not been made on the Company or, to its knowledge, the
other defendants.
Delaware Federal Court. On September 5, 1995, Circle K filed another lawsuit
against the Company and its directors in the United States District Court for
the District of Delaware alleging, among other things, that the omission of
certain information concerning the By-Law Amendment from a press release issued
by the Company on August 14, 1995 and the omission of certain information
relating to a nomination of directors received from Bedford from a Current
Report on Form 8-K filed by the Company with the Commission on August 14, 1995
rendered the press release and the Form 8-K materially false and misleading.
Therefore, the Complaint alleges, the press release and the Form 8-K violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. The
complaint requests, among other things, that the court compel the defendants to
make corrective disclosures and enjoin the defendants from soliciting proxies
of the Company's stockholders until such corrective action is completed. The
case is styled The Circle K Corporation v. National Convenience Stores
Incorporated, et al., C.A. 95-537.
11
<PAGE> 15
REORGANIZATION PROCEEDINGS UNDER CHAPTER 11
Chapter 11 Filing - On December 9, 1991, NCS and certain of its subsidiaries
(the "Debtor Group") filed separate petitions for reorganization under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court. On December 11, 1991, the
Bankruptcy Court entered an order for the cases to be jointly administered.
Plan of Reorganization - As a result of extensive negotiations held in December
1992, the Company reached a compromise agreement which was incorporated into
and became the Plan of Reorganization. The Bankruptcy Court entered an order
confirming the Plan of Reorganization on February 25, 1993. The Plan of
Reorganization subsequently became effective March 9, 1993 (the "Effective
Date").
The Plan of Reorganization was designed to repay all priority creditors in full
on the Effective Date or thereafter as provided in the Plan of Reorganization
and to repay secured creditors in full over time with interest. Allowed
unsecured claims totalling approximately $137.5 million were canceled in
exchange for $9.3 million of cash, $1.0 million of new indebtedness and 5.91
million shares of newly issued Common Stock, par value $.01 per share, of the
Reorganized Company. All existing Series E Preferred Stock and existing common
stock of the Predecessor Company were exchanged for an aggregate distribution
of 90,000 shares of the newly issued Common Stock of the Reorganized Company.
Consequently, a total of 6.0 million shares of newly issued Common Stock of the
Reorganized Company were issued under the Plan of Reorganization. In addition,
warrants to purchase up to an additional aggregate 1.35 million shares of newly
issued Common Stock at $17.75 per share were distributed to the holders of the
Predecessor Company's two publicly-held subordinated debenture series, the
Series E Preferred Stock and the old common stock.
The Company is continuing to resolve the proofs of claims received in its
Chapter 11 proceedings. As of August 24, 1995, 3,006 proofs of claims had been
filed against the Company which had not been withdrawn and which had a stated
aggregate value of approximately $345.8 million for the proofs of claim
specifying amounts; numerous other proofs of claim do not specify amounts. Of
the total, 2,981 claims valued at $296.6 million had been resolved. As of
August 24, 1995, the Debtor Group is continuing to prosecute objections for the
remaining disputed claims. Of the disputed claims, the Company estimates the
amount not covered by insurance to be less than $6.0 million. The final
resolution of these disputed claims is expected to last for an extended period
of time.
All of the outstanding disputed claims are general unsecured claims. Pursuant
to the terms of the Plan of Reorganization, a total of 1,616,559 shares of
Common Stock were issued to Boatmen's Trust Company as agent for the general
unsecured creditors, pending allowance of their respective claims. As of
August 24, 1995, Boatmen's had allocated 1,242,971 shares to individual
unsecured creditors for resolved claims totalling $41.5 million and had issued
the appropriate share
12
<PAGE> 16
certificates. The remaining 373,588 shares will be allocated in the future to
the heretofore and hereafter allowed general unsecured claims.
Closing of the Chapter 11 Cases - On September 6, 1995, the Bankruptcy Court
signed an Order Providing for Closing Chapter 11 Cases, which order closed the
Chapter 11 cases of the Debtor Group in the Bankruptcy Court. Although
additional stock of the Company is to be distributed to creditors under the
Plan, the remaining unresolved proofs of claim are being resolved in mediation
or litigation outside of the Bankruptcy Court (see Plan of Reorganization
above).
OTHER LITIGATION
There is no other litigation pending or threatened against the Company that
Management believes would have a material adverse effect on the financial
position or the business of the Company. See Item 1. "Business - Regulatory
Matters" for information relating to the Company's potential litigation
exposure as a retailer of alcoholic beverages and gasoline.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 1995.
13
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "NCS" and the Warrants to Purchase Common Stock (the
"Warrants") are traded on the Nasdaq National Market System ("NASDAQ") under
the symbol "NCSIW." Prior to November 16, 1994, the Company's Common Stock was
traded on NASDAQ under the symbol "NCSI." On March 9, 1993, upon emergence
from Chapter 11 bankruptcy reorganization, all authorized and outstanding
shares of the Predecessor Company's publicly-traded securities, including its
common stock, were cancelled and the above-mentioned securities were issued by
the Reorganized Company. The following table sets forth the high and low sales
price of the Company's Common Stock and Warrants as reported by the NYSE and
NASDAQ for fiscal 1995 and 1994.
<TABLE>
<CAPTION>
Common Stock Warrants
------------------- ------------------------
High Low High Low
------ ------ -------- --------
<S> <C> <C> <C> <C>
Year Ended June 30, 1995:
First Quarter . . . . . . . . . $11-1/2 $7-3/4 $3 $1-1/2
Second Quarter . . . . . . . . 8-7/8 6-1/2 1-1/2 5/8
Third Quarter . . . . . . . . . 10-3/8 8-1/2 1-1/4 5/8
Fourth Quarter . . . . . . . . 12-5/8 8-5/8 2-1/4 7/8
Year Ended June 30, 1994:
First Quarter . . . . . . . . . $16-3/4 $13-1/4 $ 4-3/4 $3-1/2
Second Quarter . . . . . . . . 16-3/4 14-1/4 5-3/4 3-1/2
Third Quarter . . . . . . . . . 20 16-1/4 7-3/8 5
Fourth Quarter . . . . . . . . 17 10-1/4 5-3/4 2-3/4
</TABLE>
As of August 31, 1995, there were approximately 1,362 and 1,204 holders of
record of the Company's Common Stock and Warrants, respectively.
The Company has not paid a dividend on its Common Stock during its two most
recent fiscal years. Under the terms of certain of the Company's long-term
debt instruments, the Company cannot pay cash dividends on its Common Stock or
purchase any treasury stock.
See Item 1. "Business -- Circle K Tender Offer" for information regarding the
Circle K Offer that commenced on September 7, 1995 and related matters. As a
consequence of these factors, the closing prices of the Company's Common Stock
and Warrants on September 19, 1995, as reported by the NYSE and NASDAQ, were
$23-1/2 and $6, respectively.
14
<PAGE> 18
As more fully discussed in Note 7 of the Notes to Consolidated Financial
Statements, on August 31, 1995, the Board of Directors of the Company declared
a dividend of one right to purchase preferred stock (a "Right") for each
outstanding share of the Company's Common Stock, to shareholders of record at
the close of business on September 11, 1995. Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred
Stock (the "Series A Preferred Stock"), par value $1.00 per share, at a
purchase price of $55 per Unit, subject to adjustment. In connection with the
distribution of the Rights, the Board of Directors of the Company authorized
100,000 shares of Series A Preferred Stock, none of which are outstanding. The
Series A Preferred Stock would be issued only upon the exercise of Rights.
The Rights are not exercisable as of the date hereof.
15
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Reorganized Company (1) | Predecessor Company (1)
--------------------------------------|-----------------------------------
Period from |
Inception | Eight
(March 1, | Months
Year Ended June 30, 1993) to | Ended Year Ended June 30,
----------------------- June 30, | February 28, ---------------------
1995 1994 1993 | 1993 1992 1991
--------- --------- ---------- | ------------ -------- ----------
<S> <C> <C> <C> | <C> <C> <C>
Operations: (2) |
Sales . . . . . . . . . . . . . $906,023 $880,447 $297,985 | $580,867 $958,519 $1,073,958
Income (loss) before |
extraordinary gain (3) . . . . 5,292 6,835 4,389 | 6,796 (185,438) (10,465)
Net income (loss)(4) . . . . . 5,292 6,835 4,389 | 68,289 (185,438) (10,465)
|
Common Stock Data (per share):(5)(6) |
Primary and fully diluted |
earnings per share . . . . . . $0.87 $1.09 $0.70 | * * *
|
Balance Sheet Data: (2) |
Total assets . . . . . . . . . . $284,324 $306,528 $309,978 | * $268,501 $ 364,329
Long-term debt . . . . . . . . . 90,256 107,204 131,790 | * * 191,633
Debt to equity ratio . . . . . . 1.28 1.60 2.11 | * * 2.73
|
Store Data For The Period:(2) |
Average sales per store . . . . . $1,309 $1,230 $414 | $792 $1,052 $1,016
Average gross profit per store . . 322 310 105 | 207 253 253
</TABLE>
* Not meaningful.
(1) As used in this Form 10-K, the term, "Reorganized Company," refers to
NCS and its subsidiaries for the periods subsequent to February 28,
1993; the term, "Predecessor Company," refers to NCS and its
subsidiaries for the periods prior to March 1, 1993.
(2) As a result of the adoption of fresh-start reporting in accordance
with The American Institute of Certified Public Accountants' Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization
Under The Bankruptcy Code" ("SOP 90-7"), the consolidated financial
statements of the Predecessor Company and the Reorganized Company have
not been prepared on a consistent basis of accounting and are
separated by a vertical black line.
(3) The 1995 results include a $0.4 million gain ($0.2 million, or $0.03
per share, on an after-tax basis) on the sale of 43 stores (see Note 3
of the Notes to Consolidated Financial Statements). Additionally, the
1995 results include $3.1 million ($1.8 million, or $0.30 per share,
on an after-tax basis) in consulting fees and other expenses related
to the program to enhance and redefine the Company's focus on customer
service and effectiveness through the installation of integrated
state-of-the-art sales and inventory management systems ("Project
Breakthrough"), which program commenced in fiscal year 1994. The 1994
results include a $3.0 million gain ($1.8 million, or $0.29 per share,
on an after-tax basis) recorded in connection with the April 29, 1994
transaction with The Circle K Corporation (the "Circle K Transaction")
(see Note 3 of the Notes to Consolidated Financial Statements).
Additionally, the 1994 results include $2.0 million ($1.2 million, or
$0.20 per share, on an after-tax basis) in consulting fees and other
expenses related to Project Breakthrough. The income before
extraordinary gain for the eight-month period ended February 28, 1993
includes a $6.6 million special charge related to an increase in the
Company's environmental liability and a net credit of $0.4 million for
fresh-start adjustments
16
<PAGE> 20
(see Notes 6 and 10 of the Notes to Consolidated Financial
Statements). The 1992 results include $168.1 million of restructuring
and other special charges.
(4) The $61.5 million extraordinary gain recorded by the Predecessor
Company in fiscal 1993 is a result of the forgiveness of debt upon
emergence from Chapter 11 bankruptcy reorganization (see Note 10 of
the Notes to Consolidated Financial Statements).
(5) Common Stock data of the Reorganized Company is presented. All of the
Predecessor Company's outstanding common and preferred stock was
cancelled on the date the bankruptcy plan became effective;
accordingly, earnings per share for the Predecessor Company are not
presented because they are not comparable with the data provided for
the Reorganized Company (see Note 10 of the Notes to Consolidated
Financial Statements).
(6) No cash dividends were paid on common stock during the periods shown.
17
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fresh-Start Reporting - The Company emerged from Chapter 11 bankruptcy
reorganization in March 1993 as a result of the confirmation of the Company's
Revised Fourth Amended and Restated Joint Plan of Reorganization (the "Plan of
Reorganization"). See Note 10 of the Notes to Consolidated Financial
Statements for a description of the terms of the Plan of Reorganization.
Effective March 1, 1993, in connection with the confirmation of the Plan of
Reorganization, the Company adopted "fresh-start reporting" in accordance with
SOP 90-7. Accordingly, since March 1, 1993, the Company's financial statements
have been prepared as if it were a new reporting entity.
As a result of adopting fresh-start reporting, the financial information for
the fiscal years ended June 30, 1995 and 1994 and the four months ended June
30, 1993 is not prepared on a basis of accounting consistent with the financial
information presented for the eight months ended February 28, 1993. However,
except as described below, the Company believes that the impact of the
fresh-start reporting adjustments, while material, is identifiable, and that
combining the financial results for the four months ended June 30, 1993 with
the financial results for the eight months ended February 28, 1993 provides a
useful basis for comparison to the fiscal years ended June 30, 1995 and 1994.
Therefore, the following discussion assumes the periods in fiscal 1993 are
combined.
Summary of Results of Operations - The Company reported net income of $5.3
million ($0.87 per share), $6.8 million ($1.09 per share) and $72.7 million for
the fiscal years ended June 30, 1995, 1994 and 1993, respectively.
Fiscal 1995 net income includes (i) $3.1 million ($1.8 million, or $0.30 per
share, on an after-tax basis) in consulting fees and other expenses related to
Project Breakthrough, and (ii) a $0.4 million gain ($0.2 million, or $0.03 per
share, on an after-tax basis) on the sale of 43 stores. Fiscal 1994 net income
includes (i) a $3.0 million gain ($1.8 million, or $0.29 per share, on an
after-tax basis) recorded in connection with the April 1994 Circle K
transaction, and (ii) $2.0 million ($1.2 million, or $0.20 per share, on an
after-tax basis) in consulting fees and other expenses related to Project
Breakthrough. Fiscal 1993 net income includes (i) a net credit of $0.4 million
for fresh-start adjustments (including the adjustment of assets and liabilities
to their fair market values and the adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), (ii)
a $61.5 million extraordinary gain related to the forgiveness of debt (see Note
10 of the Notes to Consolidated Financial Statements), and (iii) a $6.6 million
special charge related to an increase in the Company's environmental liability.
18
<PAGE> 22
Sales and Gross Profit - The following table sets forth selected information
regarding the number of stores and the results of the Company's operations
during fiscal years 1995, 1994, and 1993:
<TABLE>
<CAPTION>
Four Months | Eight Months
Year Ended June 30, Ended | Ended Year Ended
---------------------- June 30, | February 28, June 30, 1993
1995 1994 1993 | 1993 (Combined)
-------- --------- ----------- | ------------ -------------
<S> <C> <C> <C> | <C> <C>
Merchandise sales (millions) (a) $503.3 $512.0 $172.8 | $333.6 $506.4
Merchandise gross profit margin (a) 33.9% 34.2% 35.4% | 35.8% 35.7%
Merchandise gross profit (millions) (a) $170.8 $175.0 $ 61.2 | $119.4 $180.6
|
Gasoline sales (millions) $402.7 $368.4 $125.2 | $247.3 $372.5
Gasoline gross profit margin 13.0% 12.6% 11.3% | 13.1% 12.5%
Gasoline gross profit (millions) $ 52.2 $ 46.6 $ 14.1 | $ 32.4 $ 46.5
|
Total sales (millions) $906.0 $880.4 $298.0 | $580.9 $878.9
Average gross profit margin 24.6% 25.2% 25.3% | 26.1% 25.8%
Total gross profit (millions) $223.0 $221.6 $ 75.3 | $151.8 $227.1
|
Stores open at beginning of period 709 719 721 | 778 778
Stores added -- 88 -- | -- --
Stores closed or sold (48) (98) (2) | (57) (59)
-------- -------- ------ | ------ -----
Stores open at end of period 661 709 719 | 721 719
Stores selling gasoline at end of period 600 638 622 | 624 622
|
Average number of stores 692 716 720 | 734 729
|
Average sales per store (thousands): |
Merchandise (a) $ 727.3 $ 715.1 $240.0 | $454.5 $ 694.6
Gasoline 581.9 514.5 173.9 | 336.9 511.0
-------- -------- ------- | ------ --------
Total $1,309.2 $1,229.6 $413.9 | $791.4 $1,205.6
Gasoline gallons sold (millions) 371.6 372.4 119.4 | 231.8 351.2
|
Average gasoline gallons sold per |
average gas store (thousands) 599.4 597.8 192.8 | 369.1 561.9
</TABLE>
(a) Merchandise sales include other income from the sale of money orders and
lottery tickets, as well as income from pay telephones, automatic teller
machines and game machines.
Merchandise sales decreased $8.7 million, or 2%, in fiscal 1995 as compared to
fiscal 1994. Merchandise sales on a same-store basis increased $7.8 million,
or 2%, in fiscal 1995 as compared with the prior year, primarily due to
increased sales of soft drinks, beer and refrigerated juices. Such increase
was offset, however, by a $16.5 million reduction in merchandise sales due to
stores that closed since the prior period and a lower volume of merchandise
sold by the Texas stores acquired in the April 29, 1994 transaction with The
Circle K Corporation (the "Circle K Transaction") as compared to the California
and Georgia stores divested in the same transaction.
Merchandise gross profits decreased $4.2 million, or 2%, in fiscal 1995 as
compared to fiscal 1994. On a same-store basis, merchandise gross profits
increased $1.4 million, or 1%, in fiscal 1995 as compared with the prior year,
primarily due to increased profits related to soft drinks, cigarettes and beer.
Such increase was offset, however, by a $5.6 million reduction in merchandise
gross profits due to stores that closed since the prior period combined with a
decrease in profits from the
19
<PAGE> 23
Texas stores acquired in the Circle K Transaction as compared to the California
and Georgia stores divested in the same transaction. Merchandise gross profit
margins decreased 0.3 percentage points from 34.2% in fiscal 1994 to 33.9% in
fiscal 1995. Merchandise gross profit margins from same-store sales also
decreased 0.3 percentage points when compared to the prior period.
Merchandise sales increased $5.6 million, or 1%, in fiscal 1994 as compared
with fiscal 1993. On a same-store basis, merchandise sales increased 3% in
fiscal 1994 as compared with the prior year, primarily due to increased Texas
Lottery commission revenues and money order sales, as well as the positive
impact on sales of price promoting such items as fountain drinks, select
premium beers and refrigerated juices.
Merchandise gross profits decreased $5.6 million, or 3%, in fiscal 1994 as
compared with fiscal 1993 while gross profit margins decreased 1.5 percentage
points. The decrease in gross profits and gross profit margins was primarily
due to the effects of certain value pricing promotions coupled with a $2.7
million reduction in supplier discounts and rebates in fiscal 1994. These
decreases were partially offset by $3.1 million and $1.0 million increases in
Texas Lottery commission revenues and money order sales, respectively, combined
with the increased gross profits and gross profit margins of cigarettes in
fiscal 1994 as compared to fiscal 1993. On a same-store basis, merchandise
gross profits decreased $2.4 million, or 2% in fiscal 1994 as compared with the
prior year, primarily due to the aforementioned reasons.
Gasoline sales increased $34.3 million, or 9%, in fiscal 1995 as compared to
fiscal 1994, primarily due to a 10% increase in the average retail selling
price of gasoline during fiscal 1995. Gasoline volumes on a same-store basis
increased 6% during fiscal 1995 as compared to the prior year as a result of
the Company's continued emphasis on a volume growth strategy combined with the
positive impact from modernizing the gasoline facilities in the Dallas/Fort
Worth market. Gasoline gross profits increased $5.6 million, or 12%, in fiscal
1995 as compared to fiscal 1994, primarily due to higher gasoline margins.
Gasoline gross profit margins on a per gallon basis averaged 14.0 cents for
fiscal 1995 as compared to 12.5 cents for the prior year period.
Gasoline sales decreased $4.1 million, or 1%, in fiscal 1994 as compared with
the prior year period, primarily due to a 7% decrease in the average retail
selling price of gasoline during fiscal year 1994. This decrease was offset
by a 6% increase in gasoline sales volumes. Volumes on a same-store basis
increased 9% during fiscal 1994 as compared to the year earlier period as a
result of the Company's continued emphasis on a volume growth strategy.
Gasoline gross profits of $46.6 million during fiscal 1994 were consistent with
the prior year level of $46.5 million. Gasoline gross profit margins decreased
to 12.5 cents per gallon for fiscal 1994 from 13.2 cents per gallon in fiscal
1993. The Company attributes the decrease primarily to lower margins in the
California market during fiscal 1994 as compared to the unusually high margins
recorded in fiscal 1993, combined with competitive pressures in the Texas
markets in fiscal 1994. This decrease in margins was partially offset by lower
gasoline costs which favorably affected gasoline margins in the first five
months of fiscal 1994.
20
<PAGE> 24
An analysis of merchandise sales, gasoline sales and gasoline sales volumes
follows (amounts in millions):
<TABLE>
<CAPTION>
Four Months | Eight Months
Year Ended June 30, Ended | Ended Year Ended
----------------------- June 30, | February 28, June 30, 1993
1995 1994 1993 | 1993 (Combined)
---------- ------- -------- | ------- --------
<S> <C> <C> <C> | <C> <C>
Merchandise Sales: (a) |
Same-stores (b) . . . . . . . . $438.5 $430.7 $143.9 | $275.0 $418.9
New stores (c) . . . . . . . . 50.2 8.8 -- | -- --
Stores closed or sold (d) . . . 14.6 72.5 28.9 | 58.6 87.5
------ ------ ------ | ------ ------
$503.3 $512.0 $172.8 | $333.6 $506.4
======= ====== ====== | ====== ======
|
Gasoline Sales: |
Same-stores (b) . . . . . . . . $345.9 $299.7 $100.1 | $193.1 $293.2
New stores (c) . . . . . . . . 49.2 8.0 -- | -- --
Stores closed or sold (d) . . . 7.6 60.7 25.1 | 54.2 79.3
------- ------ ------ | ------ ------
$402.7 $368.4 $125.2 | $247.3 $372.5
======= ====== ====== | ====== ======
|
|
Gasoline Gallons: |
Same-stores (b) . . . . . . . . 319.8 302.1 95.2 | 180.8 276.0
New stores (c) . . . . . . . . 44.8 7.8 -- | -- --
Stores closed or sold (d) . . . 7.0 62.5 24.2 | 51.0 75.2
------- ------ ------ | ------ ------
371.6 372.4 119.4 | 231.8 351.2
======= ====== ====== | ====== ======
</TABLE>
(a) Merchandise sales include other income from the sale of money orders and
lottery tickets, as well as income from pay telephones, automatic teller
machines and game machines.
(b) Represents the 588 stores (527 stores selling gasoline) which opened prior
to July 1, 1992 and continued to operate through June 30, 1995.
(c) Includes the stores acquired in the Circle K Transaction which remain open
at June 30, 1995 (see Note 3 of the Notes to Consolidated Financial
Statements).
(d) Includes the stores divested in the Circle K Transaction and those stores
acquired in the Circle K Transaction which were subsequently closed or
sold.
Operating Expenses - Operating expenses decreased $4.3 million, or 3%, in
fiscal 1995 as compared to fiscal 1994, primarily due to decreases in insurance
and utilities. Operating expenses as a percentage of total sales decreased to
18.3% for the fiscal year ended June 30, 1995 as compared to 19.3% for fiscal
1994. Insurance expense decreased $5.1 million, largely as a result of credits
recorded to adjust the Company's accrued liability for its employee injury
insurance programs to the amount estimated by independent actuaries. Utility
expense decreased $1.0 million in fiscal 1995 as compared to the prior period
due to (i) lower utility rates in the acquired Circle K stores as compared to
the divested Southern California and Atlanta, Georgia stores, and (ii) a
utility commission-mandated refund in the Houston market. These decreases were
partially offset by a $2.7 million increase in salary expense, primarily due to
higher hourly wages, higher bonus expense in the Dallas/Forth Worth market and
increased staffing to provide improved customer service.
Operating expenses increased $7.4 million, or 5%, in fiscal 1994 as compared to
fiscal 1993, primarily due to an increase in repair and maintenance, insurance,
labor and utilities. Operating expenses as a percentage of total sales
increased to 19.3% for the fiscal year ended June 30, 1994 as compared to 18.5%
for fiscal 1993. Repair and maintenance expense increased $2.7 million,
primarily due to the resumption of certain projects which had been deferred
while the Company was in Chapter 11. Insurance expense increased $2.1 million
as a result of changes in the terms
21
<PAGE> 25
and provisions of existing insurance policies. Labor costs increased $1.6
million due to a more tenured work force and additional staffing at the store
level. Utilities increased $1.0 million primarily due to rate increases for
electricity, garbage and telephone services in the Company's key Texas market
areas. These increases were partially offset by lower than anticipated
property tax rates.
General and Administrative ("G&A") Expenses - G&A expenses for the year ended
June 30, 1995 increased $6.6 million, or 19%, as compared to fiscal 1994,
primarily due to (i) higher labor expense of $1.7 million attributable to
increased salaries and field management bonus expense, (ii) increased employee
benefits expense of $1.2 million, and (iii) $1.1 million of increased
professional fees related to nonrecurring consulting and internal costs
incurred in the development of the "Dallas lab" associated with Project
Breakthrough.
G&A expenses for the year ended June 30, 1994 increased $2.4 million, or 8%, as
compared to fiscal 1993, primarily due to (i) $2.9 million related to the
reinstatement of certain employee benefits effective July 1, 1993, (ii)
consulting fees and other expenses of $2.0 million incurred in fiscal 1994
associated with Project Breakthrough, and (iii) $1.0 million associated with
twelve months of amortization during fiscal 1994 on the Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets ("Excess Reorganization
Value") (as compared to four months of amortization in fiscal 1993). These
increases were partially offset by a reduction of $2.3 million in certain
reorganization-related liabilities.
Gain on Sale of Assets - During fiscal 1995, the Company completed transactions
whereby 43 of its operating convenience stores (25 in the Houston market and 18
in the Dallas/Fort Worth market), together with related inventories and
equipment, were sold for cash consideration of approximately $4.4 million. The
Company recorded a pretax gain of $360,000 in connection with these
transactions.
