UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 33-86690
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STAR MARKETS COMPANY, INC.
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3243710
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
625 MT. AUBURN STREET, CAMBRIDGE, MA 02138
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(Address of principal executive offices) (Zip Code)
(617) 528-2550
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant at April 21, 1997: None
Number of shares of the issuer's common stock, outstanding as of April 21,
1997: 5,000 shares
Documents incorporated by reference: None
PART I
Item 1. Business
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Throughout this report, the "Company" or "Star" refers to Star Markets
Company, Inc. ("Successor"), which acquired the assets and business of the
Star Market Company operating division of Jewel Food Stores, Inc.
("Predecessor" or "Star Markets"), a wholly owned subsidiary of American
Stores Company (the "Parent" or "ASC"). Star Markets Company, Inc., a
Massachusetts corporation, is a wholly-owned subsidiary of Star Markets
Holdings, Inc., ("Holdings"), a Massachusetts corporation. Both the Company
and Holdings were formed for purposes of the acquisition.
Historical financial statements of Predecessor are presented as if it
existed as a separate entity during the periods presented.
The Company is a leading regional food retailer, with 48 stores (at the end
of fiscal 1996) located in Eastern Massachusetts. Thirty-one of the
Company's 48 stores are located inside Route 128, an area which includes
many of the most densely populated and affluent communities in the
metropolitan Boston area. The Company also operates a wholesale food
business serving locations in New England and New York. The Company employs
approximately 9,400 people.
On September 8, 1994, the Company acquired the business and assets of Star
Markets from ASC (the "Acquisition"). The Company was formed to acquire Star
Markets on behalf of affiliates of INVESTCORP SA ("Investcorp"), management
and certain other investors. In connection with the Acquisition, the Company
acquired rights to expand into certain adjacent store sites and to acquire
and develop certain additional store sites. In addition, management
negotiated extensions for a number of its store leases.
In July 1996, the Company acquired 10 supermarket locations, comprising
three stores in greater Boston and seven stores on Cape Cod, Massachusetts,
from The Stop & Shop Companies, Inc. ("Stop & Shop"). Nine of the locations,
comprising four superstores and five conventional, opened late in the second
quarter ended August 2, 1996. The remaining location opened as the first
free-standing Wild Harvest store in October 1996. One of the new superstores
is a replacement store for a conventional store which closed in the second
quarter of 1996 and reopened as a Wild Harvest store in December 1996.
Store formats
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The Company currently operates three food retailing formats: superstores,
conventional stores, and Wild Harvest stores.
Superstores
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The Company's 20 superstores offer a wider range of goods and services than
its conventional stores. In addition to traditional supermarket offerings,
the Company's superstores contain most of the following specialty service
areas: full-service bakeries, delicatessens with prepared foods, self-
service salad bars, floral departments, pharmacies, "Petcetera" pet food and
accessories departments, "Wild Harvest" natural foods departments, and full-
service kitchens offering a variety of freshly prepared meal selections.
Prepared foods include store-cooked meats and poultry, salads and baked
goods.
Four of the locations acquired from Stop & Shop are superstores, one of
which replaced a conventional store which closed in 1996. The Company
remodeled two of its existing superstores during 1996.
Conventional Stores
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The Company currently operates 26 conventional stores which offer a wide
selection of national brands and private label products as well as high-
quality produce, meat, seafood, and a select line of general merchandise.
Conventional stores typically contain one or more specialty service
departments, such as floral, seafood, bakery or delicatessen. During 1996,
the Company acquired five conventional stores and replaced a conventional
store with an acquired superstore during 1996.
Wild Harvest Stores
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The Company introduced a new format in two locations during 1996. The
Medford Wild Harvest location was acquired from Stop & Shop and the Saugus
Wild Harvest location was previously a Star conventional store. Wild Harvest
stores offer an extensive selection of natural foods, natural meats and
seafood, bulk foods, and fresh fruits and vegetables including, certified
organic, pesticide-free, conventional and locally grown produce. Wild
Harvest stores also offer: "Wild Juices," a California style juice bar;
"Harvest Grain," a scratch bakery where bakers make their own dough from
unbleached and unbromated flours; a Granola Factory where 12 different
granolas are made on-site and baked fresh daily; "Harvest Table," a
selection of healthy, prepared foods for time-starved consumers; and a
Wellness Department, which offers a complete assortment of natural vitamins,
nutritional supplements, herbal and homeopathic remedies and natural
personal care products. In addition to the items mentioned above, Wild
Harvest stores feature a selection of the most popular grocery items sold in
traditional supermarkets allowing consumers one shopping destination.