During fiscal 1994, the Company completed a transaction whereby the Company (i)
exchanged its 53 operating convenience stores in Southern California, together
with related inventories and equipment, for 88 operating convenience stores of
The Circle K Corporation in the Dallas/Fort Worth and Houston areas, together
with related inventories and equipment, and (ii) sold its 27 operating
convenience stores in Atlanta, Georgia, together with related inventories and
equipment, for cash consideration of approximately $9.2 million. The Company
recorded a pretax gain of $3.0 million in connection with this transaction.
Other Special Charges - Prior to its emergence from bankruptcy, the Company
conducted an in-depth review of its potential environmental and remediation
obligations, pursuant to which a special charge aggregating $6.6 million was
recorded in February 1993.
Interest Expense - Interest expense decreased $1.3 million in fiscal 1995 as
compared to fiscal 1994, primarily due to the decrease in debt outstanding
between the periods. Interest expense increased $5.8 million in fiscal 1994 as
compared to the same period of the prior year, primarily due to the resumption
of interest accruals on all debt obligations upon emergence from Chapter 11
reorganization. Prior to March 9, 1993 (the effective date of the
reorganization), the Company recorded interest expense only for those
prepetition debt instruments which were fully secured and on all
debtor-in-possession financing.
Interest Income - Interest income increased $0.2 million in fiscal 1995 as
compared to the prior year period (despite reduced levels of cash available for
investment) due to substantially higher interest rates on the Company's
short-term investments. Interest income for the year ended June 30, 1994
increased $0.8 million from the prior year period, primarily due to an increase
in the cash available for investment purposes in fiscal 1994 as compared to
fiscal 1993. In addition, the
22
<PAGE> 26
Company's short-term investments yielded a higher rate of return in fiscal 1994
as compared to fiscal 1993.
Reorganization Expenses, net - Reorganization expenses include those costs and
income items which were incurred by the Company solely as a result of operating
under Chapter 11 of the Bankruptcy Code. During the year ended June 30, 1993,
the Company incurred $8.1 million of such costs, primarily professional fees.
Fresh-Start Adjustments - As required by fresh-start reporting, the Company
made adjustments to record its assets and liabilities to their fair market
values as of March 1, 1993, which adjustments resulted in a $382,000 pretax
credit to the income statement for the eight-month period ended February 28,
1993 (see Note 10 of the Notes to Consolidated Financial Statements).
Additionally, as of March 1, 1993, the Company adopted SFAS 109.
Income Taxes - The effective income tax rate of the Reorganized Company for the
fiscal years ended June 30, 1995 and 1994 and for the period from March 1 to
June 30, 1993 differs from the federal statutory rate primarily because of
state income taxes and the inability to deduct for tax purposes the
amortization of Excess Reorganization Value, offset in fiscal 1995 and 1994 by
targeted jobs tax credits, and in fiscal 1994 by the cumulative increase in the
net deferred tax asset resulting from an increase in the statutory federal tax
rate. The effective income tax rate of the Predecessor Company for the eight
months ended February 28, 1993 differs from the federal statutory rate
primarily because the previous method of accounting required the use of prior
year loss carryforwards to reduce the effective federal income tax rate for
financial reporting purposes.
Extraordinary Gain - On the Effective Date or thereafter, as provided in the
Plan of Reorganization, the Company distributed cash, debt instruments, common
stock and warrants to purchase common stock in settlement of its liabilities
subject to compromise. The fair market value of the cash and securities
distributed was approximately $61.5 million less than the prepetition
liabilities and the resulting difference was recorded as an extraordinary gain
(see Note 10 of the Notes to Consolidated Financial Statements).
23
<PAGE> 27
LIQUIDITY AND CAPITAL COMMITMENTS
Liquidity - Working capital totalled $7.8 million at June 30, 1995 and $15.5
million at June 30, 1994. Cash and cash equivalents were $32.1 million and
$49.1 million at June 30, 1995 and 1994, respectively. The $17.0 million
decrease between the periods is primarily the result of $21.6 million of
capital expenditures, $18.5 million of debt payments and $0.8 million of other
net cash expenditures, which amounts were partially offset by $19.5 million of
cash provided by operating activities and proceeds of $4.4 million from the
sale of assets.
Cash provided by operating activities totalled $19.5 million and $25.7 million
for fiscal 1995 and 1994, respectively. The decrease in fiscal 1995 cash
provided by operating activities versus the prior fiscal year is primarily due
to the timing of working capital items and lower operating income. Of the $3.9
million and $4.3 million recorded as income tax expense for fiscal 1995 and
1994, $366,000 and $423,000, respectively, was payable in the year reported,
with the remainder reducing the deferred tax asset account as a result of the
utilization of net operating losses.
During the fourth quarter of fiscal 1994, the Company began the implementation
of a program to enhance and redefine the Company's focus on customer service
and employee effectiveness ("Project Breakthrough"). An integral component of
the program involves the upgrading of equipment and technology through the
installation of integrated state-of-the-art sales and inventory management
systems. These systems will significantly automate store operations by
capturing data on point-of-sale and scanning equipment. The Company initiated
the program in its 94 Dallas/Fort Worth stores during fiscal 1995 and has made
approximately $10.6 million of capital improvements in connection with these
stores, approximately two-thirds of which expenditures were financed through
operating lease transactions. Additionally, the Company has expended
approximately $5.1 million in consulting and other related expenses in
connection with the program, of which $2.0 million and $3.1 million were
incurred in fiscal 1994 and 1995, respectively. An additional $4.1 million has
been expended for software development costs required for the overall program's
implementation, of which $0.8 million and $3.3 million were incurred in fiscal
1994 and 1995, respectively. The costs associated with the program which have
not been financed through operating lease transactions have been and will be
funded by cash generated from operations as well as cash on hand. The Company
expects to begin the next phase of the program's implementation into 171 stores
in San Antonio and Austin during the third quarter of fiscal 1996 and in
connection therewith, expects to expend approximately $15.3 million,
approximately $11.0 million of which will be financed through operating lease
transactions.
On April 29, 1994, the Company completed the transaction whereby the Company
(i) exchanged its 53 operating convenience stores in Southern California,
together with related inventories and equipment, for 88 operating convenience
stores of The Circle K Corporation in the Dallas/Fort Worth and Houston areas,
together with related inventories and equipment, and (ii) sold its 27 operating
convenience stores in Atlanta, Georgia, together with related inventories and
equipment, for cash consideration of approximately $9.2 million, of which
amount, approximately $2.7 million was used to reduce long-term bank debt; the
remaining $6.5 million was added to the Company's working capital.
Management continually evaluates the profitability of its operating stores,
taking into consideration the economic feasibility of the investment required
for upgrading equipment and technology and expenditures required to comply with
environmental laws. Based on this evaluation, Management divests stores that
do not qualify under this investment criteria. During fiscal 1995, the Company
sold 43 operating convenience stores (25 in the Houston market and 18 in the
Dallas/Fort Worth market), together with related inventories and equipment, for
cash consideration of approximately $4.4 million, which resulted in a pretax
net gain of $360,000. Net proceeds from these sales and
24
<PAGE> 28
any such sales in the future are generally required to be used for the
repayment of mortgage or long-term bank debt.
Because substantially all of the Company's sales are for cash and because total
inventories are converted to cash approximately once a month, the Company
considers its cash flows adequate to satisfy its daily working capital
requirements. However, in order to further enhance its liquidity, the Company
has a revolving credit agreement which provides for the borrowing and/or
issuance of letters of credit in the aggregate of up to $8.0 million,
increasing to $11.0 million during the period from November 1 through May 1 of
each year. The revolving credit agreement requires that, during each fiscal
year, the Company pay off all outstanding cash borrowings thereunder for a
period of 30 consecutive days. The Company had no borrowings under this
facility during fiscal 1995. Letter of credit issuances cannot exceed $8.0
million and cash borrowings are limited to the commitment limit less letters of
credit outstanding. The facility terminates on September 30, 1996. At June 30,
1995, no letters of credit were outstanding under this facility. During the
first quarter of fiscal 1996, the Company will utilize $3.1 million of the
credit agreement for the issuance of a letter of credit, which letter of credit
will automatically increase to $4.1 million on December 31, 1995. Under the
terms of certain of the Company's long-term bank debt agreements, the Company
cannot pay cash dividends on its Common Stock or purchase treasury stock.
The Company's scheduled payments on long-term debt in fiscal years 1996, 1997,
1998, 1999 and 2000 are $12.1 million, $12.1 million, $13.0 million, $13.5
million and $5.2 million, respectively.
Capital Commitments - The Company's capital expenditures during fiscal 1995
aggregated $21.6 million as compared to $21.9 million in fiscal 1994 and $11.7
million in fiscal 1993. During fiscal 1995, capital expenditures consisted of
$9.5 million of gasoline dispensing equipment and underground piping (which
expenditures were required to comply with environmental laws), $3.7 million in
equipment replacement and store improvements, $3.6 million associated with the
implementation of Project Breakthrough, $1.5 million on security for stores,
$1.3 million on new store development and $2.0 million on a number of smaller
projects, mostly related to store improvements.
The Company's long-term bank debt agreement limits fiscal 1996
capital/environmental remediation expenditures to the lesser of (a) the
consolidated fixed charge margin, as defined, or (b) $24.0 million, plus in
both cases, excess cash flow, as defined. For fiscal 1996, the Company
anticipates it will require approximately $33.5 million for capital
expenditures/remediation for certain improvements mandated by environmental
regulations, in addition to upgrading store security systems, installing
state-of-the-art sales and inventory management systems, remodeling existing
stores, constructing new stores and replacing equipment. The Company expects
to enter into negotiations to amend the long-term bank debt agreements at the
appropriate time to provide for an increase in the current limits on its
capital/environmental remediation expenditures; the outcome of such
negotiations cannot be determined at this time.
See Item 1. "Business - Regulatory Matters - Environmental Capital Commitments"
and Item 1. "Business - Regulatory Matters - Environmental Remediation
Contingency" for a discussion of the Company's environmental capital
expenditures and commitments.
Risk and Uncertainties - During the year ended June 30, 1995, the sale of
gasoline products, tobacco products and alcoholic beverages comprised 44%, 13%
and 13%, respectively, of total Company sales. The Clinton Administration has
made numerous proposals that would result in increased excise taxes on
alcoholic beverages and tobacco products. While the Company cannot predict
whether these tax proposals will become law, similar previous tax increases on
such products have generally had a negative impact on the sales and results of
operations of the Company.
25
<PAGE> 29
See Item 1. "Business - Regulatory Matters" for a discussion of certain risks
with respect to the industry in which the Company operates and the products it
sells.
World gasoline markets have historically been subject to periods of sudden and
extreme volatility as a result of changing supply and demand for crude oil and
gasoline. The Company's liquidity and gross profits could be adversely
affected in the future should such conditions occur, and such adverse effects
could be significant.
For tax purposes, an ownership change is defined as occurring when, during any
three year period, the Company's 5% shareholders (as defined in the Internal
Revenue Code) increase their ownership in the Company's stock by more than 50
percentage points (an "Ownership Change"). Circle K has offered to purchase
all of the Company's Common Stock, which transaction, if consummated, would
constitute an Ownership Change. The Plan of Reorganization, adopted with the
Company's emergence from bankruptcy on March 9, 1993, resulted in an Ownership
Change since substantially all of the new stock was issued to the creditors of
the Company. Should a second Ownership Change occur, the Company's use of its
tax loss and credit carryforwards, and other tax attributes could be severely
restricted or eliminated.
26
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
National Convenience Stores Incorporated and Subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheets of National
Convenience Stores Incorporated and subsidiaries (the "Company") as of June 30,
1995 and 1994 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended June 30, 1995
and 1994 and for the period from inception (March 1, 1993) to June 30, 1993
(the "Reorganized Company") and the eight months ended February 28, 1993 (the
"Predecessor Company"). These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 10 to the consolidated financial statements, on February
25, 1993, the Bankruptcy Court entered an order confirming the plan of
reorganization which became effective after the close of business on March 8,
1993. Accordingly, the accompanying Reorganized Company's consolidated
financial statements have been prepared in conformity with American Institute
of Certified Public Accountants Statement of Position 90-7, "Financial
Reporting for Entities in Reorganization Under the Bankruptcy Code," as a new
entity with assets, liabilities and a capital structure having carrying values
not comparable with prior periods.
In our opinion, the Reorganized Company's consolidated financial statements
present fairly, in all material respects, the financial position of the Company
as of June 30, 1995 and 1994, and the results of its operations and its cash
flows for the years ended June 30, 1995 and 1994 and for the period from
inception (March 1, 1993) to June 30, 1993 in conformity with generally
accepted accounting principles. Further, in our opinion, the Predecessor
Company's consolidated financial statements referred to above present fairly,
in all material respects, the results of its operations and its cash flows for
the eight months ended February 28, 1993 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
September 19, 1995
27
<PAGE> 31
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
| Predecessor
Reorganized Company | Company
--------------------------------------------------|--------------
Period from |
Inception | Eight Months
Year Ended June 30, (March 1, 1993) | Ended
----------------------------- to June 30, | February 28,
1995 1994 1993 | 1993
------------ -------------- -------------- | ------------
<S> <C> <C> <C> | <C>
Sales . . . . . . . . . . . . . . . . . . . . . . $906,023 $880,447 $297,985 | $ 580,867
|
Costs and Expenses: |
Cost of sales . . . . . . . . . . . . . . . . 683,037 658,845 222,639 | 429,019
Operating expenses . . . . . . . . . . . . . 165,529 169,870 54,193 | 108,326
General and administrative expenses . . . . . 40,756 34,204 10,982 | 20,793
Gain on sale of assets, net (Note 3) . . . . (360) (2,965) -- | --
Other special charges (Note 10) . . . . . . . -- -- -- | 6,561
-------- -------- -------- | ---------
888,962 859,954 287,814 | 564,699
-------- -------- -------- | ---------
|
Operating Income . . . . . . . . . . . . . . . . 17,061 20,493 10,171 | 16,168
|
Other Income (Expense): |
Interest expense . . . . . . . . . . . . . . (9,297) (10,598) (3,241) | (1,547)
Interest income . . . . . . . . . . . . . . . 1,411 1,220 328 | 50
-------- -------- -------- | ---------
|
Income Before Reorganization Expenses, |
Fresh-Start Adjustments, Income Tax Expense |
and Extraordinary Gain . . . . . . . . . . . 9,175 11,115 7,258 | 14,671
|
Reorganization Expenses, net . . . . . . . . . . -- -- -- | (8,124)
Fresh-Start Adjustments (Note 10) . . . . . . . . -- -- -- | 382
-------- -------- -------- | ---------
|
Income Before Income Tax Expense and |
Extraordinary Gain . . . . . . . . . . . . . 9,175 11,115 7,258 | 6,929
|
Income Tax Expense (Note 6) . . . . . . . . . . 3,883 4,280 2,869 | 133
-------- -------- -------- | ---------
Income Before Extraordinary Gain . . . . . . . . 5,292 6,835 4,389 | 6,796
|
Extraordinary Gain (Note 10) . . . . . . . . . . -- -- -- | 61,493
-------- -------- -------- | ---------
|
Net Income . . . . . . . . . . . . . . . . . . . $ 5,292 $ 6,835 $ 4,389 | $ 68,289
======== ======== ======== | =========
|
Earnings Per Share: |
Primary . . . . . . . . . . . . . . . . . . . $ 0.87 $ 1.09 $ 0.70 | *
Fully Diluted . . . . . . . . . . . . . . . . 0.87 1.09 0.70 | *
|
Weighted Average Number of Shares Outstanding: |
Primary . . . . . . . . . . . . . . . . . . . 6,054 6,274 6,276 | *
Fully Diluted . . . . . . . . . . . . . . . . 6,061 6,274 6,291 | *
</TABLE>
* Not meaningful.
See Notes to Consolidated Financial Statements.
28
<PAGE> 32
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
June 30,
---------------------------------
1995 1994
---------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents, $9,093 and $14,083 reserved . . . . . $ 32,075 $ 49,075
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . 4,718 5,449
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,555 39,626
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 2,518 4,775
Deferred tax asset (Note 6) . . . . . . . . . . . . . . . . . . . 5,610 4,259
-------- --------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . 81,476 103,184
Property and Equipment, net of Accumulated Depreciation (Note 3) . . 162,508 158,075
Other Assets:
Reorganization value in excess of amounts allocable to
identifiable assets, net (Note 10) . . . . . . . . . . . . . . 23,939 34,542
Deferred tax asset, net (Note 6) . . . . . . . . . . . . . . . . 5,620 1,812
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . 10,781 8,915
-------- --------
Total Other Assets . . . . . . . . . . . . . . . . . . . . . . 40,340 45,269
-------- --------
$284,324 $306,528
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 4) . . . . . . . . . $ 61,625 $ 75,563
Current portion of long-term debt (Note 5) . . . . . . . . . . . 12,061 12,103
-------- --------
Total Current Liabilities . . . . . . . . . . . . . . . . . . 73,686 87,666
Long-Term Debt (Note 5) . . . . . . . . . . . . . . . . . . . . . . . 90,256 107,204
Other Long-Term Liabilities (Notes 4, 9 and 11) . . . . . . . . . . . 40,342 36,910
Commitments and Contingencies (Notes 11 and 12)
Stockholders' Equity (Note 7):
Common Stock, par value $.01 per share; 50,000,000 shares
authorized; 6,050,075 and 6,050,069 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . 61 61
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 63,463 63,463
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 16,516 11,224
-------- --------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . 80,040 74,748
-------- --------
$284,324 $306,528
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 33
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
| Predecessor
Reorganized Company | Company
--------------------------------------- | -------------
Period from |
Inception | Eight Months
Year Ended June 30, (March 1, 1993) | Ended
------------------------ to June 30, | February 28,
1995 1994 1993 | 1993
--------- --------- ------------ | -------------
|
|
<S> <C> <C> <C> | <C>
Cash Flows From Operating Activities: |
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,292 $ 6,835 $ 4,389 | $ 68,289
Adjustments to reconcile net income to net cash |
provided by operating activities: |
Depreciation and amortization . . . . . . . . . . . . . 13,661 17,690 5,587 | 10,887
Deferred income taxes . . . . . . . . . . . . . . . . . 3,517 3,578 2,374 | --
Gain on sale of assets, net . . . . . . . . . . . . . . (360) (2,965) -- | --
Fresh-start adjustments and other special charges . . . -- -- -- | 6,179
Extraordinary gain . . . . . . . . . . . . . . . . . . -- -- -- | (61,493)
Other, net . . . . . . . . . . . . . . . . . . . . . . 1,204 (28) 495 | 157
Changes in operating assets and liabilities: |
(Increase) decrease in accounts and notes |
receivable and prepaid expenses . . . . . . . . . . . 5,421 (2,549) (111) | 727
(Increase) decrease in inventories . . . . . . . . . . 2,185 (2,713) (2,621) | 5,691
Increase (decrease) in accounts payable and |
accrued expenses . . . . . . . . . . . . . . . . . . (11,064) 5,630 21,222 | (2,536)
Increase (decrease) in income taxes . . . . . . . . . . (351) 214 (397) | 38
-------- -------- -------- | --------
Net cash provided by operating activities . . . . . . . . 19,505 25,692 30,938 | 27,939
-------- -------- -------- | --------
Cash Flows From Investing Activities: |
Capital expenditures . . . . . . . . . . . . . . . . . . . . (21,607) (21,942) (8,671) | (3,016)
Proceeds from sale of assets . . . . . . . . . . . . . . . . 4,351 9,150 -- | 3,100
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (905) 1,456 566 | 2,612
-------- -------- -------- | --------
Net cash provided by (used in) investing activities . . . (18,161) (11,336) (8,105) | 2,696
-------- -------- -------- | --------
|
Cash Flows From Financing Activities: |
Principal payments on long-term debt . . . . . . . . . . . . (18,529) (18,932) (3,618) | --
Cash settlement of liabilities subject to compromise . . . . . -- (266) (36,584) | --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 185 526 3,005 | (181)
-------- -------- -------- | --------
Net cash used in financing activities . . . . . . . . . . (18,344) (18,672) (37,197) | (181)
-------- -------- -------- | --------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . (17,000) (4,316) (14,364) | 30,454
Cash and Cash Equivalents - Beginning of Period . . . . . . . . . 49,075 53,391 67,755 | 37,301
-------- -------- -------- | --------
Cash and Cash Equivalents - End of Period . . . . . . . . . . . . $ 32,075 $49,075 $ 53,391 | $ 67,755
======== ======= ======== | ========
|
Supplemental Cash Flow Information: |
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . $ 9,493 $ 10,525 $ 3,073 | $ 85
|
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . $ 396 $ 446 $ 396 | $ 93
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 34
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
($ in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- ------------------------- Paid-in
Notes Shares Amount Shares Amount Capital
--------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance at June 30, 1992 . . . . . . . . 245,241 $ 245 24,001,984 $10,001 $108,544
Net income for the eight months
ended February 28, 1993 . . . . . . -- -- -- -- --
Cancellation of stock of
Predecessor Company . . . . . . . . (245,241) (245) (24,001,984) (10,001) (108,544)
Issuance of Common Stock of
Reorganized Company . . . . . . . -- -- 6,000,000 60 62,813
--------- -------- ------------ -------- ---------
----------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY:
Balance at February 28, 1993 . . . . . . -- -- 6,000,000 60 62,813
Net income for the period
from inception (March 1, 1993)
to June 30, 1993 . . . . . . . . . -- -- -- -- --
--------- -------- ------------ -------- ---------
Balance at June 30, 1993 . . . . . . . . -- -- 6,000,000 60 62,813
Net income . . . . . . . . . . . . . . -- -- -- -- --
Exercise of stock options . . . . . . -- -- 50,000 1 524
Income tax benefit related to
stock options . . . . . . . . . . . -- -- -- -- 125
Exercise of warrants . . . . . . . . . -- -- 69 -- 1
--------- -------- ------------ -------- ---------
Balance at June 30, 1994 . . . . . . . . -- -- 6,050,069 61 63,463
Net income . . . . . . . . . . . . . . -- -- -- -- --
Exercise of warrants . . . . . . . . . -- -- 6 -- --
--------- -------- ------------ -------- ---------
Balance at June 30, 1995 . . . . . . . . -- $ -- 6,050,075 $ 61 $ 63,463
========= ======== ============ ======== =========
<CAPTION>
Retained Treasury Stock
Earnings ------------------------- Notes
Notes (Deficit) Shares Amount Receivable
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance at June 30, 1992 . . . . . . . . $(195,819) 2,542,888 $(15,729) $(23,167)
Net income for the eight months
ended February 28, 1993 . . . . . . 68,289 -- -- --
Cancellation of stock of
Predecessor Company . . . . . . . . 127,530 (2,542,888) 15,729 23,167
Issuance of Common Stock of
Reorganized Company . . . . . . . -- -- -- --
---------- ----------- --------- ---------
--------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY:
Balance at February 28, 1993 . . . . . . -- -- -- --
Net income for the period
from inception (March 1, 1993)
to June 30, 1993 . . . . . . . . . 4,389 -- -- --
---------- ----------- --------- ---------
Balance at June 30, 1993 . . . . . . . . 4,389 -- -- --
Net income . . . . . . . . . . . . . . 6,835 -- -- --
Exercise of stock options . . . . . . -- -- -- --
Income tax benefit related to
stock options . . . . . . . . . . . -- -- -- --
Exercise of warrants . . . . . . . . . -- -- -- --
---------- ----------- --------- ---------
Balance at June 30, 1994 . . . . . . . . 11,224 -- -- --
Net income . . . . . . . . . . . . . . 5,292 -- -- --
Exercise of warrants . . . . . . . . . -- -- -- --
---------- ----------- --------- ---------
Balance at June 30, 1995 . . . . . . . . $16,516 -- $ -- $ --
========== =========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 35
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE CIRCLE K CORPORATION ("CIRCLE K") TENDER OFFER
On September 7, 1995, The Circle K Corporation ("Circle K") commenced an
unsolicited cash tender offer to purchase all the Company's outstanding common
stock (and associated rights to purchase preferred stock) and warrants to
purchase common stock at $20.00 per share and $2.25 per warrant, respectively
(the "Circle K Offer"). The Circle K Offer expires on October 4, 1995, unless
extended. On September 18, 1995, the Company's Board of Directors unanimously
determined to reject the Circle K Offer and recommended that NCS
securityholders not tender any of their securities. See Note 12 for additional
information, including an additional acquisition proposal at a price
substantially higher than the Circle K Offer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of National Convenience Stores Incorporated and its wholly-owned
subsidiaries (the "Company"), with all significant intercompany accounts and
transactions eliminated in consolidation. Certain amounts in prior years have
been reclassified to conform to the current year's presentation.
Basis of Presentation - As more fully described in Note 10, on February 25,
1993, a court order was entered in the United States Bankruptcy Court for the
Southern District of Texas, Houston Division (the "Bankruptcy Court")
confirming the Company's Revised Fourth Amended and Restated Joint Plan of
Reorganization (the "Plan of Reorganization"). As a result, the Company
adopted fresh-start reporting in accordance with the American Institute of
Certified Public Accountants' Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which
resulted in adjustments to the Company's common stockholders' equity and the
carrying value of its assets and liabilities. For accounting purposes, the
inception date ("Inception") for the reorganized company is deemed to be March
1, 1993. Therefore, since March 1, 1993, the Company's consolidated financial
statements have been prepared as if it were a new reporting entity (the
"Reorganized Company"); the term "Predecessor Company" relates to the Company
for all periods prior to March 1, 1993. A solid black line is shown in the
Consolidated Statements of Operations, Cash Flows and Stockholders' Equity
(Deficit) to separate the Reorganized Company from the Predecessor Company
since these financial statements have not been prepared on a consistent basis
of accounting.
In connection with the adoption of SOP 90-7, the Company was also required to
adopt the Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109") as of March 1, 1993 (see Note 6).
32
<PAGE> 36
Cash and Cash Equivalents - Cash and cash equivalents consist of cash and
short-term highly liquid investments which are readily convertible into cash
and have original maturities of three months or less. The carrying amount
approximates fair market value because of the short maturity of these
investments. The reserved cash balances at June 30, 1995 and 1994 of $9.1
million and $14.1 million, respectively, are comprised of cash accumulated in
trust accounts (at the Company's option) for the payment of payroll, sales and
gasoline taxes and state lottery sales proceeds. Also included in the reserved
cash balances at June 30, 1995 and 1994 is cash from the Circle K transaction
that has been held in escrow pending final resolution of collateral-related
matters.
Inventories - Merchandise inventories are stated at the lower of first-in,
first-out cost or market, determined by the retail inventory method; gasoline
inventories are stated at average cost.
Property and Equipment - In accordance with SOP 90-7, property and equipment
were restated at March 1, 1993 to approximate fair market value (see Note 10).
Subsequent additions have been recorded at cost. Provision for depreciation
and amortization is made on a straight-line basis over the estimated useful
lives of the assets or the Company's average lease life, as applicable (see
Note 3). Maintenance and repairs are charged to expense as incurred, whereas
renewals and betterments are capitalized.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
("Excess Reorganization Value") - Excess Reorganization Value is being
amortized on a straight-line basis over 20 years. Amortization expense of
$1.6 million, $1.5 million and $0.5 million was recorded for the years ended
June 30, 1995 and 1994 and the four month period from March 1, 1993 to June 30,
1993, respectively. In accordance with purchase accounting, any downward
revaluations of the deferred tax asset valuation allowance will result in a
reassignment of a portion of Excess Reorganization Value to Deferred Tax
Assets, net (see Note 6).
Income Taxes - In connection with the adoption of fresh-start reporting, the
Company adopted SFAS 109 as of March 1, 1993 (see Note 6). Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. Under SFAS 109, the effect
of a change in tax rates on deferred tax assets and liabilities is recognized
in net earnings in the period in which the tax rate change was enacted. Income
tax expense of the Predecessor Company was recorded pursuant to the provisions
of Statement of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" ("SFAS 96").
Earnings Per Share - Earnings per share for the Reorganized Company have been
computed by dividing net income by the weighted average number of shares of
common stock and dilutive common stock equivalents (stock options and warrants)
outstanding during the period.
All of the Predecessor Company's outstanding common and preferred stock was
cancelled on the date the Plan of Reorganization became effective; accordingly,
earnings per share for the Predecessor Company are not presented because they
are not comparable with the earnings per share provided for the Reorganized
Company.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107, "Disclosure About Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. The
carrying amounts of cash, accounts receivable, accounts payable and accrued
liabilities are reasonable estimates of their fair values.
33
<PAGE> 37
The fair value amounts for the Company's long-term debt as of June 30, 1995 and
1994 are estimated to be approximately $6.6 million and $5.7 million,
respectively, less than the carrying value and have been determined by the
Company using appropriate valuation methodologies and information available to
management at that time. Considerable judgment is required in developing these
estimates and, accordingly, no assurance can be given that the estimated
values presented herein are indicative of the amounts that would be realized
in a free market exchange. The fair value of the Company's long-term debt was
estimated based on the current interest rates available to the Company for
debt with similar terms and remaining maturities.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
June 30,
------------------------------
1995 1994
-------- -------
(thousands)
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,239 $ 40,470
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,963 37,713
Leasehold Improvements . . . . . . . . . . . . . . . . . . . . . . 30,361 20,059
Equipment and Fixtures . . . . . . . . . . . . . . . . . . . . . . 87,095 79,048
--------- ---------
189,658 177,290
Less: Accumulated Depreciation . . . . . . . . . . . . . . . . . . 27,150 19,215
--------- ---------
$162,508 $158,075
========= =========
</TABLE>
The annual provision for depreciation has been computed principally in
accordance with the following rates and ranges of rates applied on the
straight-line method: Buildings, 4%; Leasehold Improvements, 5%-33%; Equipment
and Fixtures, 4%-17%.
On April 29, 1994, the Company completed a transaction whereby the Company (i)
exchanged its 53 operating convenience stores in Southern California, together
with related inventories and equipment, for 88 operating convenience stores of
Circle K in the Dallas/Fort Worth and Houston areas, together with related
inventories and equipment, and (ii) sold its 27 operating convenience stores in
Atlanta, Georgia, together with related inventories and equipment, for cash
consideration of approximately $9.2 million. The Company recorded a pretax
gain of $3.0 million in connection with this transaction.
During fiscal 1995, the Company completed transactions whereby 43 of its
operating convenience stores (25 in the Houston market and 18 in the
Dallas/Fort Worth market), together with related inventories and equipment,
were sold for cash consideration of approximately $4.4 million. The Company
recorded a pretax gain of $360,000 in connection with these transactions.
34
<PAGE> 38
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
June 30,
-----------------------------
1995 1994
------- ------
(thousands)
<S> <C> <C>
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . $30,860 $39,147
Accrued Sales and Property Taxes . . . . . . . . . . . . . . . . . 10,059 11,126
Accrued Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 6,955 6,915
Accrued Salaries and Wages . . . . . . . . . . . . . . . . . . . . 4,010 3,907
Other Accrued Expenses . . . . . . . . . . . . . . . . . . . . . . 9,741 14,468
------- -------
$61,625 $75,563
======= =======
</TABLE>
At June 30, 1995 and 1994, the Company's insurance liability totalled
approximately $19.6 million and $17.5 million, respectively, of which amounts,
$7.0 million and $6.9 million, respectively, is included in Accounts Payable
and Accrued Expenses. The remaining balances are included in Other Long-Term
Liabilities. Also, at June 30, 1995 and 1994, the accrued environmental
liability totalled $19.6 million and $20.8 million, respectively, of which
amounts, $2.1 million and $3.7 million, respectively, are included in Other
Accrued Expenses. The remaining balances are included in Other Long-Term
Liabilities (see Note 11).
5. DEBT
At June 30, 1995 and 1994, long-term debt consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30,
----------------------------
1995 1994
-------- --------
<S> <C> <C>
Term Loan, due 2000 . . . . . . . . . . . . . . . . . . . . . . . $ 41,298 $ 53,806
Revolving Credit Agreement . . . . . . . . . . . . . . . . . . . -- --
Mortgage Notes on Real Estate, due through 2003 . . . . . . . . . 56,511 59,586
Other Notes Payable, due through 2000 . . . . . . . . . . . . . . 4,508 5,915
-------- ---------
102,317 119,307
Less: Amounts Due Within One Year . . . . . . . . . . . . . . . 12,061 12,103
-------- ---------
$ 90,256 $ 107,204
======== =========
</TABLE>
Aggregate maturities on long-term debt for the next five fiscal years are as
follows (in thousands):
<TABLE>
<S> <C>
Year Ending June 30,
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,061
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,058
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,979
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,519
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,182
</TABLE>
See Note 2 for a discussion of the fair value of the Company's long-term debt.
35
<PAGE> 39
Term Loan - On March 9, 1993, the Company entered into a term loan agreement
(the "Term Loan") with NationsBank of Texas, N. A., as agent (the "Lender"),
whereby all of the outstanding balances of the Company's prepetition credit
facilities, including the Employee Stock Ownership Plan, the revolving credit
facility, as well as drawn and undrawn letters of credit, were combined into
the Term Loan aggregating $70.9 million. At June 30, 1995, 90% of the Term
Loan, excluding the portion attributable to undrawn letters of credit, bears
interest at a fixed rate of 7.39%, with the remainder bearing interest, at the
Company's option, of 1% above the prime rate of the Lender, various margins
above the United States Treasury Securities rate or Eurodollar rates. The
Company is required to make scheduled quarterly principal payments in ascending
amounts with a final payment of $2.6 million due on September 30, 1999.
Principal payments attributable to undrawn letters of credit will be held in an
interest-bearing cash collateral account until such time as the letters of
credit are drawn; should the letters of credit expire before being drawn, any
excess cash held in the cash collateral account will be refunded to the
Company.
The Term Loan, along with the revolving credit agreement discussed below, are
secured by substantially all the assets of the Company, its subsidiaries and
the subsidiaries' stock. The Term Loan contains limitations customarily found
in such agreements on the incurrence of additional debt, the execution of sale
and leaseback transactions, investments, any consolidation or merger of the
Company, and precludes treasury stock purchases and the payment of cash
dividends. The Term Loan limits capital expenditures and environmental
remediation expenses to specified amounts over defined periods during the
period of the Term Loan. The Term Loan establishes requirements as to the
maintenance of certain financial ratios and coverage tests relating to working
capital, indebtedness, net worth and cash flow, which must be satisfied
quarterly. The Company is required to reduce its aggregate borrowing capacity
under the Term Loan with the net cash proceeds from the sale of assets.
Revolving Credit Agreement - On March 9, 1993, the Company entered into a
revolving credit facility (the "Revolving Credit Agreement") with the Lender,
as agent, to provide financing for general corporate purposes. The Revolving
Credit Agreement provides for the borrowing and/or issuance of letters of
credit in the aggregate of up to $8.0 million, increasing to $11.0 million
during the period from November 1 through May 1 of each year. The Revolving
Credit Agreement requires that, during each fiscal year, the Company pay off
all outstanding cash borrowings thereunder for a period of 30 consecutive days.
The Company had no borrowings under this facility during fiscal 1995. During
the first quarter of fiscal 1996, the Company will utilize $3.1 million of the
credit agreement for the issuance of a letter of credit, which letter of credit
will automatically increase to $4.1 million on December 31, 1995. Letter of
credit issuances cannot exceed $8.0 million and cash borrowings are limited to
the commitment limit less letters of credit outstanding. Cash borrowings under
the Revolving Credit Agreement bear interest at 1% above the prime rate of the
Lender. Any remaining outstanding principal balance becomes due and payable on
September 30, 1996. The Revolving Credit Agreement contains provisions similar
to the Term Loan with respect to collateralization, reduction of outstanding
loan balances with asset sales proceeds, limitations of Company actions and the
maintenance of certain financial ratios and coverage tests.
Mortgage Notes on Real Estate - Mortgage notes payable bear interest at 9.5%,
increasing to 11% in 2001 and 12% in 2002. The Company is required to make
quarterly principal payments on the notes, with the unpaid balances maturing on
September 30, 2003.
Interest - Effective December 9, 1991 (the date the Company filed for Chapter
11 reorganization) and continuing through March 9, 1993, (the date the Company
emerged from reorganization (the "Effective Date")) the Company recorded
interest expense only for those prepetition debt
36
<PAGE> 40
instruments which were fully secured and on all debtor-in-possession financing.
As of the Effective Date, the Company has been recording interest expense as
incurred.
Change of Control - The Term Loan and Revolving Credit Agreement contain
provisions whereby, in the event of a change of control (as defined), (i) all
notes outstanding (together with accrued interest thereon) are immediately due
and payable, (ii) all letters of credit are terminated, and (iii) all letters
of credit outstanding must be fully cash collateralized.
6. INCOME TAXES
Income tax expense consists of (in thousands):
<TABLE>
<CAPTION>
Reorganized Company | Predecessor Company
------------------------------------------------ | -------------------
Year Ended June 30, Period from | Eight Months
---------------------------- Inception to | Ended
1995 1994 June 30, 1993 | February 28, 1993
----------- --------- --------------- | ---------------------
<S> <C> <C> <C> | <C>
Current: |
Federal . . . . . . . . . . $ 122 $ 426 $ 328 | $ --
State . . . . . . . . . 244 276 167 | 133
------ ------- ------- | -------
366 702 495 | 133
Deferred . . . . . . . . . . 3,517 3,578 2,374 | --
------ ------- ------- | -------
$ 3,883 $ 4,280 $ 2,869 | $ 133
====== ======= ======= | =======
</TABLE>
A reconciliation of the Company's effective tax rate with the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
Reorganized Company | Predecessor Company
------------------------------------------------ | -------------------
Year Ended June 30, Period from | Eight Months
---------------------------- Inception to | Ended
1995 1994 June 30, 1993 | February 28, 1993
----------- --------- --------------- | ----------------------
<S> <C> <C> <C> | <C>
Method of accounting . . . . . SFAS 109 SFAS 109 SFAS 109 | SFAS 96
|
Income tax expense at statutory rate 35.0% 35.0% 34.0% | 34.0%
Amortization of Excess |
Reorganization Value . . . 6.6 5.2 2.5 | --
Targeted jobs tax credit . . . (2.6) (2.8) -- | --
Net operating loss carryforwards -- -- -- | (34.0)
State income taxes, net . . . . 3.0 3.0 3.0 | 1.9
Increase in net deferred tax asset |
resulting from increase in |
federal income tax rate . . -- (2.1) -- | --
Other, net . . . . . . . . . . 0.3 0.2 -- | --
------- -------- -------- | -------
42.3% 38.5% 39.5% | 1.9%
======= ======== ======== | =======
</TABLE>
In connection with the adoption of fresh-start reporting, the Company adopted
SFAS 109 as of March 1, 1993. The effective income tax rate of the Reorganized
Company for the fiscal years ended June 30, 1995 and 1994 and the period from
Inception to June 30, 1993 differs from the federal statutory rate primarily
because of state income taxes and the inability to deduct for tax purposes the
amortization of Excess Reorganization Value, offset in fiscal 1995 and 1994 by
targeted jobs tax credits, and in fiscal 1994 by the cumulative increase in the
net deferred tax asset resulting from an increase in the statutory federal tax
rate. Income
37
<PAGE> 41
tax expense for the Predecessor Company was recorded pursuant to the provisions
of SFAS 96. SFAS 96 uses an asset and liability approach similar to SFAS 109;
however, under SFAS 96, consideration of future events, other than the reversal
of temporary differences, is not permitted. For the eight months ended
February 28, 1993, the Predecessor Company incurred a federal net operating
loss; therefore, income tax expense was comprised solely of state income taxes.
Significant components of the Company's net deferred tax assets and liabilities
as of June 30, 1995 and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
June 30,
------------------------
1995 1994
------ -------
<S> <C> <C>
Deferred tax assets:
Accruals and provisions not
currently deductible . . . . . . . . . . . . $19,935 $ 25,125
Operating loss carryforwards . . . . . . . . . 10,347 10,327
Tax credit carryforwards . . . . . . . . . . . 8,286 7,974
Other . . . . . . . . . . . . . . . . . . . . . 861 975
-------- --------
39,429 44,401
-------- --------
Deferred tax liabilities:
Tax over book depreciation . . . . . . . . . . (15,133) (13,139)
Differences between book and tax
basis of property . . . . . . . . . . . . . (7,942) (13,563)
Other . . . . . . . . . . . . . . . . . . . . . (124) (124)
--------- --------
(23,199) (26,826)
Deferred tax asset valuation allowance . . . . . . (5,000) (11,504)
--------- --------
Net deferred tax asset . . . . . . . . . . . . $11,230 $ 6,071
========= ========
Reflected on Consolidated Balance Sheets as:
Current deferred tax asset, net . . . . . . . . $ 5,610 $ 4,259
Noncurrent deferred tax asset, net . . . . . . 5,620 1,812
--------- --------
Net deferred tax asset . . . . . . . . . . $11,230 $ 6,071
========= ========
</TABLE>
The deferred tax asset valuation allowance decreased by $6.5 million during
fiscal 1995 and by $3.5 million during fiscal 1994, largely the result of the
increased probability that the Company will utilize tax losses and credits
before they expire. The decrease in the valuation allowance was recorded as a
reduction of the Excess Reorganization Value. The remaining valuation
allowance is deemed appropriate by management in view of the expiration date of
the net operating losses and credits and the amount of future taxable income
necessary to utilize such losses and credits. If the full value of the
deferred tax assets were to be realized in future years, Excess Reorganization
Value would be further reduced by $5.0 million.
On March 15, 1995, the Company filed its federal income tax return for the year
ended June 30, 1994, which reflected net operating loss carryforwards of $39.6
million plus tax credits of $7.8 million. The net operating losses expire if
unused by fiscal year 2007. The tax credits expire in varying amounts if
unused by fiscal years 2000 to 2010. As of June 30, 1995, the net operating
loss carryforward is estimated to have been reduced to $29.6 million as a
result of the application of the loss carryforwards to reduce taxable income
for fiscal year 1995.
38
<PAGE> 42
The above figures reflect adjustments required by section 382 of the Internal
Revenue Code after an ownership change in the Company's stock (including a
$26.1 million reduction in the tax basis of the Company's assets). An
ownership change is defined as occurring when, during any three year period,
the Company's 5% shareholders (as defined in the Internal Revenue Code)
increase their ownership in the Company's stock by more than 50 percentage
points (an "Ownership Change"). The Plan of Reorganization, adopted with the
Company's emergence from bankruptcy on March 9, 1993, resulted in an Ownership
Change since substantially all of the new stock was issued to the creditors of
the Company.
The Company expects the remaining net operating loss carryforwards, tax credit
carryforwards, and other tax attributes to be available to offset future income
taxes, subject to the expiration dates described above. However, should a
second Ownership Change occur, the Company's use of these tax loss and credit
carryforwards, and other tax attributes could be severely restricted or
eliminated. Pursuant to the Plan of Reorganization, the Company's Restated
Certificate of Incorporation, dated March 9, 1993, contains restrictions
through June 30, 1996 on the transfer of stock to or from the Reorganized
Company's 5% stockholders (as defined in the Plan of Reorganization) or those
that would become 5% stockholders as a result of a subsequent stock
transaction. These restrictions serve as a means of preserving the benefits of
the pre-confirmation tax attributes of the Company.
In the opinion of Management, adequate provision has been made for income
taxes, and any adjustments which have been or may be determined to be necessary
will not materially affect the Company's financial position.
7. CAPITAL STOCK
Capital Stock - As provided for in the Plan of Reorganization, the Company's
Restated Certificate of Incorporation authorizes the issuance of 50,000,000
shares of common stock, $.01 par value (the "Common Stock") and 1,000,000
shares of preferred stock. Pursuant to the terms of the Plan of
Reorganization, the Company issued 6,000,000 shares of its new Common Stock.
No shares of preferred stock have been issued, however the Company has adopted
a plan whereby holders of its Common Stock have been granted rights to purchase
a new series of preferred stock, as discussed below in "Stockholder Rights
Plan." The Common Stock was traded on the Nasdaq National Market ("NASDAQ")
under the symbol "NCSI" until November 16, 1994, at which date the Common
Stock began trading on the New York Stock Exchange using the symbol "NCS." See
Note 6 for a discussion of certain restrictions with respect to transfer of
stock ownership of the Company's Common Stock.
Series A Junior Participating Preferred Stock - In connection with the
distribution of the rights to purchase preferred stock (the "Rights") on
September 11, 1995, the Board of Directors of the Company authorized 100,000
shares of Series A Junior Participating Preferred Stock (the "Series A
Preferred Stock") none of which are outstanding. The Series A Preferred Stock
would be issued only upon the exercise of Rights. The Rights are not
exercisable as of the date hereof. See "Stockholder Rights Plan" below.
Warrants to Purchase Common Stock - In accordance with the Plan of
Reorganization, the Company issued 1,350,000 warrants to purchase Common Stock
(the "Warrants") pursuant to the terms of a Warrant Agreement dated March 9,
1993. Each Warrant provides the holder thereof with the right to purchase an
equal number of shares of Common Stock at an exercise price of $17.75 per
share. The Warrant Agreement has a term of five years and Warrants not
exercised prior to March 9, 1998 shall automatically become void and no longer
outstanding.
39
<PAGE> 43
The Warrants are publicly traded on the NASDAQ under the symbol "NCSIW."
During fiscal year 1995 and 1994, six and 69 warrants, respectively, were
exercised, resulting in a balance of 1,349,925 Warrants outstanding at
June 30, 1995.
1993 Non-Qualified Stock Option Plan - In accordance with the terms of the Plan
of Reorganization, on March 9, 1993, the Company adopted the 1993 Non-Qualified
Stock Option Plan (the "Option Plan"). Under the Option Plan, 900,000 shares
of Common Stock are reserved for awards to be granted to certain key management
employees and directors in order to encourage participants to acquire
proprietary interests in the Company. The Option Plan provides for the
original issuance of Reorganization Options, as defined, with a stated exercise
price of $10.50 per share; any cancelled Reorganization Options may be
subsequently reissued as Additional Options, as defined, at a stated exercise
price equal to the fair market value of the Common Stock on the date of grant.
All options expire ten years from the date of the grant and are exercisable
commencing one year from the date of grant on a cumulative basis at the rate
of 33-1/3% per year. The following table summarizes the stock option activity:
<TABLE>
<CAPTION>
Number of Option Prices
Shares Per Share
--------- ---------
(thousands)
<S> <C> <C>
Original grant on March 9, 1993 885 $10.50
Cancelled . . . . . . . . . . . . . . . . (30) 10.50
Exercised . . . . . . . . . . . . . . . . -- 10.50
----
Options outstanding at June 30, 1993 855 10.50
Granted . . . . . . . . . . . . . . . . . 30 15.75
Cancelled . . . . . . . . . . . . . . . . (50) 10.50
Exercised . . . . . . . . . . . . . . . . (50) 10.50
----
Options outstanding at June 30, 1994 785 10.50-15.75
Granted . . . . . . . . . . . . . . . . . 135 7.50-10.25
Cancelled . . . . . . . . . . . . . . . . (105) 10.50-15.75
----
Options outstanding at June 30, 1995 . . . . . . 815 7.50-10.50
====
Exercisable at June 30, 1995 . . . . . . . . . . 405 $10.50
</TABLE>
Stockholder Rights Plan - On August 31, 1995, the Board of Directors of the
Company declared a dividend of one right to purchase preferred stock (a
"Right") for each outstanding share of the Company's Common Stock, to
shareholders of record at the close of business on September 11, 1995. Each
Right entitles the registered holder to purchase from the Company a unit
consisting of one one-hundredth of a share (a "Unit") of Series A Preferred
Stock, par value $1.00 per share, at a purchase price of $55 per Unit, subject
to adjustment (the "Purchase Price"). The description and terms of the Rights
are set forth in a Rights Agreement dated as of August 31, 1995 (the "Rights
Agreement") between the Company and Boatmen's Trust Company, as Rights Agent.
The Rights are attached to all certificates representing outstanding shares of
Common Stock, and no separate certificates for the Rights have been
distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earlier of (i) ten days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 10% or more of the outstanding shares of Common Stock
(the date of the announcement being the "Stock Acquisition Date"), or (ii) ten
business days (or such later date as may be determined by the Company's Board
of Directors before the Distribution Date occurs) following the commencement of
a tender offer or exchange offer that would result in a person's becoming an
Acquiring Person.
40
<PAGE> 44
The Rights are not exercisable until the Distribution Date and will expire at
the close of business on August 31, 2005, unless earlier redeemed or exchanged
by the Company as described below. In the Rights Agreement, the Company has
generally agreed to use its best efforts to cause the securities of the Company
issuable pursuant to the exercise of Rights to be registered under the
Securities Act, as soon as practicable after the Rights become exercisable, and
to take such action as may be necessary to ensure compliance with applicable
state securities laws.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person,
each Right will then entitle the holder to receive, upon exercise of such
Right, a number of shares of Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a Current Market Price (as
defined in the Rights Agreement) equal to two times the exercise price of the
Right. Notwithstanding the foregoing, all Rights that are, or under certain
circumstances were, beneficially owned by any Acquiring Person (or by certain
related parties) will be null and void. The Purchase Price payable, and the
number of Units or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time-to-time to prevent dilution.
For example, at an exercise of $55 per Right, each Right not owned by an
Acquiring Person (or by certain related parties) following an event set forth
in the preceding paragraph would entitle its holder to purchase $110 worth of
Common Stock (or other consideration, as noted above), based upon its then
Current Market Price, for $55. Assuming that the Common Stock had a Current
Market Price of $22 per share at such time, the holder of each valid Right
would be entitled to purchase five shares of Common Stock for $55.
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date, (i) the Company is acquired in a merger or other business
combination transaction or (ii) 50% or more of the Company's assets or earnings
power is sold or transferred, each holder of a Right (except Rights that
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, a number of shares of common stock of the acquiring
company (or in certain cases its controlling person) having a Current Market
Price equal to two times the exercise price of the Right.
At any time until ten days following a Stock Acquisition Date, the Company may
redeem the Rights in whole, but not in part, at a price of $.01 per Right,
payable, at the option of the Company, in cash, shares of Common Stock or such
other consideration as the Board of Directors may determine.
Circle K has filed a lawsuit challenging the adoption of the Stockholder Rights
Plan (see Item 3. "Legal Proceedings - Circle K Tender Offer").
41
<PAGE> 45
8. LEASE ARRANGEMENTS
The Company leases a majority of its convenience stores and support facilities,
its corporate headquarters and certain equipment under operating lease
agreements. Generally, these leases have initial terms of ten to twenty years,
with one to three renewal options for additional five-year periods. It is
expected that when these leases expire, they will be renewed or replaced with
similar leases. Some of the leases provide for additional rentals based upon a
percentage of sales, and many provide for the payment of real estate taxes,
insurance and maintenance expenses. Some of these leases also have escalation
clauses. The Company has no significant capital leases.
Future noncancelable minimum rental commitments for operating leases with an
initial or remaining term of more than one year as of June 30, 1995, are (in
thousands):
<TABLE>
<S> <C>
Year Ending June 30,
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,656
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,220
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,404
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,140
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,426
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,692
--------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $191,538
========
</TABLE>
The above commitments have not been reduced by $2.8 million of future rental
income under noncancelable subleases.
Rent expenses under operating leases were (in thousands):
<TABLE>
<CAPTION>
Reorganized Company | Predecessor Company
---------------------------------------------------- | --------------------
Year Ended June 30, Period from | Eight Months
--------------------------------- Inception | Ended
1995 1994 to June 30, 1993 | February 28, 1993
----------- ------------ ---------------- | --------------------
<S> <C> <C> <C> | <C>
Minimum rentals . . . . . . $22,249 $22,177 $ 7,490 | $15,437
Percentage rentals . . . . 1,076 1,115 327 | 660
Sublease rentals . . . . . (1,566) (1,503) (470) | (1,044)
-------- ------- -------- | --------
$21,759 $21,789 $ 7,347 | $15,053
======== ======= ======== | ========
</TABLE>
9. BENEFIT PLANS
The Company has a profit sharing plan (the "Profit Sharing Plan") available to
substantially all employees. The Profit Sharing Plan allows participants to
contribute to the plan on a before-tax basis pursuant to Section 401(k) of the
Internal Revenue Code. The Company, effective July 1, 1993, began making
matching contributions to the Profit Sharing Plan at a level equal to 100% of
the employees' before-tax contributions, up to 3% of compensation. In addition
to the matching contributions, in fiscal 1995 and 1994, the Company made
special contributions to the Profit Sharing Plan of $812,000 and $1,500,000,
respectively, to be allocated to all eligible employees using a formula based
on tenure and compensation. Total Company contributions to the Profit Sharing
Plan were $1,782,000, $2,540,000, and $0 in fiscal 1995, 1994 and 1993,
respectively.
42
<PAGE> 46
Employees have the option of investing Company contributions in a number of
different investment funds, including a Company stock fund. As of June 30,
1995, the Profit Sharing Plan owned 31,117 shares of Company Common Stock and
3,545 Warrants.
On March 31, 1994, the Company adopted two non-qualified retirement plans for
(i) certain officers and other key employees (the "Officers' Plan") and (ii)
directors (the "Directors' Plan"). The Officers' Plan provides defined benefit
payments based on years of service and the employees' average earnings of the
three highest of the last five years. The Officers' Plan also includes a
defined contribution feature pursuant to which the Company has committed to
contribute an annual amount for the benefit of each participant equal to 15% of
such participant's bonus, if any. The Directors' Plan provides defined benefit
payments based on years of service and the annual fees paid to the director.
Charges to expense and funding amounts are based upon amounts computed by
independent actuaries. The Company recorded corresponding expenses totalling
$912,000 and $175,000 in fiscal 1995 and 1994, respectively. Also, an
additional liability of $1,806,000 and $2,067,000 and an intangible asset of an
equal amount were recorded on the balance sheet at June 30, 1995 and 1994,
respectively.
On August 31, 1995, the Company amended the Officers' Plan as follows: (i) the
Officers' average earnings during the three highest of the last five years will
include bonuses earned, (ii) the defined contribution feature whereby the
Company committed to contribute an annual amount for the benefit of each
participant equal to 15% of such participant's bonus has been eliminated
effective July 1, 1995, and (iii) vesting occurs five years after the date of
hire. The Company also amended the Directors' Plan on August 31, 1995, as
follows: (i) the annual retirement benefit to be paid to non-employee directors
was increased from two-thirds to 100% of the annual fee paid by the Company to
its directors, and (ii) benefits commence on the date the director leaves the
Board instead of the later of the director's retirement from the Board or his
seventieth birthday.
Net pension cost for the Company's defined benefit plans in fiscal 1995 and
fiscal 1994 included the following components (in thousands):
<TABLE>
<CAPTION>
June 30,
----------------------
1995 1994
------ ------
<S> <C> <C>
Service cost - benefits earned during the period . . . . . . . . . . . . . $ 225 $ 52
Interest cost on projected benefit obligation . . . . . . . . . . . . . . . 288 69
Amortization of unrecognized past service cost . . . . . . . . . . . . . . 212 54
------- -------
Net pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 725 $ 175
======= =======
Actuarial present value of accumulated benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 705 $ 590
Nonvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,001 1,652
------- -------
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . 2,706 2,242
Additional obligation related to projected salary increases . . . . . . . . 1,229 1,139
------- -------
Total projected benefit obligation . . . . . . . . . . . . . . . . . . . . 3,935 3,381
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . (3,035) (3,206)
Adjustment needed to recognize minimum liability . . . . . . . . . . . . . 1,806 2,067
------- -------
Accrued pension liability . . . . . . . . . . . . . . . . . . . . . . . . . $2,706 $2,242
======= =======
</TABLE>
43
<PAGE> 47
The Company has established two irrevocable trusts to hold and invest assets to
be used for the payment of benefits under the plans. Such assets, totalling
$247,000 and $175,000 at June 30, 1995 and 1994, respectively, are considered
general assets of the Company.
Actuarial amounts were determined using an assumed discount rate of 7.5% in
fiscal 1995 and 8% in fiscal 1994, and a rate of increase in future
compensation levels of 5% for both fiscal years.
10. PREDECESSOR COMPANY'S CHAPTER 11 REORGANIZATION
On February 25, 1993, the Bankruptcy Court confirmed the Plan of
Reorganization, and the reorganization became effective March 9, 1993. The
Plan of Reorganization was designed to repay all priority creditors in full on
the Effective Date or thereafter (as provided in the Plan of Reorganization)
and to repay secured creditors in full over time with interest. Pursuant to
the Plan of Reorganization, allowed unsecured claims totalling approximately
$137.5 million were cancelled in exchange for $9.3 million of cash, $1.0
million of new indebtedness and 5.91 million shares of newly issued Common
Stock of the Reorganized Company. All existing shares of the Predecessor
Company's Series E Preferred Stock and common stock were exchanged for a total
of 90,000 shares of the Reorganized Company's Common Stock. In addition,
Warrants to purchase up to an additional 1.35 million shares of the Reorganized
Company's Common Stock at $17.75 per share were distributed to the holders of
the Predecessor Company's publicly-held subordinated debentures, the Series E
Preferred Stock and the Predecessor Company's common stock. On September 6,
1995, the Bankruptcy Court signed an Order Providing for Closing Chapter 11
Cases, which order closed the Chapter 11 cases in the Bankruptcy Court.
Although additional stock of the Company is to be distributed to creditors
under the Plan, the remaining unresolved proofs of claim are being resolved in
mediation or litigation outside of the Bankruptcy Court.
Fresh-start Reporting - In connection with its emergence from bankruptcy, the
Company adopted fresh-start reporting in accordance with SOP 90-7. The
Company, with the assistance of its financial advisors, was required to
determine its enterprise value, which represents the fair market value of the
entity before considering liabilities and approximates the amount a willing
buyer would pay for the assets of the entity immediately after the
reorganization. The enterprise value of the Company was determined by
consideration of several factors and reliance on various valuation methods,
including discounted future cash flows, market comparables and price/earnings
ratios. All of the valuations depended in large part upon the Company's
projected future operating results and cash flows; such projections included
assumptions as to anticipated sales and margins, marketing plans, operating
expense levels and capital expenditure programs. After extensive negotiations
between the Company and its various creditor constituencies, the Company's
enterprise value was determined to be within a group of ranges that centered
around a point estimate of $210.0 million.
The adjustments to reflect the adoption of fresh-start reporting, including the
adjustments to record assets and liabilities at their fair market values and to
reflect the adoption of SFAS 109, have been reflected in the accompanying
consolidated financial statements as of February 28, 1993 as Fresh-Start
Adjustments. In addition, the Reorganized Company's opening balance sheet was
further adjusted to eliminate existing equity and to reflect the aforementioned
$210.0 million enterprise value, which includes the establishment of Excess
Reorganization Value. Accordingly, a solid black line is shown in the
consolidated financial statements to separate post-emergence operations from
those prior to March 1, 1993, since they have not been prepared on a consistent
basis of accounting.
Extraordinary Gain - The Plan of Reorganization resulted in the discharge of an
estimated $309.4 million of prepetition claims against the Company through the
distribution of $36.5 million in cash, $145.6 million of debt and the issuance
of 6.0 million shares of new Common Stock and 1.35 million Warrants to purchase
Common Stock. The value of the cash, debt instruments and securities
distributed was $61.5 million less than the claims and the resultant gain was
recorded as an extraordinary gain.
44
<PAGE> 48
The effect of the Plan of Reorganization and fresh-start reporting on the
Reorganized Company's unaudited consolidated balance sheet as of March 1, 1993
is as follows ($ in thousands):
<TABLE>
<CAPTION>
Pre Fresh-Start
Balance Sheet Debt Fresh-Start
February 28, 1993 Discharge (a) Adjustments (b)
----------------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . $ 65,318 $ -- $ --
Accounts and notes receivable, net . . . 4,333 -- (85)
Inventories . . . . . . . . . . . . . . . 34,779 -- (292)
Prepaid expenses . . . . . . . . . . . . 4,521 -- (1,059)
--------- ------------ --------
Total Current Assets . . . . . . . . . 108,951 -- (1,436)
Property and Equipment, net . . . . . . . . . 156,389 -- (3,283)
Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets, net . . -- -- --
Deferred Tax Asset, net . . . . . . . . . . . -- -- 1,349
Other Assets, net . . . . . . . . . . . . . . 12,939 (450) (3,282)
--------- ------------ --------
$ 278,279 $ (450) $ (6,652)
========= ============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses . . $ 44,097 $ -- $ 8,238
Prepetition liabilities payable in cash . -- 20,554 259
Current portion of long-term debt (d) . . 22,353 3,968 --
--------- ------------ --------
Total Current Liabilities . . . . . . 66,450 24,522 8,497
Liabilities Subject to Compromise . . . . . . 293,817 (287,015) (6,802)
Long-Term Debt . . . . . . . . . . . . . . . -- 135,306 --
Other Liabilities and Deferred Revenue . . . 27,523 2,371 (8,729)
Commitments and Contingencies . . . . . . . . -- -- --
<CAPTION>
Post Fresh-Start
Balance Sheet
Other (c) March 1, 1993
--------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . $ -- $ 65,318
Accounts and notes receivable, net . . . -- 4,248
Inventories . . . . . . . . . . . . . . . -- 34,487
Prepaid expenses . . . . . . . . . . . . -- 3,462
-------- ---------
Total Current Assets . . . . . . . . . -- 107,515
Property and Equipment, net . . . . . . . . . -- 153,106
Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets, net . . 47,636 47,636
Deferred Tax Asset, net . . . . . . . . . . . -- 1,349
Other Assets, net . . . . . . . . . . . . . . -- 9,207
-------- ---------
$ 47,636 $ 318,813
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses . . $ -- $ 52,335
Prepetition liabilities payable in cash . -- 20,813
Current portion of long-term debt (d) . . -- 26,321
-------- ---------
Total Current Liabilities . . . . . . -- 99,469
Liabilities Subject to Compromise . . . . . . -- --
Long-Term Debt . . . . . . . . . . . . . . . -- 135,306
Other Liabilities and Deferred Revenue . . . -- 21,165
Commitments and Contingencies . . . . . . . . -- --
</TABLE>
45
<PAGE> 49
<TABLE>
Pre
<CAPTION> Fresh-Start Post Balance
Balance Sheet Fresh-Start Sheet
February 28, Debt Fresh-Start March 31,
1993 Discharge(a) Adjustments (b) Other (c) 1993
------------- ------------ --------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Stockholders' Equity (Deficit):
Series E Preferred Stock . . . . . . . . . . 245 -- -- (245) --
Common Stock, par value $.01 per share;
50,000,000 shares authorized; 6,000,000
shares issued and outstanding . . . . . . -- 60 -- -- 60
Common Stock, par value $.41 2/3 per share;
50,000,000 shares authorized; 24,001,984
shares issued . . . . . . . . . . . . . . 10,001 -- -- (10,001) --
Additional paid-in capital . . . . . . . . . 108,544 62,813 -- (108,544) 62,813
Retained earnings (deficit) . . . . . . . . . (189,405) 61,493 382 127,530 --
-------- -------- ------- ------- --------
(70,615) 124,366 382 8,740 62,873
Less:
Treasury stock . . . . . . . . . . . . . . . 15,729 -- -- (15,729) --
Note receivable . . . . . . . . . . . . . . . 23,167 -- -- (23,167) --
-------- -------- ------- -------- --------
Total Stockholders' Equity (Deficit) . . . (109,511) 124,366 382 47,636 62,873
-------- -------- ------- -------- --------
$278,279 $ (450) $(6,652) $ 47,636 $318,813
======== ======== ======= ======== ========
</TABLE>
(a) To record the settlement of liabilities subject to settlement under
the Plan of Reorganization.
(b) To record the adjustments to state assets and liabilities at fair
market value and to record the cumulative effect of adopting SFAS 109
as of March 1, 1993.
(c) To record the adjustments to cancel the Predecessor Company's equity,
zero out the retained deficit and adjust assets to reflect the $210.0
million enterprise value.
(d) Includes $16.0 million payable to secured debt holders on the
Effective Date.
46
<PAGE> 50
The following unaudited Consolidated Pro Forma Statement of Operations reflects
the financial results of the Company as if the Plan of Reorganization and
change in accounting principle had been effective July 1, 1992 (in thousands,
except per share data):
<TABLE>
<CAPTION>
Twelve Months Ended June 30, 1993
---------------------------------------------
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . $878,852 $ -- $878,852
Costs and Expenses:
Cost of sales . . . . . . . . . . . . . . . . . . 651,658 -- 651,658
Operating expenses . . . . . . . . . . . . . . . 162,519 1,067 (a) 163,586
General and administrative expenses . . . . . . . 31,775 -- 31,775
Special charge . . . . . . . . . . . . . . . . . 6,561 -- 6,561
-------- -------- --------
Operating Income . . . . . . . . . . . . . . . 26,339 (1,067) 25,272
Interest expense . . . . . . . . . . . . . . . . . . (4,410) (5,940)(b) (10,350)
------- -------- --------
Income Before Reorganization Expenses,
Fresh-Start Adjustments, Income Tax
Expense and Extraordinary Gain . . . . . . . . . 21,929 (7,007) 14,922
Reorganization Expenses, net . . . . . . . . . . . . (8,124) 8,124 (b) --
Fresh-Start Adjustments . . . . . . . . . . . . . . . 382 (382)(b) --
-------- -------- ---------
Income Before Income Tax Expense
and Extraordinary Gain . . . . . . . . . . . . . 14,187 735 14,922
Income Tax Expense . . . . . . . . . . . . . . . . . 3,002 3,102 (c) 6,104
-------- -------- ---------
Income Before Extraordinary Gain . . . . . . . . . . 11,185 (2,367) 8,818
Extraordinary Gain . . . . . . . . . . . . . . . . . 61,493 (61,493)(b) --
------- -------- ---------
Net Income (d) . . . . . . . . . . . . . . . . . . . $72,678 $(63,860) $ 8,818
======= ======== =========
Earnings Per Share (d) . . . . . . . . . . . . . . . $1.41
Weighted Average Number of
Shares Outstanding . . . . . . . . . . . . . . . 6,271
</TABLE>
(a) To record a full year's amortization of Excess Reorganization Value.
(b) To record interest expense on the debt incurred in connection with the
Plan of Reorganization and to eliminate Reorganization Expenses, net,
Fresh-Start Adjustments and the Extraordinary Gain.
(c) To record income tax expense as a result of adopting SFAS 109.
47
<PAGE> 51
(d) Pro Forma Net Income and Earnings Per Share are $12.9 million and
$2.06, respectively, when the special charge of $6.6 million, related
to an increase in environmental liability, is excluded.
11. COMMITMENTS AND CONTINGENCIES
The operation and ownership of underground gasoline storage tanks ("USTs") are
subject to federal, state and local laws and regulations. The Environmental
Protection Agency ("EPA") has issued regulations, including the 1988 amendment
to the Resource Conservation and Recovery Act, that establish requirements for
(i) maintaining leak detection methods and equipment, (ii) upgrading USTs,
(iii) taking corrective action in response to releases, (iv) UST removal to
prevent future releases, (v) keeping appropriate records, and (vi) maintaining
evidence of financial responsibility for taking corrective action and
compensating third parties for bodily injury and property damage resulting from
releases. These regulations also empower states to develop, administer and
enforce their own regulatory programs, incorporating requirements which are at
least as stringent as the federal standards. In order to ensure compliance
with the federal and state environmental laws, the Company has developed a
comprehensive gasoline storage and dispensing plan. During fiscal 1993, the
Company refined the plan such that its primary focus is on upgrading gasoline
dispensing equipment in accordance with upcoming deadlines imposed by
regulatory authorities and on providing for the cleanup of existing and future
contaminated sites. The gasoline plan generally covers all properties owned
and leased by the Company. Management believes that its existing gasoline
storage and dispensing procedures and planned capital expenditures will keep
the Company in compliance with all federal and state environmental regulations.
Environmental Capital Commitments - The Company has adopted approved tank
system release detection methods on all owned or operated USTs and currently
utilizes the Statistical Inventory Reconciliation Method for the release
detection method on its USTs located in Texas. This method involves
statistical analysis of gasoline inventory changes to detect UST releases.
All of the Company's USTs in Texas have been upgraded with the required
spill/overfill prevention equipment. By December 22, 1998, the Company's USTs
must be upgraded with corrosion protection equipment under applicable federal
regulations. The Company estimates that 63% of its USTs are currently in
compliance with such regulations, either through the installation of fiberglass
or steel fiberglass tanks or by adding cathodic protection to existing steel
tanks. In addition, the EPA has required that by January 1, 1996, UST
operators must install flow governors which restrict dispensing volumes per
minute. Management of the Company believes that the Company's long-range
capital budget contains sufficient funds necessary to make the required
equipment upgrades prior to the 1996 and 1998 deadlines.
In addition to the foregoing, the EPA has ranked the air quality in major
cities in the United States based on the level of ozone measured. Houston and
Dallas/Fort Worth are two areas in which the Company currently conducts
operations which are considered to be ozone non-attainment areas. The Houston
market is classified in the severe ozone non-attainment category while the
Dallas/Fort Worth area is classified in the moderate ozone non-attainment
category. Under rules promulgated by the EPA and the state of Texas, gasoline
dispensing facilities in the two areas were required to have Stage II Vapor
Recovery Equipment by November 15, 1994 on all units except those that have not
dispensed more than 10,000 gallons in any one month since January 1991. In
addition, the Clean Air Act mandated that UST operators in the non-attainment
areas adopt a "two point" fuel delivery unloading system which has been
installed in all of the Company's USTs which require the system (approximately
73% of the Company's USTs).
48
<PAGE> 52
During fiscal 1995 and 1994, the Company spent $4.8 million and $6.6 million,
respectively, on environmental capital equipment, including $4.5 million and
$6.1 million, respectively, on Stage II Vapor Recovery Equipment. In order to
ultimately comply with the aforementioned regulations by the mandated
deadlines, the Company estimates it will be required to spend approximately
$6.0 million on additional equipment and installation through fiscal 1999.
Management believes that it has allocated sufficient resources in its long-term
capital budget to comply with the improvements required by the state of Texas
and EPA regulations to be completed by the end of 1999.
Environmental Remediation Contingency - The majority of the Company's
environmental remediation exposure relates to the cleanup of contaminated soil
and ground water caused by releases from underground gasoline storage tanks and
underground piping systems and claims for third party damages relating to such
releases. The Company spent $1.2 million in fiscal 1995 on environmental
remediation activities as compared to $1.3 million in fiscal 1994 and $1.3
million in fiscal 1993. The Company estimates that it will incur approximately
$5.7 million for environmental remediation expenditures through 1999. At June
30, 1995 and 1994, the accrued environmental liability totalled $19.6 million
and $20.8 million, respectively. The actual cost of remediating contaminated
sites, removing tanks and settling third party damage claims may be
substantially lower or higher than that accrued due to the difficulty in
estimating such costs and due to potential changes in the status of regulations
and state reimbursement programs. The Company does not believe that any such
amount below or in excess of that accrued can be reasonably estimated.
The state of Texas and other states in which the Company previously operated,
have established trust funds for the reimbursement of costs related to certain
remediation activities. The Company has filed or expects to file claims
aggregating approximately $3.0 million with the states to recover a portion of
the funds which it has expended or expects to expend on remediation activities.
The Company believes the claims it has filed or expects to file will be paid,
although collection may occur over a period of several years. Accordingly, the
receivable for the aforementioned claims is included in Other Assets on the
Company's balance sheet.
The Company is required by state regulations to maintain evidence of financial
responsibility for taking corrective action on remediation activities. In
order to be in compliance with these requirements, the Company has successfully
established that it is self-insured with the Texas Natural Resource
Conservation Commission.
Litigation - The Company and its subsidiaries are parties to various legal
proceedings in the ordinary course of business. Management does not expect
that any of such proceedings will have a material adverse effect on the
Company's financial position.
12. CIRCLE K TENDER OFFER
On August 8, 1995, the Company received an unsolicited acquisition proposal
from Circle K whereby Circle K offered to buy all of the Company's Common Stock
for $17.00 cash per share. On August 11, 1995, Circle K proposed an amendment
to the Company's by-laws to increase the number of directors from eight to
seventeen and to repeal any by-law amendments adopted since January 1, 1994.
The Company also received from Circle K a notice of the nomination of nine
Circle K officers, directors or affiliates to fill the vacancies created by the
proposed by-law amendment.
The Company's Board of Directors retained Merrill Lynch to advise it with
respect to the proposal and on August 31, 1995, the Company announced that its
Board had unanimously rejected Circle K's unsolicited proposal. Such
conclusion was based, in part, upon the opinion of
49
<PAGE> 53
Merrill Lynch that the Circle K proposal was inadequate from a financial point
of view. The Board of Directors also adopted a Stockholder Rights Plan (the
"Rights Plan") designed to protect the Company from unfair or coercive takeover
tactics and to assure that all of the Company's stockholders receive fair
treatment in the event of any takeover proposal. The Board also authorized, in
concept, certain agreements and the amendment of certain employment contracts
and benefit plans of the Company. See Note 7 for further discussion with
respect to the Rights Plan.
On September 7, 1995, Circle K commenced a tender offer for all outstanding
shares of the Company's common stock (and associated rights to purchase
preferred stock) and all outstanding stock purchase warrants at $20.00 and
$2.25 in cash, respectively. The tender offer is conditioned on the tender of
a minimum number of outstanding shares and warrants, as well as certain other
conditions.
On September 18, 1995, the Company's Board of Directors unanimously determined
to reject Circle K's tender offer and recommended that NCS securityholders not
tender any of their securities pursuant to the offer. The Board based its
decision in part upon the opinion of the Company's financial advisor, Merrill
Lynch & Co., that the consideration offered to NCS securityholders in the
Circle K Offer was inadequate to NCS securityholders from a financial point of
view.
At the same meeting, the Board reviewed and discussed an unsolicited proposal
received after the close of business on September 14, 1995 from another party
to acquire the Company at a significantly higher price than the Circle K Offer.
The Board determined not to accept this proposal. However, given all of the
information available, including the unsolicited proposal, the Board has
instructed management and Merrill Lynch to explore the Company's strategic
alternatives, including the possible sale of the Company to a third party. The
Board intends to invite interested parties, including Circle K and the other
party, to participate in this process.
See Item 3. "Legal Proceedings - Circle K Tender Offer" for a discussion of
certain lawsuits filed pursuant to the Circle K Tender Offer.
50
<PAGE> 54
13. QUARTERLY FINANCIAL DATA
Unaudited summarized financial data by quarter for fiscal 1995 and 1994 is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Fiscal 1995
-----------------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . $235,281 $220,504 $213,640 $236,598
Gross profit . . . . . . . . . . . . . . . 59,560 57,689 50,423 55,314
Net income (loss) (1). . . . . . . . . . . 1,143 1,618 (596) 3,127
Income (loss) per share . . . . . . . . . . 0.19 0.27 (0.10) 0.52
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1994
------------------------------------------------------------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . $234,280 $213,722 $204,643 $227,802
Gross profit. . . . . . . . . . . . . . . . 62,861 55,988 50,529 52,224
Net income (loss) (2) . . . . . . . . . . . 4,715 1,528 (1,527) 2,119
Income (loss) per share . . . . . . . . . . 0.75 0.24 (0.25) 0.34
</TABLE>
(1) The first two quarters of fiscal 1995 results include consulting fees
and other expenses of $1.7 million ($0.9 million, or $0.15 per share,
on an after-tax basis) and $1.1 million ($0.7 million, or $0.12 per
share, on an after-tax basis), respectively, related to Project
Breakthrough.
(2) The fourth quarter of fiscal 1994 results include a $3.0 million gain
($1.8 million, or $0.30 per share, on an after-tax basis) recorded in
connection with the Circle K transaction, and consulting fees and
other expenses of $1.6 million ($1.0 million, or $0.16 per share, on
an after-tax basis) related to Project Breakthrough.
51
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
52
<PAGE> 56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors of the Company is incorporated herein by
reference from the Company's definitive Proxy Statement for the 1995 Annual
Meeting of Stockholders to be filed with the Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K, unless the Company
shall sooner amend this Form 10-K to supply the information required by this
Item 10. The information concerning executive officers of the Company is
included in Item 1 of Part I of this report pursuant to Instruction 3 to Item
401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated herein by
reference from the Company's definitive Proxy Statement for the 1995 Annual
Meeting of Stockholders to be filed with the Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K, unless the Company
shall sooner amend this Form 10-K to supply the information required by this
Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is incorporated herein by
reference from the Company's definitive Proxy Statement for the 1995 Annual
Meeting of Stockholders to be filed with the Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K, unless the Company
shall sooner amend this Form 10-K to supply the information required by this
Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated herein by
reference from the Company's definitive Proxy Statement for the 1995 Annual
Meeting of Stockholders to be filed with the Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K, unless the Company
shall sooner amend this Form 10-K to supply the information required by this
Item 13.
53
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS.
1. Financial Statements and Financial Statement Schedules.
Financial Statements included in Item 8. "Financial Statements and
Supplementary Data" of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Stockholders'
Equity (Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
54
<PAGE> 58
2. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 - Order Preserving Property of the Estate and Declaring Certain Stock Transactions as Void Ab Initio,
issued by the United States Bankruptcy Court for the Southern District of Texas (Houston Division)
entered September 8, 1992 - incorporated by reference from Exhibit 2.1 to Registrant's Current Report
on Form 8-K dated September 8, 1992.
2.2 - Supplemental Disclosure Statement Under 11 U.S.C. Section 1125 in connection with Debtor's Revised
Fourth Amended and Restated Joint Plan of Reorganization Under Chapter 11 of the United States
Bankruptcy Code dated December 28, 1992, with Revised Fourth Amended and Restated Joint Plan of
Reorganization Under Chapter 11 of the United States Bankruptcy Code dated December 28, 1992, included
therein as Exhibit B - incorporated by reference from Exhibit 2.1 to Registrant's Current Report on
Form 8-K dated December 28, 1992 (Commission File No. 1-7936, filed January 20, 1993).
2.3 - Revised Fourth Amended and Restated Joint Plan of Reorganization Under Chapter 11 of the United States
Bankruptcy Code as Confirmed (Order Entered February 25, 1993) - incorporated by reference from Exhibit
2.1 to Registrant's Current Report on Form 8-K dated February 25, 1993 (Commission File No. 1-7936,
filed March 12, 1993).
2.4 - Order Providing for Closing Chapter 11 Cases, In Re: Schepps Food Stores, Inc., et al., Case nos. 91-
49816-H2-11, 91-49818-H3-11 through 91-49835-H2-11, jointly administered under Case No. 91-49816-H4-11
(U.S. Bankruptcy Court for the Southern District of Texas -- Houston Division) (as filed September 11,
1995) - incorporated by reference from Exhibit 99.18 to Registrant's Current Report on Form 8-K dated
August 18, 1995 (Commission File No. 1-7936, filed September 15, 1995).
3.1 - Restated Certificate of Incorporation of Registrant dated March 9, 1993 - incorporated by reference
from Exhibit 2.1 to Registrant's Current Report on Form 8-A dated March 3, 1993 (Commission File No. 1-
7936, filed March 4, 1993).
3.2 - Restated By-Laws of Registrant dated March 9, 1993, as amended August 10, 1995 - incorporated by
reference from Exhibit 3.1 to Registrant's Current Report on Form 8-K dated August 8, 1995 (Commission
File No. 1-7936, filed August 14, 1995).
3.3 - Form of Permanent Common Stock Certificate of Registrant - incorporated by reference from Exhibit 1.2
to Registrant's Current Report on Form 8-A dated March 3, 1993 (Commission File No. 1-7936, filed March
4, 1993).
3.4 - Form of Warrant Certificate of Registrant - incorporated by reference from Exhibit 1.3 to Registrant's
Current Report on Form 8-A dated March 3, 1993 (Commission File No. 1-7936, filed March 4, 1993).
</TABLE>
55
<PAGE> 59
<TABLE>
<S> <C>
4.1.1 Revolving Credit Agreement dated as of March 9, 1993, between Registrant, its Subsidiaries Signatory
thereto, the Financial Institutions Signatory thereto, and NationsBank of Texas, N.A., as Agent -
incorporated by reference to Exhibit 4(a) to Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993 (Commission File No. 1-7936, filed May 13, 1993).
4.1.2 - First Amendment dated as of June 15, 1993 to Revolving Credit Agreement between Registrant, its
Subsidiaries Signatory thereto, the Financial Institutions Signatory Thereto, and NationsBank of Texas,
N.A., as Agent - incorporated by reference from Exhibit 4.1.1 to Registrant's Annual Report on Form 10-
K for the year ended June 30, 1994 (Commission File No. 1-7936, filed September 28, 1994).
4.2.1 - Second Amended and Restated Credit Agreement dated as of March 9, 1993, between Registrant and
NationsBank of Texas, N.A., as Agent - incorporated by reference to Exhibit 4(c) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993 (Commission File No. 1-7936, filed
May 13, 1993).
4.2.2 - First Amendment dated as of June 15, 1993 to Second Amended and Restated Credit Agreement between
Registrant and NationsBank of Texas, N.A., as Agent - incorporated by reference from Exhibit 4.3.1 to
Registrant's Annual Report on Form 10-K for the year ended June 30, 1994 (Commission File No. 1-7936,
filed September 28, 1994).
4.3 - Second Amendment dated March 31, 1994 to Second Amended and Restated Credit Agreement between
Registrant and NationsBank of Texas, N.A., as Agent, Second Amendment dated March 31, 1994 to Revolving
Credit Agreement between Registrant, its Subsidiaries Signatory Thereto, the Financial Institution's
Signatory Thereto and NationsBank of Texas, N.A., as Agent and Overriding Amendment To All Other Loan
Documents dated March 31, 1994 - incorporated by reference from Exhibit 4.4 to Registrant's Annual
Report on Form 10-K for the year ended June 30, 1994 (Commission File No. 1-7936, filed September 28,
1994).
*4.4 - Third Amendment, dated March 31, 1995 to Second Amended and Restated Credit Agreement between
Registrant and NationsBank of Texas, N.A., as Agent and Third Amendment, dated March 31, 1995 to the
Revolving Credit Agreement between Registrant, its Subsidiaries Signatory Thereto, the Financial
Institution's Signatory Thereto and NationsBank of Texas, N.A., as Agent.
*4.5 - Fourth Amendment, dated as of June 30, 1995, to Second Amended and Restated Credit Agreement between
Registrant and NationsBank of Texas, N.A., as Agent, and Fourth Amendment, dated as of June 30, 1995,
to Revolving Credit Agreement between Registrant, its Subsidiaries Signatory Thereto, the Financial
Institution's Signatory Thereto and NationsBank of Texas, N.A., as Agent.
10.1.1 - Twentieth Amendment and Restatement of the Registrant's Profit Sharing Plan and Trust executed
December 16, 1993 - incorporated by reference from Exhibit 10.1.1 to Registrant's Annual Report on Form
10-K for the year ended June 30, 1994 (Commission File No. 1-7936, filed September 28, 1994).
</TABLE>
56
<PAGE> 60
<TABLE>
<S> <C>
10.1.2 - Twenty-first Amendment of the Registrant's Profit Sharing Plan and Trust executed August 9, 1994 -
incorporated by reference from Exhibit 10.1.2 to Registrant's Annual Report on Form 10-K for the year
ended June 30, 1994 (Commission File No. 1-7936, filed September 28, 1994).
10.1.3 - Form of Twenty-second Amendment to National Convenience Stores Incorporated Profit Sharing Plan and
Trust effective as of July 1, 1995 - incorporated by reference from Exhibit 99.8 to Registrant's
Current Report on Form 8-K dated August 18, 1995 (Commission File No. 1 - 7936, filed September 15,
1995).
10.2 - Form of Indemnification Agreement for officers and directors of Registrant dated as of July 18, 1986 -
incorporated by reference from Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year
ended June 30, 1987 (Commission File No. 1-7936).
10.3 - Warrant Agreement Dated March 9, 1993 between National Convenience Stores Incorporated and Boatmen's
Trust Company as Warrant Agent - incorporated by reference from Exhibit 10.1 to Registrant's Current
Report on Form 8-K dated February 25, 1993 (Commission No. 1-7936, filed March 12, 1993).
10.4 - Registrant's 1993 Non-Qualified Stock Option Plan dated as of March 9, 1993 - incorporated by reference
from Exhibit 10(b) to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993
(Commission No. 1-7936, filed May 13, 1993).
10.5 - Rights Agreement dated as of August 31, 1995 between Registrant and Boatmen's Trust company as Rights
Agent, which includes as Exhibit A the form of Certificate of Designations of Series A Junior
Participating Preferred Stock of National Convenience Stores Incorporated setting forth the terms of
the Preferred Stock, as Exhibit B the Rights Certificate and as Exhibit C the Summary of Rights to
Purchase Preferred Stock. Pursuant to the Rights Agreement, Certificates will not be mailed until
after the Distribution Date (as defined in the Rights Agreement). - incorporated by reference from
Exhibit 4.1 to Registrant's Current Report on Form 8-K dated August 31, 1995 (Commission File No. 1-
7936, filed September 5, 1995).
10.6 - Asset Exchange Agreement By and Among National Convenience Stores Incorporated, NCS Realty Company, The
Circle K Corporation and Circle K Properties, Inc. dated as of April 20, 1994 and as amended on April
29, 1994 - incorporated by reference from Exhibit 10.10 to Registrant's Current Report on Form 8-K
dated April 29, 1994 (Commission File No. 1-7936, filed May 13, 1994).
10.7 - Asset Purchase Agreement By and Among National Convenience Stores Incorporated, NCS Realty Company,
Stop N Go markets of Georgia, Inc., The Circle K Corporation and Circle K Properties, Inc. dated as of
April 20, 1994 and as amended on April 29, 1994 - incorporated by reference from Exhibit 10.11 to
Registrant's Current Report on Form 8-K dated April 29, 1994 (Commission File No. 1-7936, filed May 13,
1994).
10.8 - Amended and Restated National Convenience Stores Incorporated Officers' Retirement Plan effective as of
August 31, 1995 - incorporated by reference from
</TABLE>
57
<PAGE> 61
<TABLE>
<S> <C>
Exhibit 99.4 to Registrant's Current Report on Form 8-K dated August 18, 1995 (Commission File No. 1-
7936, filed September 15, 1995).
10.9 - Amended and Restated Trust under National Convenience Stores Incorporated Officers' Retirement Plan
effective as of August 31, 1995, by and between Registrant and Bank One, Texas, N.A. - incorporated
by reference from Exhibit 99.5 to Registrant's Current Report on Form 8-K dated August 18, 1995
(Commission File No. 1-7936, filed September 15, 1995).
10.10 - Amended and Restated National Convenience Stores Incorporated Directors' Retirement Plan effective as
of August 31, 1995 - incorporated by reference from Exhibit 99.6 to Registrant's Current Report on Form
8-K dated August 18, 1995 (Commission File No. 1-7936, filed September 15, 1995).
10.11 - Amended and Restated Trust under National Convenience Stores Incorporated Directors' Retirement Plan
effective as of August 31, 1995, by and between Registrant and Bank One, Texas, N.A. - incorporated
by reference from Exhibit 99.7 to Registrant's Current Report on Form 8-K dated August 18, 1995
(Commission File No. 1-7936, filed September 15, 1995).
10.12 - Form of Director Agreement executed effective as of August 31, 1995 by and between Registrant and each
of Richard C. Steadman, Dunbar N. Chambers, Jr., Charles J. Luellen, Raymond W. Oeland, Jr., Lionel
Sosa, Robert B. Stobaugh, and William K. Wilde - incorporated by reference from Exhibit 99.9 to
Registrant's Current Report on Form 8-K dated August 18, 1995 (Commission File No. 1-7936, filed
September 15, 1995).
10.13 - Agreement Amending and Restating Employment Agreement executed as of August 31, 1995 but effective from
and after July 1, 1995 by and between Registrant and V. H. Van Horn - incorporated by reference from
Exhibit 99.10 to Registrant's Current Report on Form 8-K dated August 18, 1995 (Commission File No. 1-
7936, filed September 15, 1995).
10.14 - Agreement Amending and Restating Employment Agreement executed as of August 31, 1995 but effective as
of May 18, 1993 by and between Registrant and A. J. Gallerano - incorporated by reference from Exhibit
99.11 to Registrant's Current Report on Form 8-K dated August 18, 1995 (Commission File No. 1-7936,
filed September 15, 1995).
10.15 - Agreement Amending and Restating Employment Agreement executed as of August 31, 1995 but effective as
of May 18, 1993 by and between Registrant and Arnold Van Zanten - incorporated by reference from
Exhibit 99.12 to Registrant's Current Report on Form 8-K dated August 18, 1995 (Commission File No. 1-
7936, filed September 15, 1995).
10.16 - Agreement Amending and Restating Employment Agreement executed as of August 31, 1995 but effective as
of May 18, 1993 by and between Registrant and C. R. Wortham - incorporated by reference from Exhibit
99.13 to Registrant's Current Report on Form 8-K dated August 18, 1995 (Commission File No. 1-7936,
filed September 15, 1995).
10.17 - Agreement Amending and Restating Employment Agreement executed as of August 31, 1995 but effective as
of May 18, 1993 by and between Registrant and
</TABLE>
58
<PAGE> 62
<TABLE>
<S> <C>
Brian Fontana - incorporated by reference from Exhibit 99.14 to Registrant's Current Report on Form 8-K
dated August 18, 1995 (Commission File No. 1-7936, filed September 15, 1995).
10.18 - Agreement Amending and Restating Employment Agreement executed as of August 31, 1995 but effective as
of October 31, 1994 by and between Registrant and Douglas B. Binford - incorporated by reference from
Exhibit 99.15 to Registrant's Current Report on Form 8-K dated August 18, 1995 (Commission File No. 1-
7936, filed September 15, 1995).
10.19 - Employment Agreement executed as of March 21, 1995 but effective February 1, 1995 by and between
Registrant and Janice E. Bryant - incorporated by reference from Exhibit 99.16 to Registrant's Current
Report on Form 8-K dated August 18, 1995 (Commission File No. 1-7936, filed September 15, 1995).
*10.20 - Agreement Amending and Restating Employment Agreement executed as of August 31, 1995 but effective as of
February 1, 1995 by and between the Company and Janice E. Bryant.
10.21 - Promissory Note dated August 31, 1995 by and between V. H. Van Horn, as Maker, and Registrant, as Payee
- incorporated by reference from Exhibit 99.19 to Registrant's Current Report on Form 8-K dated August
18, 1995 (Commission File No. 1-7936, filed September 15, 1995).
**10.22 - Master Agreement for ATM Facilities dated August 31, 1995 between Registrant and NationsBank of Texas,
N.A. - incorporated by reference from Exhibit 99.17 to Registrant's Current Report on Form 8-K dated
August 18, 1995 (Commission File No. 1-7936, filed September 15, 1995).
*11 - Computation of primary and fully diluted earnings per share.
*21 - Subsidiaries of Registrant.
*24 - Powers of attorney executed by certain directors of Registrant.
*27 - Financial Data Schedule.
</TABLE>
59
<PAGE> 63
<TABLE>
<S> <C>
99.1 - Class Action Complaint, Thomas J. McKula, Jr., on behalf of himself and all others similarly situated v.
William K. Wilde, et al., C.A. 14481 (Delaware Chancery Court for the State of Delaware in and for New
Castle County) (as filed August 15, 1995) - incorporated by reference from Exhibit 99.3 to Registrant's
Current Report on Form 8-K dated August 11, 1995 (Commission File No. 1-7936, filed August 21, 1995).
99.2 - Class Action Complaint, Crandon Capital Partners v. V. H. Van Horn, et al., C.A. 14489 (Chancery Court
of the State of Delaware in and for New Castle County) (as filed August 18, 1995) - incorporated by
reference from Exhibit 99.1 to Registrant's Current Report on Form 8-K dated August 18, 1995
(Commission File No. 1-7936, filed September 15, 1995).
99.3 - Complaint, The Circle K Corporation v. National Convenience Stores Incorporated, et al., C.A. 14518
(Chancery Court of the State of Delaware in and for New Castle County) (as filed September 5, 1995) -
incorporated by reference from Exhibit 99.2 to Registrant's Current Report on Form 8-K dated August 18,
1995 (Commission File No. 1-7936, filed September 15, 1995).
99.4 - Complaint, The Circle K Corporation v. National Convenience Stores Incorporated, et al., C.A. 95-537
(U.S. District Court for the District of Delaware) (as filed September 5, 1995) - incorporated by
reference from Exhibit 99.3 to Registrant's Current Report on Form 8-K dated August 18, 1995
(Commission File No. 1-7936, filed September 15, 1995).
</TABLE>
* Filed herewith.
** Confidential treatment has been requested with respect to portions of
this exhibit.
60
<PAGE> 64
(b) REPORTS ON FORM 8-K
The Company did not file a Current Report on Form 8-K during the fourth quarter
of fiscal 1995.
On August 14, 1995, the Company filed a Current Report on Form 8-K related to
(i) the receipt of an unsolicited acquisition proposal from The Circle K
Corporation ("Circle K") whereby Circle K offered to buy all of the Company's
Common Stock for $17.00 cash per share (the "Circle K Tender Offer"),
(ii) the adoption of an amendment to the Company's Restated By-Laws which
provides that any change in the number of directors must be approved by 75% of
the stockholders, and (iii) proposals received by the Company to increase the
number of directors and additional nominees.
On August 21, 1995, the Company filed a Current Report on Form 8-K related to
proposals received by the Company to increase the number of directors and to
submit nominees for directorship positions. In addition, a class action
lawsuit was filed against the Company and its directors seeking, among other
things, the invalidation of the amendment to the By-Laws adopted by the Board
of Directors of the Company on August 10, 1995 and unspecified damages.
On September 5, 1995, the Company filed a Current Report on Form 8-K to
announce its response to the Circle K Tender Offer and to describe the
adoption of a stockholder rights plan.
On September 15, 1995, the Company filed a Current Report on Form 8-K to
describe (i) certain employment agreements and benefit plans of the Company
which had been amended and restated, (ii) a Master Agreement for ATM Facilities
between the Company and NationsBank of Texas, N.A., and (iii) an Order
Providing for Closing Chapter 11 cases which was signed on September 6, 1995.
In addition, the Company described and/or updated the status of four law suits
filed against the Company during the first quarter of fiscal 1996.
61
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
National Convenience Stores Incorporated
By: A.J. GALLERANO
-------------------------
A.J. Gallerano
Senior Vice President,
General Counsel and
Secretary
September 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Capacity Date
---------------------------- -------------- ------------
V.H. VAN HORN President, Chief Executive Officer September 20, 1995
------------------------------ and Director
V.H. Van Horn (Principal Executive Officer)
BRIAN FONTANA Vice President - Chief Financial September 20, 1995
-------------------------- Officer
Brian Fontana (Principal Financial Officer)
JANICE E. BRYANT Vice President - Controller September 20, 1995
---------------- (Principal Accounting Officer)
Janice E. Bryant
RICHARD C. STEADMAN* Chairman of the Board September 20, 1995
--------------------------- and Director
Richard C. Steadman
DUNBAR N. CHAMBERS, JR.* Director September 20, 1995
---------------------------
Dunbar N. Chambers, Jr.
CHARLES J. LUELLEN* Director September 20, 1995
---------------------------
Charles J. Luellen
LIONEL SOSA* Director September 20, 1995
---------------------------
Lionel Sosa
</TABLE>
62
<PAGE> 66
<TABLE>
<S> <C> <C>
RAYMOND W. OELAND, JR.* Director September 20, 1995
---------------------------
Raymond W. Oeland, Jr.
ROBERT B. STOBAUGH* Director September 20, 1995
---------------------------
Robert B. Stobaugh
WILLIAM KEY WILDE* Director September 20, 1995
---------------------------
William Key Wilde
*By A. J. GALLERANO
-----------------------
A. J. Gallerano
Attorney-in-Fact
September 20, 1995
</TABLE>
63
<PAGE> 67
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
4.4 - Third Amendment, dated March 31, 1995 to Second Amended and Restated Credit Agreement between
Registrant and NationsBank of Texas, N.A., as Agent and Third Amendment, dated March 31, 1995 to the
Revolving Credit Agreement between Registrant, its Subsidiaries Signatory Thereto, the Financial
Institution's Signatory Thereto and NationsBank of Texas, N.A., as Agent.
4.5 - Fourth Amendment, dated as of June 30, 1995, to Second Amended and Restated Credit Agreement between
Registrant and NationsBank of Texas, N.A., as Agent, and Fourth Amendment, dated as of June 30, 1995,
to Revolving Credit Agreement between Registrant, its Subsidiaries Signatory Thereto, the Financial
Institution's Signatory Thereto and NationsBank of Texas, N.A., as Agent.
10.20 - Agreement Amending and Restating Employment Agreement executed as of August 31, 1995 but effective as of
February 1, 1995 by and between the Company and Janice E. Bryant.
11 - Computation of primary and fully diluted earnings per share.
21 - Subsidiaries of Registrant.
24 - Powers of attorney executed by certain directors of Registrant.
27 - Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.4
THIRD AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AND
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
and THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (collectively, the
"AMENDMENT") is entered into as of March 31, 1995, among NATIONAL CONVENIENCE
STORES INCORPORATED, a Delaware corporation ("BORROWER"), NATIONSBANK OF NORTH
CAROLINA, N.A., a national banking association "NATIONSBANK-NORTH CAROLINA"),
and NATIONSBANK OF TEXAS, N.A., a national banking association
("NATIONSBANK-TEXAS") (collectively, the "LENDERS"), and NationsBank-Texas as
agent for itself and the other Lenders ("AGENT"). Terms not defined in this
Amendment have the meaning given such terms in the Credit Agreements (defined
below).
RECITALS
A. Borrower, Agent, and Lenders executed a Second Amended and
Restated Credit Agreement dated as of March 9, 1993 (as amended by that First
Amendment to Second Amended and Restated Credit Agreement dated as of June 15,
1993, and that Second Amendment to Second Amended and Restated Credit Agreement
dated as of March 31, 1994, and as subsequently amended, restated,
supplemented, or replaced, the "CREDIT AGREEMENT").
B. Borrower, Agent, and Lenders executed a Revolving Credit
Agreement dated as of March 9, 1993 (as amended by that First Amendment to
Revolving Credit Agreement dated as of June 15, 1993, and that Second Amendment
to Revolving Credit Agreement dated as of March 31, 1994, and as subsequently
amended, restated, supplemented, or replaced, the "REVOLVING CREDIT
AGREEMENT").
C. Collectively, the Credit Agreement and the Revolving Credit
Agreement are referred to in this Amendment as the "CREDIT AGREEMENTS".
D. Borrower has requested various modifications to the Credit
Agreements and the Lenders are willing to agree to such modifications subject
to the terms and conditions set out in this Amendment.
NOW, THEREFORE, in consideration of the premises set out in this
Amendment and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agree as follows:
<PAGE> 2
1. Credit Agreement. Section 5.10 and Section 5.11 of the Credit
Agreement are deleted and replaced with the following:
SECTION 5.10. Minimum EBITDA. The sum of EBITDA calculated
as of the last day of each Fiscal Quarter for the four Fiscal Quarters
immediately preceding such date will not be less than the applicable
amount set forth in the following schedule, provided that through the
Fiscal Quarter ending March 31, 1994, calculations required above
shall include only Fiscal Quarters occurring after March 31, 1993, and
the minimum EBITDA will be the number listed below divided by 4 and
multiplied by the number of Fiscal Quarters occurring during such
period:
<TABLE>
<CAPTION>
From and To and Minimum
Including Including EBITDA
--------- --------- ------
<S> <C> <C>
Closing Date 3/31/95 $26,000,000
6/30/95 6/29/96 $32,900,000
6/30/96 6/29/97 $36,600,000
6/30/97 6/29/98 $37,500,000
6/30/98 6/29/99 $38,600,000
6/30/99 thereafter $40,100,000
</TABLE>
SECTION 5.11. Capital Expenditures. During the Fourth Fiscal
Quarter in Fiscal Year 1993, CAPEX shall be limited to $7,600,000.
During Fiscal Year 1994, CAPEX shall be limited to $25,000,000.
Thereafter during any Fiscal Year, as reported pursuant to Section
5.01(a), except as provided below, Capital Expenditures may not exceed
the LESSER of (x) the sum of (a) amounts set forth in the following
schedule, plus (b) for each Fiscal Year after Fiscal Year 1994,
amounts up to $3,000,000 which would have been permitted in the
immediately preceding Fiscal Year which were not expended (so long as
such carry-over amount does not otherwise cause a default in any other
covenant in Article V hereof), or (y) the sum of (a) the Consolidated
Fixed Charge Margin plus (b) for each Fiscal Year after Fiscal Year
1994, amounts up to $3,000,000 which would have been permitted in the
immediately preceding Fiscal Year which were not expended (so long as
such carry-over amount does not otherwise cause a default in any other
covenant in Article V hereof). At the last day of each Fiscal Quarter
within a year, cumulative CAPEX for the year-to-date may not exceed
the following percentages of the amounts for the Fiscal Year set forth
in the following schedule: First Quarter, 40%, Second Quarter, 75%,
Third Quarter, 90%.
<TABLE>
<CAPTION>
Fiscal Maximum
Year Ending CAPEX
----------- -----
<S> <C>
6/30/94 $25,000,000
6/30/95 $20,300,000
6/30/96 $24,000,000
6/30/97 $25,100,000
6/30/98 $25,100,000
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Fiscal Maximum
Year Ending CAPEX
----------- -----
<S> <C>
Thereafter $26,900,000
</TABLE>
Notwithstanding the limits above, so long as no default results in any
other financial covenant in Article V hereof, (i) for the Fiscal
Quarter ending March 31, 1995, CAPEX may be $19,000,000, (ii) in
Fiscal Year 1995, CAPEX may be $18,500,000, so long as the
Consolidated Fixed Charge Coverage Margin for such Fiscal Year equals
an amount that is not less than $17,500,000 and (iii) permitted CAPEX
may be increased in any Fiscal Year by the sum of (a) New Equity
Capital Available for CAPEX, plus (b) Excess Cash Flow Available for
CAPEX.
2. Revolving Credit Agreement. Section 7.19 and Section 7.20 of
the Revolving Credit Agreement are deleted and replaced with the following:
SECTION 7.19. Minimum EBITDA. The sum of EBITDA calculated
as of the last day of each Fiscal Quarter for the four Fiscal Quarters
immediately preceding such date will not be less than the applicable
amount set forth in the following schedule, provided that through the
Fiscal Quarter ending March 31, 1994, calculations required above
shall include only Fiscal Quarters occurring after March 31, 1993, and
the minimum EBITDA will be the number listed below divided by 4 and
multiplied by the number of Fiscal Quarters occurring during such
period:
<TABLE>
<CAPTION>
From and To and Minimum
Including Including EBITDA
--------- --------- ------
<S> <C> <C>
Closing Date 3/31/95 $26,000,000
6/30/95 6/29/96 $32,900,000
6/30/96 6/29/97 $36,600,000
6/30/97 6/29/98 $37,500,000
6/30/98 6/29/99 $38,600,000
6/30/99 thereafter $40,100,000
</TABLE>
SECTION 7.20. Capital Expenditures. During the Fourth
Fiscal Quarter in Fiscal Year 1993, CAPEX shall be limited to
$7,600,000. During Fiscal Year 1994, CAPEX shall be limited to
$25,000,000. Thereafter during any Fiscal Year, as reported pursuant
to Section 5.01(a), except as provided below, Capital Expenditures may
not exceed the LESSER of (x) the sum of (a) amounts set forth in the
following schedule, plus (b) for each Fiscal Year after Fiscal Year
1994, amounts up to $3,000,000 which would have been permitted in the
immediately preceding Fiscal Year which were not expended (so long as
such carry-over amount does not otherwise cause a default in any other
covenant in Article V hereof), or (y) the sum of (a) the Consolidated
Fixed Charge Margin plus (b) for each Fiscal Year after Fiscal Year
1994, amounts up to $3,000,000 which would have been permitted in the
immediately preceding Fiscal Year which were not expended (so long as
such carry-over amount does not otherwise cause a default in any other
covenant in Article V hereof). At the last day of each Fiscal Quarter
within a year, cumulative CAPEX for the year-to-date may not exceed
the following percentages
3
<PAGE> 4
of the amounts for the Fiscal Year set forth in the following
schedule: First Quarter, 40%, Second Quarter, 75%, Third Quarter,
90%.
<TABLE>
<CAPTION>
Fiscal Maximum
Year Ending CAPEX
----------- -----
<S> <C>
6/30/94 $25,000,000
6/30/95 $20,300,000
6/30/96 $24,000,000
6/30/97 $25,100,000
6/30/98 $25,100,000
Thereafter $26,900,000
</TABLE>
Notwithstanding the limits above, so long as no default results in any
other financial covenant in Article V hereof, (i) for the Fiscal
Quarter ending March 31, 1995, CAPEX may be $19,000,000, (ii) in
Fiscal Year 1995, CAPEX may be $18,500,000, so long as the
Consolidated Fixed Charge Coverage Margin for such Fiscal Year equals
an amount that is not less than $17,500,000 and (iii) permitted CAPEX
may be increased in any Fiscal Year by the sum of (a) New Equity
Capital Available for CAPEX, plus (b) Excess Cash Flow Available for
CAPEX.
3. Conditions. This Amendment will not be effective until it has
been duly executed and delivered by Borrower, Agent, and each Lender and has
been consented to by each Guarantor Subsidiary.
4. Further Assurances. Borrower shall deliver to Agent such
other documents as Agent may reasonably request in connection with this
Amendment.
5. Representations and Warranties. Borrower hereby represents
and warrants to Lenders that the execution and delivery of this Amendment has
been authorized by all requisite action on the part of Borrower and each
Guarantor Subsidiary and will not violate any of their respective
organizational documents. Borrower further represents and warrants to Lenders
that (a) the representations and warranties of the Borrower and each Guarantor
Subsidiary in each Credit Document (as affected by this Amendment) are true
and correct in all material respects on and as of the effective date of this
Amendment as though made on and as of such date, and (b) the Borrower and each
Guarantor Subsidiary are each in full compliance with all covenants and
agreements contained in each Credit Document (as affected by this Amendment).
6. Fees and Expenses. Borrower agrees to pay the reasonable fees
and expenses of counsel to Agent for services rendered in connection with the
preparation, negotiation, and execution of this Amendment.
7. Inconsistency. Except as affected by this Amendment, the
Credit Documents are unchanged and continue in full force and effect. In the
event of any inconsistency between the terms of the Credit Agreements as hereby
modified (the "AMENDED CREDIT AGREEMENTS") and any
4
<PAGE> 5
other Credit Document, the terms of the Amended Credit Agreements shall control
and such other Credit Document shall be deemed to be amended hereby to conform
to the terms of the Amended Credit Agreements.
8. No Waiver of Defaults; Release. This Amendment does not
constitute a waiver of, or a consent to any present or future violation of or
default under, any provision of the Credit Documents not expressly amended by
this Amendment, or a waiver of Lenders' right to insist upon future compliance
with each term, covenant, condition, and provision of the Credit Documents, and
the Credit Documents shall continue to be binding upon, and inure to the
benefit of, Borrower, Guarantor Subsidiaries, Agent, and Lenders and their
respective successors and assigns. BORROWER HEREBY RELEASES AGENT AND LENDERS
FROM ANY LIABILITY FOR ACTIONS OR FAILURES TO ACT IN CONNECTION WITH THE CREDIT
DOCUMENTS PRIOR TO THE DATE OF THIS AMENDMENT.
9. Form. Each agreement, document, instrument, or other writing
to be furnished Agent or Lenders under any provision of this Amendment must be
in form and substance satisfactory to Agent and its counsel.
10. Multiple Counterparts. This Amendment may be executed in more
than one counterpart, each of which shall be deemed an original, and all of
which constitute, collectively, one instrument; but, in making proof of this
Amendment, it shall not be necessary to produce or account for more than one
such counterpart. It shall not be necessary for Borrower, Agent, and all
Lenders to execute the same counterpart of this Amendment so long as Borrower,
Agent, and each Lender execute a counterpart of this Amendment.
11. Final Agreement. THE CREDIT DOCUMENTS, AS AMENDED BY THIS
AMENDMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first written above.
BORROWER AGENT
-------- -----
NATIONAL CONVENIENCE STORES NATIONSBANK OF TEXAS, N.A., as
INCORPORATED Agent and a Lender
By: By:
----------------------------------- -----------------------------------
Brian Fontana Neill P. Davis
Vice President Senior Vice President
5
<PAGE> 6
NATIONSBANK OF NORTH
CAROLINA, N.A. , as a Lender
By:
-----------------------------------
Neill P. Davis
Senior Vice President
6
<PAGE> 7
GUARANTORS' CONSENT AND AGREEMENT
As an inducement to Agent and Lenders to execute, and in consideration
of Agent's and Lenders' execution of the foregoing Amendment, the undersigned
hereby consent to the Amendment and agree that the same shall in no way
release, diminish, impair, reduce, or otherwise adversely affect the respective
obligations and liabilities of each of the undersigned under the Second
Acknowledgment, Consent and Modification to Guarantee dated as of March 9,
1993, as amended by that First Amendment to Second Acknowledgment, Consent and
Modification to Guarantee dated as of June 15, 1993, which obligations and
liabilities are, and shall continue to be, in full force and effect. This
consent and agreement shall be binding upon the undersigned, and the respective
successors and assigns of each, and shall inure to the benefit of Agent and
Lenders, and the respective successors and assigns of each.
KEMPCO PETROLEUM COMPANY
SCHEPPS FOOD STORES, INC.
STOP N GO MARKETS OF GEORGIA, INC.
STOP N GO MARKETS OF TEXAS, INC.
TEXAS SUPER DUPER MARKETS INC.
By:
-----------------------------------
Brian Fontana
Treasurer of each of the above companies
7
<PAGE> 1
EXHIBIT 4.5
FOURTH AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AND
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
and FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "AMENDMENT") is
entered into as of June 30, 1995, among NATIONAL CONVENIENCE STORES
INCORPORATED, a Delaware corporation ("BORROWER"), NATIONSBANK OF NORTH
CAROLINA, N.A., a national banking association ("NATIONSBANK- NORTH CAROLINA"),
and NATIONSBANK OF TEXAS, N.A., a national banking association
("NATIONSBANK-TEXAS") (collectively, the "LENDERS"), and NationsBank-Texas as
agent for itself and the other Lenders ("AGENT"). Terms not defined in this
Amendment have the meaning given such terms in the Credit Agreements (defined
below).
RECITALS
A. Borrower, Agent, and Lenders executed a Second Amended and
Restated Credit Agreement dated as of March 9, 1993 (as amended by a first
amendment dated as of June 15, 1993, a second amendment dated as of March 31,
1994, a Consent, Waiver and Amendment of Certain Provisions of Second Amended
and Restated Credit Agreement and Revolving Credit Agreement dated as of April
29, 1994, and a third amendment dated as of March 31, 1995, the "TERM LOAN
AGREEMENT").
B. Borrower, Agent, and Lenders executed a Revolving Credit
Agreement dated as of March 9, 1993 (as amended by a first amendment dated as
of June 15, 1993, a second amendment dated as of March 31, 1994, a Consent,
Waiver and Amendment of Certain Provisions of Second Amended and Restated
Credit Agreement and Revolving Credit Agreement dated as of April 29, 1994, and
a third amendment dated as of March 31, 1995, the "REVOLVING CREDIT
AGREEMENT").
C. Collectively, the Term Loan Agreement and the Revolving Credit
Agreement are referred to in this Amendment as the "CREDIT AGREEMENTS".
D. Borrower has requested various modifications to the Credit
Agreements and the Lenders are willing to agree to such modifications subject
to the terms and conditions set out in this Amendment.
NOW, THEREFORE, in consideration of the premises set out in this
Amendment and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agree as follows:
<PAGE> 2
1. Term Loan Agreement. Sections 5.09, 5.10 and 5.11 of the Term
Loan Agreement are deleted and replaced with the following:
SECTION 5.09. Maintenance of Consolidated Fixed Charge
Coverage. As of the last day of each Fiscal Quarter, the
Consolidated Fixed Charge Coverage Ratio will not be less than
the applicable ratios set forth in the following schedule:
<TABLE>
<CAPTION>
From and To and
Including Including Ratio
--------- --------- -----
<S> <C> <C>
6/30/95 9/29/95 119%
9/30/95 6/29/96 125%
6/30/96 6/29/97 140%
6/30/97 6/29/98 140%
6/30/98 thereafter 145%
</TABLE>
SECTION 5.10. Minimum EBITDA. The sum of EBITDA calculated
as of the last day of each Fiscal Quarter for the four Fiscal
Quarters immediately preceding such date will not be less than
the applicable amount set forth in the following schedule, and
the minimum EBITDA will be the number listed below divided by 4
and multiplied by the number of Fiscal Quarters occurring
during such period:
<TABLE>
<CAPTION>
From and To and Minimum
Including Including EBITDA
--------- --------- ------
<S> <C> <C>
6/30/95 9/29/95 $29,500,000
9/30/95 6/29/96 $32,900,000
6/30/96 6/29/97 $36,600,000
6/30/97 6/29/98 $37,500,000
6/30/98 6/29/99 $38,600,000
6/30/99 thereafter $40,100,000
</TABLE>
SECTION 5.11. Capital Expenditures. During any Fiscal Year,
as reported pursuant to Section 5.01(a), except as provided
below, Capital Expenditures may not exceed the LESSER of (x)
the sum of (a) amounts set forth in the following schedule,
plus (b) for each Fiscal Year after Fiscal Year 1995, amounts
up to $3,000,000 which would have been permitted in the
immediately preceding Fiscal Year which were not expended (so
long as such carry-over amount does not otherwise cause a
default in any other covenant in Article V hereof), or (y) the
sum of (a) the Consolidated Fixed Charge Margin plus (b) for
each Fiscal Year after Fiscal Year 1995, amounts up to
$3,000,000 which would have been permitted in the immediately
preceding Fiscal Year which were not expended (so long as such
carry-over amount does not otherwise cause a default in any
other covenant in Article V hereof). At the last day of each
Fiscal Quarter within a year, cumulative CAPEX for the
year-to-date may not exceed the following
2
<PAGE> 3
percentages of the amounts for the Fiscal Year set forth in
the following schedule: First Quarter, 40%, Second Quarter,
75%, Third Quarter, 90%.
<TABLE>
<CAPTION>
Fiscal Maximum
Year Ending CAPEX
----------- -----
<S> <C>
6/30/95 $27,000,000
6/30/96 $24,000,000
6/30/97 $25,100,000
6/30/98 $25,100,000
Thereafter $26,900,000
</TABLE>
Notwithstanding the limits above, so long as no default
results in any other financial covenant in Article V hereof,
(i) in Fiscal Year 1995, CAPEX may be $27,000,000, and (ii)
permitted CAPEX may be increased in any Fiscal Year by the sum
of (a) New Equity Capital Available for CAPEX, plus (b) Excess
Cash Flow Available for CAPEX.
2. Revolving Credit Agreement.
(a) The definition of "Termination Date" in Section 1.01
of the Revolving Credit Agreement is deleted and replaced with
the following:
"Termination Date" means September 30, 1996.
(b) Section 2.02 (g) of the Revolving Credit Agreement
is deleted.
(c) Sections 7.18, 7.19 and 7.20 of the Revolving Credit
Agreement are deleted and replaced with the following:
SECTION 7.18. Maintenance of Consolidated Fixed Charge
Coverage. As of the last day of each Fiscal Quarter, the
Consolidated Fixed Charge Coverage Ratio will not be less than
the applicable ratios set forth in the following schedule:
<TABLE>
<CAPTION>
From and To and
Including Including Ratio
--------- --------- -----
<S> <C> <C>
6/30/95 9/29/95 119%
9/30/95 6/29/96 125%
6/30/96 6/29/97 140%
6/30/97 6/29/98 140%
6/30/98 thereafter 145%
</TABLE>
SECTION 7.19. Minimum EBITDA. The sum of EBITDA calculated
as of the last day of each Fiscal Quarter for the four Fiscal
Quarters immediately preceding such date will not be less than
the applicable amount set forth in the following
3
<PAGE> 4
schedule, and the minimum EBITDA will be the number listed
below divided by 4 and multiplied by the number of Fiscal
Quarters occurring during such period:
<TABLE>
<CAPTION>
From and To and Minimum
Including Including EBITDA
--------- --------- ------
<S> <C> <C>
6/30/95 9/29/95 $29,500,000
9/30/95 6/29/96 $32,900,000
6/30/96 6/29/97 $36,600,000
6/30/97 6/29/98 $37,500,000
6/30/98 6/29/99 $38,600,000
6/30/99 thereafter $40,100,000
</TABLE>
SECTION 7.20. Capital Expenditures. During any Fiscal Year,
as reported pursuant to Section 5.01(a), except as provided
below, Capital Expenditures may not exceed the LESSER of (x)
the sum of (a) amounts set forth in the following schedule,
plus (b) for each Fiscal Year after Fiscal Year 1995, amounts
up to $3,000,000 which would have been permitted in the
immediately preceding Fiscal Year which were not expended (so
long as such carry-over amount does not otherwise cause a
default in any other covenant in Article V hereof), or (y) the
sum of (a) the Consolidated Fixed Charge Margin plus (b) for
each Fiscal Year after Fiscal Year 1995, amounts up to
$3,000,000 which would have been permitted in the immediately
preceding Fiscal Year which were not expended (so long as such
carry-over amount does not otherwise cause a default in any
other covenant in Article V hereof). At the last day of each
Fiscal Quarter within a year, cumulative CAPEX for the
year-to-date may not exceed the following percentages of the
amounts for the Fiscal Year set forth in the following
schedule: First Quarter, 40%, Second Quarter, 75%, Third
Quarter, 90%.
<TABLE>
<CAPTION>
Fiscal Maximum
Year Ending CAPEX
----------- -----
<S> <C>
6/30/95 $27,000,000
6/30/96 $24,000,000
6/30/97 $25,100,000
6/30/98 $25,100,000
Thereafter $26,900,000
</TABLE>
Notwithstanding the limits above, so long as no default results in any
other financial covenant in Article V hereof, (i) in Fiscal Year 1995,
CAPEX may be $27,000,000, and (ii) permitted CAPEX may be increased in
any Fiscal Year by the sum of (a) New Equity Capital Available for
CAPEX, plus (b) Excess Cash Flow Available for CAPEX.
3. Conditions. This Amendment will become effective when it has
been duly executed and delivered by Borrower, Agent, and each Lender and has
been consented to by each Guarantor Subsidiary.
4
<PAGE> 5
4. Further Assurances. Borrower shall deliver to Agent such
other documents as Agent may reasonably request in connection with this
Amendment.
5. Representations and Warranties. Borrower hereby represents
and warrants to Lenders that the execution and delivery of this Amendment has
been authorized by all requisite action on the part of Borrower and each
Guarantor Subsidiary and will not violate any of their respective
organizational documents. Borrower further represents and warrants to Lenders
that (a) the representations and warranties of the Borrower and each Guarantor
Subsidiary in each Credit Document (as affected by this Amendment) are true
and correct in all material respects on and as of the effective date of this
Amendment as though made on and as of such date, except to the extent such
representations and warranties relate to a specific earlier date, and (b) the
Borrower and each Guarantor Subsidiary are each in full compliance with all
covenants and agreements contained in each Credit Document (as affected by
this Amendment).
6. Fees and Expenses. Borrower agrees to pay the reasonable fees
and expenses of counsel to Agent for services rendered in connection with the
preparation, negotiation, and execution of this Amendment.
7. Inconsistency. Except as affected by this Amendment, the
Credit Documents are unchanged and continue in full force and effect in
accordance with their respective terms. In the event of any inconsistency
between the terms of the Credit Agreements as hereby modified (the "AMENDED
CREDIT AGREEMENTS") and any other Credit Document, the terms of the Amended
Credit Agreements shall control and such other Credit Document shall be deemed
to be amended hereby to conform to the terms of the Amended Credit Agreements.
8. No Waiver of Defaults; Release. This Amendment does not
constitute a waiver of, or a consent to any present or future violation of or
default under, any provision of the Credit Documents not affected by this
Amendment, or a waiver of Lenders' right to insist upon future compliance with
each term, covenant, condition, and provision of the Credit Documents, and the
Credit Documents shall continue to be binding upon, and inure to the benefit
of, Borrower, Guarantor Subsidiaries, Agent, and Lenders and their respective
successors and assigns. BORROWER HEREBY RELEASES AGENT AND LENDERS FROM ANY
LIABILITY FOR ACTIONS OR FAILURES TO ACT IN CONNECTION WITH THE CREDIT
DOCUMENTS PRIOR TO THE DATE OF THIS AMENDMENT.
9. Form. Each agreement, document, instrument, or other writing
to be furnished Agent or Lenders under any provision of this Amendment, if any,
must be in form and substance satisfactory to Agent and its counsel.
10. Multiple Counterparts. This Amendment may be executed in more
than one counterpart, each of which shall be deemed an original, and all of
which constitute, collectively, one instrument; but, in making proof of this
Amendment, it shall not be necessary to produce or account for more than one
such counterpart. It shall not be necessary for Borrower, Agent, and all
Lenders to execute the same counterpart of this Amendment so long as Borrower,
Agent, and each Lender execute a counterpart of this Amendment.
5
<PAGE> 6
11. Final Agreement. THE CREDIT DOCUMENTS, AS AMENDED BY
THIS AMENDMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first written above.
BORROWER AGENT
NATIONAL CONVENIENCE STORES NATIONSBANK OF TEXAS, N.A.,
INCORPORATED as Agent and a Lender
By: By:
_________________________ ____________________________
Brian Fontana Neill P. Davis
Vice President Senior Vice President
NATIONSBANK OF NORTH CAROLINA, N.A.,
as a Lender
By:
____________________________
Neill P. Davis
Senior Vice President
6
<PAGE> 7
GUARANTORS' CONSENT AND AGREEMENT
As an inducement to Agent and Lenders to execute, and in consideration
of Agent's and Lenders' execution of the foregoing Amendment, the undersigned
hereby consent to the Amendment and agree that the same shall in no way
release, diminish, impair, reduce, or otherwise adversely affect the respective
obligations and liabilities of each of the undersigned under the Second
Acknowledgment, Consent and Modification to Guarantee dated as of March 9,
1993, as amended by that First Amendment to Second Acknowledgment, Consent and
Modification to Guarantee dated as of June 15, 1993, which obligations and
liabilities are, and shall continue to be, in full force and effect. This
consent and agreement shall be binding upon the undersigned, and the respective
successors and assigns of each, and shall inure to the benefit of Agent and
Lenders, and the respective successors and assigns of each.
KEMPCO PETROLEUM COMPANY
SCHEPPS FOOD STORES, INC.
STOP N GO MARKETS OF GEORGIA, INC.
STOP N GO MARKETS OF TEXAS, INC.
TEXAS SUPER DUPER MARKETS INC.
By:
________________________________________________
Brian Fontana
Treasurer of each of the above companies
7
<PAGE> 1
EXHIBIT 10.20
AGREEMENT AMENDING AND RESTATING
EMPLOYMENT AGREEMENT
THIS AGREEMENT AMENDING AND RESTATING EMPLOYMENT AGREEMENT (this
"Agreement") is executed as of August 31, 1995 (the "Execution Date"), but
effective as of February 1, 1995 (the "Effective Date"), by and between
NATIONAL CONVENIENCE STORES INCORPORATED, a Delaware corporation (the
"Company"), and JANICE E. BRYANT ("Executive").
R E C I T A L S:
A. The Company is in the convenience store business in the State
of Texas.
B. Executive is recognized as having experience in the management
and operation of companies that are in the convenience store business.
C. The Company and Executive entered into that certain Employment
Agreement effective as of February 1, 1995 (the "Employment Agreement").
D. The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication of Executive,
notwithstanding the possibility, threat, or occurrence of a Change in Control
(as defined in Section 4.6 hereof).
E. The Board believes it is imperative (i) to diminish the
inevitable and significant distractions of Executive and dilution of the time
of Executive, by virtue of the personal uncertainties and risks created by a
pending or threatened Change in Control, (ii) to encourage Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change in Control, and (iii) to provide Executive with
compensation arrangements in the event of a Change in Control which provide
Executive with financial security, which are competitive with those of other
corporations, and which ensure that Executive receives the compensation and
benefits intended to be provided to Executive by the Company through this
Agreement and the Company's various employee benefit and compensation plans and
arrangements without regard to any Excise Tax (as defined in Section 4.10(a)
hereof).
F. In order to accomplish the objectives described in the two
immediately preceding recitals, the Board desires to cause the Company to enter
into this Agreement and amend and restate the Employment Agreement as set forth
herein.
G. Executive desires to enter into this Agreement and amend and
restate the Employment Agreement as set forth herein.
1
<PAGE> 2
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT, REPORTING, TERM AND DUTIES
1.1 Employment. On the terms and subject to the conditions of
this Agreement, the Company hereby employs and engages the services of
Executive to serve as, and Executive agrees to diligently and competently serve
as and perform the functions of, Vice President - Controller (the "Office") of
the Company for the term and for the compensation and benefits stated herein.
1.2 Term. The term of employment under this Agreement shall
commence on the Effective Date and shall end on the first to occur of the
events set forth in Section 4.1(a), (b), and (c) (the "Term").
1.3 Major Responsibilities; Authority. Executive shall have the
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities usually associated with the Office of
corporations having assets similar in nature and value to the assets of the
Company and business similar to the business of the Company and at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 90-day periods immediately
preceding each of the Effective Date and the Execution Date, and such other
duties as the Board shall determine from time to time.
1.4 Extent of Service. During the Term, and excluding any periods
of vacation and sick leave to which Executive is entitled, Executive agrees to
devote reasonable time and energies to the business of the Company consistent
with past practice and shall not, during the Term, be engaged in any business
activity which would interfere or prevent Executive from carrying out her
duties under this Agreement; provided, however, that this Section 1.4 shall not
be construed as preventing Executive from investing her assets in such form or
manner as will not require services on the part of Executive in the operation
of the affairs of any company in which such investments are made.
1.5 Location. Executive shall not be required to move from
Executive's home in Houston, Texas.
ARTICLE II
COMPENSATION AND RELATED ITEMS
2.1 Compensation. As compensation and consideration for the
services to be rendered by Executive under this Agreement and for the
performance by Executive of
2
<PAGE> 3
the usual obligations of such employment, the Company agrees to pay Executive,
and Executive agrees to accept, the following compensation and benefits during
the Term:
(a) Salary. Executive shall be paid a minimum annual
salary in the amount of $145,000. Except as otherwise provided
herein, the minimum salary in effect for any period shall be payable
in equal weekly payments. Any earnings over the minimum salary in
effect during any period shall not be applied to the minimum salary
for any subsequent period. If this Agreement terminates on a date
other than the last day of any week, Executive shall be paid for the
week that includes the date of such termination a pro rata portion of
the minimum salary then in effect for such week in the ratio that the
number of days of employment during such week bears to the total
number of business days in such week.
(b) Bonus.
(i) In addition to the minimum salary provided
for in Section 2.1(a) hereof, and subject to the provisions of
Section 2.1(b)(vi) hereof, Executive shall be awarded, for
each fiscal year of the Company during the Term (or, in the
event of a Change in Control, a portion thereof as hereinafter
provided) commencing with the fiscal year of the Company
ending June 30, 1996, a bonus ("Bonus") calculated in
accordance with this Section 2.1(b).
(ii) For purposes of this Section 2.1(b), the
following terms shall have the meanings indicated:
(A) "Bonusable Earnings" shall mean the
consolidated earnings before reorganization expenses,
fresh start adjustments, income taxes, changes in
accounting method, extraordinary gains or losses, and
Takeover Expenses (as defined in the next sentence)
of the Company and its subsidiaries for any fiscal
year, or completed months thereof in the event of a
Change in Control, as the case may be, for which a
Bonus is being calculated, as determined in
conformity with generally accepted accounting
principles applied in a manner consistent with prior
periods. For purposes of the preceding sentence, the
term "Takeover Expenses" shall mean the aggregate
amount of the costs and expenses (including, but not
limited to, any accruals, reserves, or provisions for
such costs and expenses) related to any and all
transactions that arise in connection with a Change
in Control or a potential Change in Control (whether
or not any such transaction (I) is consummated, (II)
is solicited or unsolicited by the Company, or (III)
is undertaken to resist or facilitate any such
transaction or any other such transaction),
including, but not limited to, the fees and costs of
investment bankers, attorneys, accountants, and other
experts and advisors.
3
<PAGE> 4
(B) "Threshold Amount" shall mean (I)
for the fiscal year of the Company ended June 30,
1996, an amount equal to $12,000,000, and (II) for
each subsequent fiscal year of the Company during the
Term, an amount equal to a reasonable forecast of the
minimum amount of the Bonusable Earnings for such
fiscal year which the Board shall in good faith
establish by resolution as the Threshold Amount
within thirty (30) days after the first day of such
fiscal year.
(C) "Threshold Percentage" shall mean
(I) five percent (5%) for the fiscal year of the
Company ended June 30, 1996, and (II) for each
subsequent fiscal year of the Company during the
Term, a percentage of Executive's minimum salary
which will provide Executive with a reasonable
compensation incentive for the Company's obtaining
the Threshold Amount for such fiscal year and which
the Board in good faith shall establish by resolution
as the Threshold Percentage within thirty (30) days
after the first day of such fiscal year.
(D) "Threshold Applicable Percentage"
shall mean for any fiscal year of the Company during
the Term, a percentage calculated in accordance with
the following formula:
<TABLE>
<S> <C>
Threshold Applicable Percentage = Threshold Percentage + [(Target Percentage -
Bonusable Earnings - Threshold Amount
Threshold Percentage) x -------------------------------------------].
Target Amount - Threshold Amount
</TABLE>
(E) "Target Amount" shall mean (I) for
the fiscal year of the Company ended June 30, 1996,
an amount equal to $14,500,000, and (II) for each
subsequent fiscal year of the Company during the
Term, an amount equal to a reasonable forecast of the
expected amount of the Bonusable Earnings for such
fiscal year which the Board shall in good faith
establish by resolution as the Target Amount within
thirty (30) days after the first day of such fiscal
year.
(F) "Target Percentage" shall mean (I)
twenty percent (20%) for the fiscal year of the
Company ended June 30, 1996, and (II) for each
subsequent fiscal year of the Company during the
Term, a percentage of Executive's minimum salary
which will provide Executive with a reasonable
compensation incentive for the Company's obtaining
the Target Amount for such fiscal year and which the
Board in good faith shall establish by resolution as
the Target Percentage within thirty (30) days after
the first day of such fiscal year.
4
<PAGE> 5
(G) "Target Applicable Percentage" shall
mean for any fiscal year of the Company during the
Term, a percentage calculated in accordance with the
following formula:
<TABLE>
<S> <C>
Target Applicable Percentage = Target Percentage + [(Maximum Percentage -
Bonusable Earnings - Target Amount
Target Percentage) x -----------------------------------------].
Maximum Amount - Target Amount
</TABLE>
(H) "Maximum Amount" shall mean (I) for
the fiscal year of the Company ended June 30, 1996,
an amount equal to $17,000,000, and (II) for each
subsequent fiscal year of the Company during the
Term, an amount equal to a reasonable forecast of the
maximum amount of the Bonusable Earnings for such
fiscal year which the Board shall in good faith
establish by resolution as the Maximum Amount within
thirty (30) days after the first day of such fiscal
year.
(I) "Maximum Percentage" shall mean (I)
forty percent (40%) for the fiscal year of the
Company ended June 30, 1996, and (II) for each
subsequent fiscal year of the Company during the
Term, a percentage of Executive's minimum salary
which will provide Executive with a reasonable
compensation incentive for the Company's obtaining
the Maximum Amount for such fiscal year and which the
Board in good faith shall establish by resolution as
the Maximum Percentage within thirty (30) days after
the first day of such fiscal year.
(J) "Monthly Target Amount" shall mean
(I) for each month of the fiscal year of the Company
ended June 30, 1996, the following amount set forth
opposite such month:
5
<PAGE> 6
<TABLE>
<CAPTION>
Monthly Target
Month Year Amount
----- ---- -------------
<S> <C> <C>
July 1995 $ 2,857,903
August 1995 2,605,852
September 1995 1,835,830
October 1995 1,713,422
November 1995 204,494
December 1995 805,051
January 1996 (290,770)
February 1996 (513,025)
March 1996 504,432
April 1996 668,572
May 1996 1,454,238
June 1996 2,249,899
---------
Total $14,095,898
===========
</TABLE>
; and (II) for each month of each subsequent fiscal
year of the Company during the Term, an amount equal
to a reasonable forecast of the monthly expected
amount of the Bonusable Earnings for each month of
such fiscal year which the Board shall in good faith
establish by resolution as the Target Amount within
thirty (30) days after the first day of such fiscal
year and which shall, in the aggregate, equal the
Target Amount for such fiscal year.
(K) "Projected Bonusable Earnings" shall
mean for the fiscal year of the Company which
includes the date of a Change in Control, an amount
equal to the product obtained by multiplying (I) the
Target Amount for such fiscal year, by (II) the
quotient obtained by dividing the aggregate amount of
the Bonusable Earnings for the completed months of
such fiscal year that precede the date of such
termination or Change in Control, as the case may be,
by the aggregate amount of the Monthly Target Amounts
for such completed months.
(L) "Threshold Projected Applicable
Percentage" shall mean for the fiscal year of the
Company which includes the date of a Change in
Control, a percentage calculated in accordance with
the following formula:
<TABLE>
<S> <C>
Threshold Projected Applicable Percentage = Threshold Percentage + [(Target Percentage -
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C>
Projected Bonusable Earnings - Threshold Amount
Threshold Percentage) x --------------------------------------------------------------].
Target Amount - Threshold Amount
</TABLE>
(M) "Target Projected Applicable
Percentage" shall mean for the fiscal year of the
Company which includes the date of a Change in
Control, a percentage calculated in accordance with
the following formula:
<TABLE>
<S> <C>
Target Projected Applicable Percentage = Target Percentage + [(Maximum Percentage -
Projected Bonusable Earnings - Target Amount
Target Percentage) x ----------------------------------------------].
Maximum Amount - Target Amount
</TABLE>
(iii) Except as otherwise provided in Section
2.1(b)(iv) hereof, for the fiscal year of the Company ended
June 30, 1996 and for each fiscal year of the Company
thereafter during the Term, the Bonus shall be an amount
calculated as follows:
(A) If the Bonusable Earnings for such
fiscal year are less than the Threshold Amount for
such fiscal year, the Bonus shall be zero ($-0-).
(B) If the Bonusable Earnings for such
fiscal year are equal to or greater than the
Threshold Amount for such fiscal year, but less than
the Target Amount for such fiscal year, the Bonus
shall be an amount equal to the product of (I)
Executive's minimum salary under Section 2.1(a)
hereof as in effect on the last day of such fiscal
year, multiplied by (II) the Threshold Applicable
Percentage for such fiscal year.
(C) If the Bonusable Earnings for such
fiscal year are equal to or greater than the Target
Amount for such fiscal year, but less than the
Maximum Amount for such fiscal year, the Bonus shall
be an amount equal to the product of (I) Executive's
minimum salary under Section 2.1(a) hereof as in
effect on the last day of such fiscal year,
multiplied by (II) the Target Applicable Percentage
for such fiscal year.
(D) If the Bonusable Earnings for such
fiscal year are equal to or greater than the Maximum
Amount for such fiscal year, the Bonus shall be an
amount equal to the product of (I) Executive's
minimum salary under Section 2.1(a) hereof as in
effect on the last day of such fiscal year,
multiplied by (II) the Maximum Percentage for such
fiscal year.
(iv) Notwithstanding anything contained in this
Agreement to the contrary, upon the occurrence of a Change in
Control, the amount of the Bonus for the fiscal year which
includes the date of such Change in Control shall be an amount
calculated as follows:
7
<PAGE> 8
(A) If the Projected Bonusable Earnings
for such fiscal year are less than the Threshold
Amount for such fiscal year, the Bonus shall be zero
($-0-).
(B) If the Projected Bonusable Earnings
for such fiscal year are equal to or greater than the
Threshold Amount for such fiscal year, but less than
the Target Amount for such fiscal year, the Bonus
shall be an amount equal to the product of (I) a
fraction, the numerator of which is the number of
completed months in such fiscal year that precede the
date of such Change in Control and the denominator of
which is twelve (12), multiplied by (II) Executive's
minimum salary under Section 2.1(a) hereof as in
effect on the date of such Change in Control,
multiplied by (III) the Threshold Projected
Applicable Percentage for such fiscal year.
(C) If the Projected Bonusable Earnings
for such fiscal year are equal to or greater than the
Target Amount for such fiscal year, but less than the
Maximum Amount for such fiscal year, the Bonus shall
be an amount equal to the product of (I) a fraction,
the numerator of which is the number of completed
months in such fiscal year that precede the date of
such Change in Control and the denominator of which
is twelve (12), multiplied by (II) Executive's
minimum salary under Section 2.1(a) hereof as in
effect on the date of such Change in Control,
multiplied by (III) the Target Projected Applicable
Percentage for such fiscal year.
(D) If the Projected Bonusable Earnings
for such fiscal year are equal to or greater than the
Maximum Amount for such fiscal year, the Bonus shall
be an amount equal to the product of (I) a fraction,
the numerator of which is the number of completed
months in such fiscal year that precede the date of
such Change in Control and the denominator of which
is twelve (12), multiplied by (II) Executive's
minimum salary under Section 2.1(a) hereof as in
effect on the date of such Change in Control,
multiplied by (III) the Maximum Percentage for such
fiscal year.
(v) Except as otherwise provided herein, any
Bonus payable to Executive under this Agreement shall be paid
by the Company to Executive no later than the sooner of (A)
forty-five (45) days after the last day of the fiscal year of
the Company with respect to which such Bonus is calculated, or
(B) thirty (30) days after a Change in Control.
(vi) Except as otherwise provided in this
Agreement, upon the occurrence of a Change in Control,
Executive shall not be entitled under this Section 2.1(b) to
any Bonus calculated or that would be calculated with respect
to any period beginning after the last day of the month
immediately preceding such date of Change in Control;
provided, however, that nothing contained in this Section
2.1(b)(vi) shall prevent or limit
8
<PAGE> 9
Executive's continuing or future participation in, or limit or
otherwise affect such rights as Executive may have under, any
other bonus or incentive plan, program, arrangement or policy
provided by the Company or any of its affiliates and for
which Executive may qualify.
(c) Additional Compensation. In addition to the minimum
salary and Bonus provided for in Section 2.1(a) and (b), respectively,
Executive and/or Executive's family, as the case may be, shall be
entitled to:
(i) participate in, and shall receive all benefits under:
(A) any and all welfare benefit and
similar employee benefit plans, programs,
arrangements, or policies that are generally made
available by the Company and its affiliates (as
defined in Section 4.10(l)) now or at any time in the
future to other key executive officers or retired key
executive officers, including, but not limited to,
any hospitalization, medical, prescription, dental,
disability, salary continuance, individual life
insurance, executive life insurance, group life
insurance, accidental death insurance, and travel
accident insurance plans, programs, arrangements, and
policies; and
(B) any and all bonus, incentive,
savings, retirement, profit sharing, pension, and
stock option plans, programs, arrangements, and
policies that are generally made available by the
Company and its affiliates now or at any time in the
future to other key executive officers, including,
but in no way limited to, that certain Amended and
Restated National Convenience Stores Incorporated
Officers' Retirement Plan effective as of August 31,
1995; and
(ii) annual vacations and sick leave in accordance
with the vacation and sick leave policies of the Company and
its affiliates as are now or at any time in the future in
effect with respect to other key executive officers, during
which time of such vacations and sick leave Executive's
compensation shall be paid in full; and
(iii) fringe benefits in accordance with the fringe
benefit policies of the Company and its affiliates as are now
or at any time in the future in effect with respect to other
key executive officers.
2.2 Expenses. The Company agrees that, during the Term, Executive
shall be allowed reasonable and necessary business expenses in connection with
the performance of his duties hereunder within guidelines established by the
Board as in effect at any time with respect to key executives ("Business
Expenses"), including, but not limited to, reasonable and necessary expenses
for food, travel, lodging, entertainment and other items in the promotion of
Company's business within such guidelines. Company will promptly reimburse
Executive for all Business Expenses
9
<PAGE> 10
incurred by Executive upon Executive's presentation to the Company of an
itemized account thereof, together with receipts, vouchers, or other
supporting documentation. After termination or expiration of this Agreement,
however such termination or expiration may come about, Executive shall have
ninety (90) days after the date of such termination or expiration to submit
Business Expenses incurred during the Term hereof to the Company for
reimbursement.
2.3 Working Facilities. Executive shall be furnished with offices
of a size and with other furnishings and appointments, administrative staff,
secretarial and other assistants, stenographic help, and such other facilities
and services as are suitable to Executive's position and adequate for the
performance of Executive's duties.
ARTICLE III
EXCULPATION
Company agrees that Executive will not be liable for any losses,
expenses, costs or damages caused by or resulting from the recommendations,
suggestions, actions, errors, omissions or mistakes of Executive undertaken or
proposed by Executive if Executive acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company. Executive's rights under this Article III shall not be deemed
exclusive of, but shall be cumulative with, any and all other rights
(including, but not limited to, rights of indemnification and advancement of
expenses) to which Executive may now or at any time in the future be entitled
under applicable law, the Company's Certificate of Incorporation, the Company's
Bylaws, any agreement (including, but not limited to, this Agreement), any vote
of stockholders, any resolution of directors, or otherwise.
ARTICLE IV
TERMINATION
4.1 Termination of Agreement. Except as may otherwise be provided
herein, this Agreement shall terminate upon the first to occur of:
(a) Thirty (30) days after written notice of termination
is given by either party to the other; or
(b) Executive's death or, at the Company's option, upon
Executive's becoming Disabled (as defined in Section 4.8 hereof); or
(c) August 31, 1996 (the "Final Date").
Any notice of termination given by Executive to the Company under Section
4.1(a) above shall specify whether such termination is made with or without
Good Reason (as defined in Section 4.4 hereof) or Good Reason-Change in Control
(as defined in Section 4.5 hereof). Any notice of termination given by the
Company to Executive
10
<PAGE> 11
under Section 4.1(a) above shall specify whether such termination is with or
without Cause (as defined in Section 4.3 hereof).
4.2 Obligations of the Company Upon Termination.
(a) Cause; Other than for Good Reason and Other than for
Good Reason-Change in Control. If the Company terminates this
Agreement with Cause pursuant to Section 4.1(a) hereof, or if
Executive terminates this Agreement without Good Reason or without
Good Reason-Change in Control pursuant to Section 4.1(a) hereof, or if
this Agreement terminates pursuant to Section 4.1(c) hereof, this
Agreement shall terminate without further obligations to Executive,
other than those obligations owing or accrued to, vested in, or earned
by Executive through the date of termination, including, but not
limited to:
(i) to the extent not theretofore paid,
Executive's minimum salary at the annual rate in effect at the
time of such termination through the date of termination; and
(ii) in the case of compensation previously
deferred by Executive, all amounts previously deferred
(together with any accrued interest thereon) and not yet paid
by the Company and any accrued vacation pay not yet paid by
the Company; and
(iii) all other amounts or benefits owing or
accrued to, vested in, earned by Executive through the date of
termination under the then existing or applicable plans,
programs, arrangements, and policies of the Company and its
affiliates, including, but not limited to, any such plans,
programs, arrangements, or policies described in Section
2.1(c) hereof;
such obligations owing or accrued to, vested in, or earned by
Executive through the date of termination, including, but not limited
to, such amounts and benefits specified in clauses (i), (ii), and
(iii) of this sentence, being hereinafter collectively referred to as
the "Accrued Obligations." The aggregate amount of such obligations
owing or accrued to, vested in, or earned by Executive through the
date of termination, including, but not limited to, the Accrued
Obligations, shall be paid by the Company to Executive in cash in one
lump sum within thirty (30) days after the date of termination.
(b) Good Reason; Other than for Cause Before a Change in
Control. If Executive terminates this Agreement with Good Reason
pursuant to Section 4.1(a) hereof, or if the Company terminates this
Agreement without Cause before the occurrence of a Change in Control
pursuant to Section 4.1(a) hereof, the Company shall pay to Executive
cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts:
(i) to the extent not theretofore paid,
Executive's minimum salary at the annual rate in effect at the
time of such termination (but
11
<PAGE> 12
prior to giving effect to any reduction therein which
precipitated such termination) through the date of
termination; and
(ii) Executive's minimum salary at the annual rate
in effect at the time of such termination (but prior to giving
effect to any reduction therein which precipitated such
termination) for the period commencing on the day after the
date of termination and ending on the Final Date; and
(iii) in the case of compensation previously
deferred by Executive, all amounts previously deferred
(together with any accrued interest thereon) and not yet paid
by the Company, and any accrued vacation pay not yet paid by
the Company; and
(iv) all other amounts or benefits owing or
accrued to, vested in, or earned by Executive through the date
of termination under the then existing or applicable plans,
programs, arrangements, and policies of the Company and its
affiliates, including, but not limited to, any such plans,
programs, arrangements, or policies described in Section
2.1(c) hereof; and
(v) any and all other Accrued Obligations not
otherwise described in clause (i), (iii), or (iv) of this
sentence.
(c) Good Reason-Change in Control; Other than for Cause
On or After a Change in Control. If Executive terminates this
Agreement with Good Reason-Change in Control pursuant to Section
4.1(a) hereof, or if the Company terminates this Agreement without
Cause on or after the occurrence of a Change in Control pursuant to
Section 4.1(a) hereof the Company shall pay to Executive cash in one
lump sum within thirty (30) days after the date of termination the
aggregate of the following amounts:
(i) to the extent not theretofore paid,
Executive's minimum salary at the annual rate in effect at the
time of such termination (but prior to giving effect to any
reduction therein which precipitated such termination) through
the date of termination; and
(ii) Executive's minimum salary at the annual rate
in effect at the time of such termination (but prior to giving
effect to any reduction therein which precipitated such
termination) for the period commencing on the day after the
date of termination and ending on the Final Date; and
(iii) to the extent not theretofore paid as
required under Section 2.1(b)(v) hereof, any Bonus through the
date of such Change in Control; and
(iv) in the case of compensation previously
deferred by Executive, all amounts previously deferred
(together with any accrued interest
12
<PAGE> 13
thereon) and not yet paid by the Company, and any accrued
vacation pay not yet paid by the Company; and
(v) all other amounts or benefits owing or
accrued to, vested in, or earned by Executive through the date
of termination under the then existing or applicable plans,
programs, arrangements, and policies of the Company and its
affiliates, including, but not limited to, any such plans,
programs, arrangements, or policies described in Section
2.1(c) hereof; and
(vi) any and all other Accrued Obligations not
otherwise described in clause (i), (iii), (iv), or (v) of this
sentence.
(d) Death. If Executive's employment is terminated under
Section 4.1(b) hereof by reason of Executive's death, the Company
shall pay to Executive's legal representatives cash in one lump sum
within thirty (30) days after the date of Executive's death the full
amount of the obligations owing or accrued to, vested in, or earned by
Executive through the date of Executive's death, including, but not
limited to, the Accrued Obligations. Anything in this Agreement to
the contrary notwithstanding, Executive's family shall be entitled to
receive benefits provided by the Company and any of its affiliates to
surviving families under the then existing or applicable plans,
programs, or arrangements and policies of the Company and its
affiliates.
(e) Disability. If Executive's employment is terminated
under Section 4.1(b) hereof by reason of Executive becoming Disabled:
(i) the Company shall pay to Executive cash in
one lump sum within thirty (30) days after the date of
termination the full amount of the obligations owing or
accrued to, vested in, or earned by Executive through the date
of termination, including, but not limited to, the Accrued
Obligations; and
(ii) the Company shall pay to Executive
seventy-five percent (75%) of Executive's minimum salary at
the annual rate in effect at the time of such termination for
the period commencing on the date after the date of
termination and ending on the Final Date (such minimum salary
to be paid in accordance with the second and third sentences
of Section 2.1(a)), reduced by the actual amount of benefits
paid to Executive during such period under any disability
insurance policy maintained by the Company for Executive.
4.3 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Executive, (ii) the gross neglect by Executive of her
duties as an employee, officer or director of the Company which continues for
more than thirty (30) days after written notice from the Company to Executive
specifically identifying the gross negligence of Executive and directing
Executive to discontinue same, (iii) the commission by Executive of a crime
constituting a felony, or (iv) the commission by Executive of an act, other
than an act taken in good faith within the course and scope
13
<PAGE> 14
of Executive's employment, which is directly detrimental to the Company and
which act exposes the Company to material liability.
4.4 Good Reason. As used in this Agreement, the term "Good
Reason" means the breach of any material provision of this Agreement by the
Company (including, but in no way limited to, any removal of Executive, without
Cause, from the position of the Office during the Term) which is not cured
within thirty (30) days after written notice from Executive to the Company
specifically identifying such breach; provided, however, that the term "Good
Reason" shall not include any breach of any provision of this Agreement that
occurs after the occurrence of a Change in Control.
4.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control, a determination by Executive that any one or more of the following
events has occurred:
(a) the assignment by the Company to Executive of duties
that are inconsistent with the Office at the time of such assignment,
or the removal by the Company from Executive of those duties usually
appertaining to the Office at the time of such removal; or
(b) a change by the Company, without Executive's prior
written consent, in Executive's responsibilities to the Company as
such responsibilities existed at the time of the occurrence of such
Change in Control (or as such responsibilities may thereafter exist
from time to time as a result of changes in such responsibilities made
with Executive's prior written consent); or
(c) any removal of Executive from, or any failure to
elect or reelect Executive to, the Office, except in connection with
Executive's promotion, with her prior written consent, to a higher
office (if any) with the Company; or
(d) the Company's direction that Executive discontinue
service (or not seek reelection or reappointment) as a director,
officer or member of any corporation or other entity of which
Executive is a director, officer or member at the time of the
occurrence of such Change in Control; or
(e) the failure of the Company to continue to provide
Executive with office space, related facilities and support personnel
(including, but not limited to, administrative and secretarial
assistance) that are both commensurate with the Office and Executive's
responsibilities to and position with the Company at the time of the
occurrence of such Change in Control and not materially dissimilar to
the office space, related facilities and support personnel provided to
other key executive officers of the Company; or
(f) a reduction by the Company in the amount of
Executive's minimum salary specified in Section 2.1(a) (or as
subsequently increased) and as in effect at the time of the occurrence
of such Change in Control, or a failure of the
14
<PAGE> 15
Company to pay such minimum annual salary to the Employee at the time
and in the manner specified in Section 2.1(a) of this Employment
Agreement; or
(g) in the event of any increase, at any time after the
occurrence of such Change in Control, in the minimum annual salary or
salaries of one or more members of the Executive Group (as defined in
Section 4.7 hereof) (the members or members of the Executive Group
whose minimum annual salary or salaries are increased at such time
being hereinafter called the "Increased Executives"), the failure of
the Company simultaneously to increase Executive's minimum annual
salary, as Executive's minimum annual salary is in effect immediately
prior to giving effect to such first-mentioned increase (the "Prior
Base Salary"), by an amount which equals or exceeds the product
obtained by multiplying the Prior Base Salary by a fraction, the
numerator of which is the sum of the amounts by which the respective
minimum annual salaries of the Increased Executives (other than
Executive) were increased at such time and the denominator of which is
the sum of the respective minimum annual salaries of the Increased
Executives (other than Executive) immediately prior to giving effect
to such first- mentioned increase; or
(h) the discontinuation or reduction by the Company of
Executive's participation in any bonus or other employee benefit plan,
program, arrangement, or policy (including, but not limited to, any
such plan, program, arrangement, or policy described in Section 2.1(c)
hereof) in which Executive is a participant at the time of the
occurrence of such Change in Control; or
(i) Executive's principal office space or the related
facilities or support space or the related facilities or support
personnel referred to in paragraph (e) of this Section 4.5 cease to be
located within the Company's principal executive offices, or for a
period of more than 45 consecutive days Executive is required by the
Company to perform a majority of her duties outside the Company's
principal executive offices; or
(j) the relocation, without Executive's prior written
consent, of the Company's principal executive offices to a location
outside the county in which such offices are located at the time of
the occurrence of such Change in Control; or
(k) the failure of the Company to provide Executive
annually with a number of paid vacation days and sick leave days at
least equal to the number of paid vacation days to which Executive is
entitled annually at the time of the occurrence of such Change in
Control; or
(l) the failure of the Company to obtain the assumption
by any successor to the Company of the obligations imposed upon the
Company under this Agreement, as required by Section 5.2 of this
Agreement; or
(m) the failure by the Company to promptly reimburse
Executive for any Business Expenses; or
15
<PAGE> 16
(n) that because of the policies, decisions or actions of
the Board or the stockholders of the Company, Executive can no longer
perform her duties to the Company in a manner which is consistent with
the manner in which such duties were performed by Executive prior to
the occurrence of such Change in Control; or
(o) the employment of Executive under this Agreement is
terminated by the Company without Cause; or
(p) the Company notifies Executive of the Company's
intention not to observe or perform one or more of the obligations of
the Company under this Agreement; or
(q) the Company breaches any provision of this Agreement.
4.6 Change in Control. As used herein, the term "Change in
Control" shall mean the occurrence with respect to the Company of any of the
following events:
(a) a report on Schedule 13D is filed with the Securities
and Exchange Commission (the "SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Company
(or one of its subsidiaries) or any employee benefit plan sponsored by
the Company (or one of its subsidiaries), is the beneficial owner (as
such term is defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of 20 percent or more of the outstanding
shares of common stock of the Company or the combined voting power of
the then-outstanding securities of the Company;
(b) a report is filed by the Company disclosing a
response to either Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, or to Item 1 of Form 8-K
promulgated under the Exchange Act, or to any similar reporting
requirement hereafter promulgated by the SEC;
(c) any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Company
(or one of its subsidiaries) or any employee benefit plan sponsored by
the Company (or one of its subsidiaries), shall purchase securities
pursuant to a tender offer or exchange offer to acquire any common
stock of the Company (or securities convertible into common stock) for
cash, securities or any other consideration, provided that after
consummation of the offer, the person, entity or group in question is
the beneficial owner (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of 20
percent or more of the combined voting power of the then-outstanding
securities of the Company (as determined under paragraph (d) of Rule
13d-3 promulgated under the Exchange Act, in the case of rights to
acquire common stock);
(d) the stockholders of the Company shall approve:
16
<PAGE> 17
(i) any merger, consolidation, or reorganization
of the Company:
(A) in which the Company is not the
continuing or surviving corporation,
(B) pursuant to which shares of common
stock of the Company would be converted into cash,
securities or other property,
(C) with a corporation which prior to
such merger, consolidation, or reorganization owned
20 percent or more of the combined voting power of
the then- outstanding securities of the Company, or
(D) in which the Company will not
survive as an independent, publicly-owned
corporation;
(ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all the assets of the Company, or
(iii) any liquidation or dissolution of the
Company;
(e) the stockholders of the Company shall approve a
merger, consolidation, reorganization, recapitalization, exchange
offer, purchase of assets or other transaction after the consummation
of which any person, entity or group (as defined in accordance with
Section 13(d) or 14(d) of the Exchange Act) would own beneficially in
excess of 50% of the outstanding shares of common stock of the Company
or in excess of 50% of the combined voting power of the
then-outstanding securities of the Company;
(f) the Company's common stock ceases to be listed on the
New York Stock Exchange;
(g) the existence of a Distribution Date as defined in
the Rights Agreement of the Company dated August 31, 1995; or
(h) during any period of two consecutive years, the
individuals who at the beginning of such period constituted the Board
cease for any reason to constitute a majority of the Board, unless the
election or nomination for election by the Company's stockholders of
each new director during any such two-year period was approved by the
vote of two-thirds of the directors then still in office who were
directors at the beginning of such two-year period.
4.7 Executive Group. As used herein, "Executive Group" shall mean
the officers of the Company; and each of such officers shall be deemed members
of the Executive Group.
17
<PAGE> 18
4.8 Disabled. As used herein, "Disabled" shall mean a mental or
physical impairment which in the reasonable opinion of a qualified doctor
selected by the Company renders Executive unable to perform with reasonable
diligence the ordinary functions and duties of Executive on a full-time basis
in accordance with the terms of this Agreement, which inability will continue
in the reasonable opinion of such doctor for a period of not less than 180
days.
4.9 Return of Materials; Confidential Information. In the event
of any termination of this Agreement, Executive shall promptly deliver to the
Company all lists, books, records, literature, products and any other materials
owned or provided by the Company in connection with Executive's employment
hereunder. Executive shall not at any time during or after the Term hereof use
for herself or others, or divulge to others, any secret or confidential
information, knowledge or data of the Company obtained by Executive as a result
of her employment unless authorized by a majority of the Board.
4.10 Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or any of its affiliates to or for the benefit of
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments or distributions
being individually referred to herein as a "Payment," and any two or more of
such payments or distributions being referred to herein as "Payments"), would
be subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code") (such excise tax, together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such excise tax, and any interest in respect of such penalties,
additions to tax or additional amounts, being collectively referred herein to
as the "Excise Tax"), then Executive shall be entitled to receive an additional
payment or payments (individually referred to herein as a "Gross-Up Payment"
and any two or more of such additional payments being referred to herein as
"Gross-Up Payments") in an amount such that after payment by Executive of all
taxes (as defined in Section 4.10(k)) imposed upon the Gross-Up Payment,
Executive retains an amount of such Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 4.10(c) through
(i), any determination (individually, a "Determination") required to be made
under this Section 4.10(b), including whether a Gross-Up Payment is required
and the amount of such Gross-Up Payment, shall initially be made, at the
Company's expense, by nationally recognized tax counsel mutually acceptable to
the Company and Executive ("Tax Counsel"). Tax Counsel shall provide detailed
supporting legal authorities, calculations, and documentation both to the
Company and Executive within 15 business days of the termination of Executive's
employment, if applicable, or such other time or times as is reasonably
requested by the Company or Executive. If Tax Counsel makes the initial
Determination that no Excise Tax is payable by Executive with respect to a
Payment or Payments, it shall furnish Executive with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with respect to any
such Payment or
18
<PAGE> 19
Payments. Executive shall have the right to dispute any Determination
(a "Dispute") within 15 business days after delivery of Tax Counsel's opinion
with respect to such Determination. The Gross-Up Payment, if any, as
determined pursuant to such Determination shall, at the Company's expense, be
paid by the Company to Executive within five business days of Executive's
receipt of such Determination. The existence of a Dispute shall not in any way
affect Executive's right to receive the Gross-Up Payment in accordance with
such Determination. If there is no Dispute, such Determination shall be
binding, final and conclusive upon the Company and Executive, subject in all
respects, however, to the provisions of Section 4.10(c) through (i) below. As
a result of the uncertainty in the application of Sections 4999 and 280G of the
Code, it is possible that Gross-Up Payments (or portions thereof) which will
not have been made by the Company should have been made ("Underpayment"), and
if upon any reasonable written request from Executive or the Company to Tax
Counsel, or upon Tax Counsel's own initiative, Tax Counsel, at the Company's
expense, thereafter determines that Executive is required to make a payment of
any Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel
shall, at the Company's expense, determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the Company to
Executive.
(c) The Company shall defend, hold harmless, and
indemnify Executive on a fully grossed-up after tax basis from and against any
and all claims, losses, liabilities, obligations, damages, impositions,
assessments, demands, judgements, settlements, costs and expenses (including
reasonable attorneys', accountants', and experts' fees and expenses) with
respect to any tax liability of Executive resulting from any Final
Determination (as defined in Section 4.10(j)) that any Payment is subject to
the Excise Tax.
(d) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or pending
or threatened audit, examination, investigation or administrative, court or
other proceeding which, if pursued successfully, could result in or give rise
to a claim by Executive against the Company under this Section 4.10(d)
("Claim"), including, but not limited to, a claim for indemnification of
Executive by the Company under Section 4.10(c), then such party shall promptly
notify the other party hereto in writing of such Claim ("Tax Claim Notice").
(e) If a Claim is asserted against Executive ("Executive
Claim"), Executive shall take or cause to be taken such action in connection
with contesting such Executive Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as
are reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide
that the Company shall be solely responsible for the payment of any and all
fees and disbursements of such counsel and any experts) and the execution of
powers of attorney, provided that:
(i) within 30 calendar days after the Company
receives or delivers, as the case may be, the Tax Claim Notice
relating to such Executive Claim (or such earlier date that any
payment of the taxes claimed is due from
19
<PAGE> 20
Executive, but in no event sooner than five calendar days after the
Company receives or delivers such Tax Claim Notice), the Company shall
have notified Executive in writing ("Election Notice") that the
Company does not dispute its obligations (including, but not limited
to, its indemnity obligations) under this Agreement and that the
Company elects to contest, and to control the defense or prosecution
of, such Executive Claim at the Company's sole risk and sole cost and
expense; and
(ii) the Company shall have advanced to Executive
on an interest-free basis, the total amount of the tax claimed in
order for Executive, at the Company's request, to pay or cause to be
paid the tax claimed, file a claim for refund of such tax and, subject
to the provisions of the last sentence of Section 4.10(g), sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any
proceeding in, for example, United States Tax Court) and shall
indemnify and hold Executive harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and
(iii) the Company shall reimburse Executive for any
and all costs and expenses resulting from any such request by the
Company and shall indemnify and hold Executive harmless, on fully
grossed-up after-tax basis, from any tax imposed as a result of such
reimbursement.
(f) Subject to the provisions of Section 4.10(e) hereof,
the Company shall have the right to defend or prosecute, at the sole cost,
expense and risk of the Company, such Executive Claim by all appropriate
proceedings, which proceedings shall be defended or prosecuted diligently by
the Company to a Final Determination; provided, however, that (i) the Company
shall not, without Executive's prior written consent, enter into any compromise
or settlement of such Executive Claim that would adversely affect Executive,
(ii) any request from the Company to Executive regarding any extension of the
statute of limitations relating to assessment, payment, or collection of taxes
for the taxable year of Executive with respect to which the contested issues
involved in, and amount of, the Executive Claim relate is limited solely to
such contested issues and amount, and (iii) the Company's control of any
contest or proceeding shall be limited to issues with respect to the Executive
Claim and Executive shall be entitled to settle or contest, in her sole and
absolute discretion, any other issue raised by the Internal Revenue Service or
any other taxing authority. So long as the Company is diligently defending or
prosecuting such Executive Claim, Executive shall provide or cause to be
provided to the Company any information reasonably requested by the Company
that relates to such Executive Claim, and shall otherwise cooperate with the
Company and its representatives in good faith in order to contest effectively
such Executive Claim. The Company shall keep Executive informed of all
developments and events relating to any such Executive Claim (including,
without limitation, providing to Executive copies of all written materials
pertaining to any such Executive Claim), and Executive or her authorized
representatives shall be entitled, at Executive's
20
<PAGE> 21
expense, to participate in all conferences, meetings and proceedings relating
to any such Executive Claim.
(g) If, after actual receipt by Executive of an amount of
a tax claimed (pursuant to an Executive Claim) that has been advanced by the
Company pursuant to Section 4.10(e)(ii) hereof, the extent of the liability of
the Company hereunder with respect to such tax claimed has been established by
a Final Determination, Executive shall promptly pay or cause to be paid to the
Company any refund actually received by, or actually credited to, Executive
with respect to such tax (together with any interest paid or credited thereon
by the taxing authority and any recovery of legal fees from such taxing
authority related thereto), except to the extent that any amounts are then due
and payable by the Company to Executive, whether under the provisions of this
Agreement or otherwise. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 4.10(e)(ii), a determination is
made by the Internal Revenue Service or other appropriate taxing authority that
Executive shall not be entitled to any refund with respect to such tax claimed
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of any Gross-Up Payments and other payments required to be paid
hereunder.
(h) With respect to any Executive Claim, if the Company
fails to deliver an Election Notice to Executive within the period provided in
Section 4.10(e)(i) hereof or, after delivery of such Election Notice, the
Company fails to comply with the provisions of Section 4.10(e)(ii) and (iii)
and (f) hereof, then Executive shall at any time thereafter have the right (but
not the obligation), at her election and in her sole and absolute discretion,
to defend or prosecute, at the sole cost, expense and risk of the Company, such
Executive Claim. Executive shall have full control of such defense or
prosecution and such proceedings, including any settlement or compromise
thereof. If requested by Executive, the Company shall cooperate, and shall
cause its affiliates to cooperate, in good faith with Executive and her
authorized representatives in order to contest effectively such Executive
Claim. The Company may attend, but not participate in or control, any defense,
prosecution, settlement or compromise of any Executive Claim controlled by
Executive pursuant to this Section 4.10(h) and shall bear its own costs and
expenses with respect thereto. In the case of any Executive Claim that is
defended or prosecuted by Executive, Executive shall, from time to time, be
entitled to current payment, on a fully grossed-up after tax basis, from the
Company with respect to costs and expenses incurred by Executive in connection
with such defense or prosecution.
(i) In the case of any Executive Claim that is defended
or prosecuted to a Final Determination pursuant to the terms of this Section
4.10(i), the Company shall pay, on a fully grossed-up after tax basis, to
Executive in immediately available funds the full amount of any taxes arising
or resulting from or incurred in connection with such Executive Claim that have
not theretofore been paid by the Company to Executive, together with the costs
and expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company
21
<PAGE> 22
to Executive, within ten calendar days after such Final Determination.
In the case of any Executive Claim not covered by the preceding sentence, the
Company shall pay, on a fully grossed-up after tax basis, to Executive in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Executive Claim at least ten calendar
days before the date payment of such taxes is due from Executive, except where
payment of such taxes is sooner required under the provisions of this Section
4.10(i), in which case payment of such taxes (and payment, on a fully
grossed-up after tax basis, of any costs and expenses required to be paid under
this Section 4.10(i) shall be made within the time and in the manner otherwise
provided in this Section 4.10(i).
(j) For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment, decree or other order by a
court or other tribunal with appropriate jurisdiction, which has become final
and non-appealable; (B) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (C) any disallowance of
a claim for refund or credit in respect to an overpayment of tax unless a suit
is filed on a timely basis; or (D) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever (including, but not
limited to, any and all Excise Taxes, income taxes, and employment taxes),
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such taxes and any interest in respect of
such penalties, additions to tax, or additional amounts.
(l) For purposes of this Agreement, the terms "affiliate"
and "affiliates" mean, when used with respect to any entity, individual, or
other person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by,
or is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or more of the
voting securities of an entity or other person or possessing the power to
direct or cause the direction of the management and policies of such entity or
other person, whether through the ownership of voting securities, by contract
or otherwise.
4.11 Legal Fees and Expenses. The Company shall defend, hold
harmless, and indemnify Executive on a fully grossed-up after tax basis from
and against any and all costs and expenses (including reasonable attorneys',
accountants' and experts' fees and expenses) incurred by Executive from time to
time as a result of any contest (regardless of the outcome) by the Company or
others contesting the validity or enforcement of, or liability under, any term
or provision of this Agreement, plus in each case interest at the applicable
federal rate provided for in Section 7872(f)(2)(B) of the Code.
4.12 Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any benefit,
bonus, incentive or other plan, program, arrangement or policy provided by the
Company or any of its affiliates (including, but not limited to, any plan,
program, arrangement or policy
22
<PAGE> 23
described in Section 2.1(c) hereof) and for which Executive and/or
Executive's family may qualify, nor shall anything herein limit or otherwise
affect such rights as Executive and/or Executive's family may have under any
other agreements with the Company or any of its affiliates. Amounts which are
vested benefits or which Executive and/or Executive's family is otherwise
entitled to receive under any plan, program, arrangement, or policy of the
Company or any of its affiliates (including, but not limited to, any plan,
program, arrangement or policy described in Section 2.1(c) hereof) at or
subsequent to the date of termination of this Agreement shall be payable in
accordance with such plan, program, arrangement or policy.
4.13 Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against Executive or others. In no event shall Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to Executive under any of the provisions of this Agreement.
ARTICLE V
GENERAL PROVISIONS
5.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
5.2 Assignability. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be assignable by
Executive other than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives and heirs. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company shall
require any corporation, entity, individual or other person who is the
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and agree to perform, by a written
agreement in form and substance satisfactory to Executive, all of the
obligations of the Company under this Agreement. As used in this Agreement,
the term "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, written agreement, or otherwise.
5.3 Withholding. The Company may withhold from any amounts
payable under this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
5.4 Entire Agreement. This Agreement constitutes the entire
agreement and understanding between Executive and the Company and supersedes
any prior agreements or understandings, whether written or oral, with respect
to the subject matter hereof. Except as may be otherwise provided herein, this
Agreement may not
23
<PAGE> 24
be amended or modified except by subsequent written agreement executed by both
parties hereto.
5.5 Multiple Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall constitute an original, but all of
which together shall constitute one Agreement.
5.6 Notices. Any notice provided for in this Agreement shall be
deemed delivered upon deposit in the United States mails, registered or
certified mail, addressed to the party to whom directed at the addresses set
forth below or at such other addresses as may be substituted therefor by notice
given hereunder. Notice given by any other means must be in writing and shall
be deemed delivered only upon actual receipt.
If to the Company:
National Convenience Stores Incorporated
100 Waugh Drive
Houston, Texas 77007
Attention: General Counsel
If to Executive:
Janice E. Bryant
7814 Beaver Lake Court
Humble, Texas 77346
5.7 Waiver. The waiver of any breach of any term or condition of
this Agreement shall not be deemed to constitute the waiver of any breach of
the same or any other term or condition of this Agreement.
5.8 Severability. In the event any provision of this Agreement is
found to be unenforceable or invalid, such provision shall be severable from
this Agreement and shall not effect the enforceability or validity of any other
provision of this Agreement.
24
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Execution Date, but effective as of the Effective Date.
NATIONAL CONVENIENCE STORES
INCORPORATED
By: /s/ A. J. GALLERANO
----------------------------------
J. Gallerano
Senior Vice President -
General Counsel and Secretary
"COMPANY"
/s/ JANICE E. BRYANT
--------------------------------------
Janice E. Bryant
"EXECUTIVE"
25
<PAGE> 1
EXHIBIT 11
NATIONAL CONVENIENCE STORES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Reorganized Company
---------------------------------------------------------
Period from
Inception
Year Ended Year Ended (March 1, 1993) to
June 30, 1995 June 30, 1994 June 30, 1993 (1)
------------- ------------- -----------------
<S> <C> <C> <C>
Primary Earnings Per Share:
--------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . . $5,292,000 $6,835,000 $4,389,000
========== ========== ==========
Average Common and Common
Stock Equivalents:
Average shares outstanding . . . . . . . . . . . 6,050,000 6,015,000 6,000,000
Common stock equivalents - assumed
exercise of options . . . . . . . . . . . . 4,000 259,000 276,000
---------- ---------- ----------
Average Common and Common
Stock Equivalents . . . . . . . . . . . . . . . . . 6,054,000 6,274,000 6,276,000
========== ========== ==========
Primary Earnings Per Share . . . . . . . . . . . . . . $ 0.87 $ 1.09 $ 0.70
========== ========== ==========
Fully Diluted Earnings Per Share:
--------------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . . $5,292,000 $6,835,000 $4,389,000
========== ========== ==========
Average Common and Common
Stock Equivalents:
Average shares outstanding . . . . . . . . . . . 6,050,000 6,015,000 6,000,000
Common stock equivalents - assumed
exercise of options . . . . . . . . . . . . 11,000 259,000 291,000
---------- ---------- ----------
Average Common and Common
Stock Equivalents . . . . . . . . . . . . . . . . . 6,061,000 6,274,000 6,291,000
========== ========== ==========
Fully Diluted Earnings Per Share . . . . . . . . . . . $ 0.87 $ 1.09 $ 0.70
========== ========== ==========
</TABLE>
(1) Represents earnings per share calculations of the Reorganized Company since
March 1, 1993. Earnings per share calculations for the Predecessor Company
are not presented because they are not meaningful as a result of the
confirmation of the Plan of Reorganization and adoption of fresh-start
reporting effective March 1, 1993 (see Note 10 of the Notes to Consolidated
Financial Statements).
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
The following table sets forth all of the subsidiaries of National Convenience
Stores Incorporated at June 30, 1995, which are wholly-owned by the Company and
are included in the Consolidated Financial Statements:
<TABLE>
<CAPTION>
Jurisdiction
of
Subsidiary Incorporation
---------- -------------
<S> <C>
Kempco Petroleum Company . . . . . . . . . . . . . . . . . . . Texas
National Money Orders, Inc . . . . . . . . . . . . . . . . . . Texas
Stop N Go Markets of Texas, Inc . . . . . . . . . . . . . . . . Texas
Stop N Go Markets of Georgia, Inc. . . . . . . . . . . . . . . . Georgia
Texas Super Duper Markets, Inc . . . . . . . . . . . . . . . . Texas
Schepps Food Stores, Inc . . . . . . . . . . . . . . . . . . . Texas
</TABLE>
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
National Convenience Stores Incorporated (the "Company"), does hereby
constitute and appoint A. J. Gallerano their true and lawful attorney, to
execute in their name, place and stead in such capacity or capacities (whether
on behalf of the Company, or otherwise), the Company's Annual Report on Form
10-K for the year ended June 30, 1995, to be filed by the Company under the
Securities and Exchange Act of 1934, and generally to perform all things
necessary to be done in the premises as fully and effectually in all respects
as they could do if personally present.
IT WITNESS WHEREOF, the undersigned has signed their name hereto on
the date set forth opposite their name.
Date: 9/12/95 By: RICHARD C. STEADMAN
--------------------
Richard C. Steadman
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
National Convenience Stores Incorporated (the "Company"), does hereby
constitute and appoint A. J. Gallerano their true and lawful attorney, to
execute in their name, place and stead in such capacity or capacities (whether
on behalf of the Company, or otherwise), the Company's Annual Report on Form
10-K for the year ended June 30, 1995, to be filed by the Company under the
Securities and Exchange Act of 1934, and generally to perform all things
necessary to be done in the premises as fully and effectually in all respects
as they could do if personally present.
IT WITNESS WHEREOF, the undersigned has signed their name hereto on
the date set forth opposite their name.
Date: 9/11/95 By: DUNBAR N. CHAMBERS, JR.
--------------------------
Dunbar N. Chambers, Jr.
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
National Convenience Stores Incorporated (the "Company"), does hereby
constitute and appoint A. J. Gallerano their true and lawful attorney, to
execute in their name, place and stead in such capacity or capacities (whether
on behalf of the Company, or otherwise), the Company's Annual Report on Form
10-K for the year ended June 30, 1995, to be filed by the Company under the
Securities and Exchange Act of 1934, and generally to perform all things
necessary to be done in the premises as fully and effectually in all respects
as they could do if personally present.
IT WITNESS WHEREOF, the undersigned has signed their name hereto on
the date set forth opposite their name.
Date: 9/9/95 By: CHARLES J. LUELLEN
--------------------------
Charles J. Luellen
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
National Convenience Stores Incorporated (the "Company"), does hereby
constitute and appoint A. J. Gallerano their true and lawful attorney, to
execute in their name, place and stead in such capacity or capacities (whether
on behalf of the Company, or otherwise), the Company's Annual Report on Form
10-K for the year ended June 30, 1995, to be filed by the Company under the
Securities and Exchange Act of 1934, and generally to perform all things
necessary to be done in the premises as fully and effectually in all respects
as they could do if personally present.
IT WITNESS WHEREOF, the undersigned has signed their name hereto on
the date set forth opposite their name.
Date: 9/18/95 By: LIONEL SOSA
----------------------
Lionel Sosa
<PAGE> 5
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
National Convenience Stores Incorporated (the "Company"), does hereby
constitute and appoint A. J. Gallerano their true and lawful attorney, to
execute in their name, place and stead in such capacity or capacities (whether
on behalf of the Company, or otherwise), the Company's Annual Report on Form
10-K for the year ended June 30, 1995, to be filed by the Company under the
Securities and Exchange Act of 1934, and generally to perform all things
necessary to be done in the premises as fully and effectually in all respects
as they could do if personally present.
IT WITNESS WHEREOF, the undersigned has signed their name hereto on
the date set forth opposite their name.
Date: 9/8/95 By: RAYMOND W. OELAND, JR.
--------------------------
Raymond W. Oeland, Jr.
<PAGE> 6
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
National Convenience Stores Incorporated (the "Company"), does hereby
constitute and appoint A. J. Gallerano their true and lawful attorney, to
execute in their name, place and stead in such capacity or capacities (whether
on behalf of the Company, or otherwise), the Company's Annual Report on Form
10-K for the year ended June 30, 1995, to be filed by the Company under the
Securities and Exchange Act of 1934, and generally to perform all things
necessary to be done in the premises as fully and effectually in all respects
as they could do if personally present.
IT WITNESS WHEREOF, the undersigned has signed their name hereto on
the date set forth opposite their name.
Date: 9/11/95 By: ROBERT B. STOBAUGH
------------------------
Robert B. Stobaugh
<PAGE> 7
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of
National Convenience Stores Incorporated (the "Company"), does hereby
constitute and appoint A. J. Gallerano their true and lawful attorney, to
execute in their name, place and stead in such capacity or capacities (whether
on behalf of the Company, or otherwise), the Company's Annual Report on Form
10-K for the year ended June 30, 1995, to be filed by the Company under the
Securities and Exchange Act of 1934, and generally to perform all things
necessary to be done in the premises as fully and effectually in all respects
as they could do if personally present.
IT WITNESS WHEREOF, the undersigned has signed their name hereto on
the date set forth opposite their name.
Date: 9/12/95 By: WILLIAM KEY WILDE
-----------------------
William Key Wilde
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and related notes of National Convenience
Stores Incorporated and Subsidiaries for the year ended June 30, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 32,075,000
<SECURITIES> 0
<RECEIVABLES> 4,718,000
<ALLOWANCES> 0
<INVENTORY> 36,555,000
<CURRENT-ASSETS> 81,476,000
<PP&E> 189,658,000
<DEPRECIATION> 27,150,000
<TOTAL-ASSETS> 284,324,000
<CURRENT-LIABILITIES> 73,686,000
<BONDS> 90,256,000
<COMMON> 61,000
0
0
<OTHER-SE> 79,979,000
<TOTAL-LIABILITY-AND-EQUITY> 284,324,000
<SALES> 906,023,000
<TOTAL-REVENUES> 906,023,000
<CGS> 683,037,000
<TOTAL-COSTS> 848,566,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,886,000
<INCOME-PRETAX> 9,175,000
<INCOME-TAX> 3,883,000
<INCOME-CONTINUING> 5,292,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,292,000
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