Marketing
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The Company's marketing strategy emphasizes its long-standing reputation for
quality perishable goods and superior customer service. The Company's
advertising also highlights its broad selection of national brand and
private label merchandise via weekly circulars and through radio and
television commercials. The Wild Harvest advertising programs emphasize
fresh affordable natural foods as well as the convenience of one-stop
shopping. In November 1995, the Company was the first food retailer in the
metropolitan Boston area to introduce a card-based marketing and
merchandising program designed to increase customer loyalty. The Star
Advantage Card offers customers promotional benefits and eliminates the need
to clip Star circular coupons. Wild Harvest stores offer the Wild Card with
benefits similar to the Star Advantage Card. During 1996, the Company
utilized both cards, which also track customers' purchasing data, to target
specific customers for certain promotional events.
Information Systems
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The Company's management information systems and point-of-sale scanning
technology reduce labor costs attributable to product pricing and customer
check-out, and provide management with information that facilitates
purchasing, receiving and management of inventory and accounts payable. The
Company has point-of-sale scanning technology in all of its stores. All
stores use electronic systems for employee time and attendance records. The
Company believes that its information systems enable management to operate
efficiently in product procurement, store delivery scheduling, inventory
management and pricing accuracy.
In conjunction with the Acquisition, the Company developed a plan to upgrade
and/or replace a significant portion of its information systems architecture
to state-of-the-art technology. During 1996, the Company successfully
completed and implemented the first phase of replacing the core application
software within its buying, merchandising and inventory management systems.
The project is scheduled for completion in fiscal 1997. The Company made
infrastructure upgrades during 1996 to its store network resulting in more
timely information and better customer service.
Distribution
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The Company operates a warehouse and distribution complex in Norwood,
Massachusetts that supplies both the Company's retail and wholesale
operations with dry grocery, dairy and perishable products. This facility
provides approximately 14.5 million cubic feet of storage space, or capacity
for approximately 1.6 million cases of product. Management believes this
facility has sufficient capacity to support the Company's growth plans over
the next several years. The Norwood complex is conveniently located within
the Company's market area and provides efficient distribution of product
with a fleet of 30 tractors and 421 trailers. The Norwood complex also
includes a corrugated paper recycling facility that reclaims packaging
materials from the stores and prepares it for sale to processors of
corrugated paper products.
Competition
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The retail food industry is highly competitive. It is characterized by
narrow profit margins and, accordingly, earnings are dependent on high sales
volume and operating efficiency. The Company's competitors include regional
and local supermarket chains and natural food stores, independent grocery
stores, specialty food stores, warehouse club stores, drug stores and
convenience stores. Supermarket chains generally compete on the basis of
location, quality of products, service, price, product variety and store
condition. The Company's principal competitors include Stop & Shop, Shaw's,
Roche Bros., Bread & Circus, and Demoulas.
Merchandising Programs
- ----------------------
The Company's merchandising programs are designed to increase gross margins
and optimize product assortment. The key elements of the Company's
merchandising strategy are to (i) provide its superstores with a wider range
of non-grocery items, such as home office products, kitchen and bath items,
books and magazines and other general merchandise, (ii) introduce high-
quality prepared foods departments, (iii) provide an expanded selection of
high-quality perishable products from its existing in-store bakeries,
seafood, floral, and produce departments, (iv) expand the Company's
offerings of natural, organic and ethnic foods, and (v) establish specialty
departments, such as juice bars, prepared foods, "Petcetera" pet food and
accessories departments, and "Wild Harvest" natural food departments, where
space permits. In addition, the Company is implementing strategies to
increase its sales of private label products. The Company intends to
increase sales of private label products by offering a wider range of
private label products and improving the marketing and merchandising of such
products. Further, the Company has exclusive distribution rights within its
trade area for the President's Choice brand of products, a line of high-
quality packaged products.
Wholesale Operations
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The Company's wholesale operations principally involve the distribution of
grocery and perishable products to locations in New England and New York.
Approximately 17 of these locations are contractually allowed to operate
under the "Star" name, provided that the customer complies with certain
operating covenants intended to protect the value of the "Star" trade name
by insuring that the customer's stores are clean and well-run. The existing
contracts are generally terminable by the Company on 30 days notice. In
addition to providing product distribution, the Company also offers
marketing and advertising programs to wholesale customers for an incremental
charge. The Company does not generally provide financing to its wholesale
customers, other than the Company's standard payment terms for product
purchases.
Item 2. Properties
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At the end of fiscal 1996, the Company owned eight stores, its office in
Cambridge, Massachusetts and its warehouse and distribution complex in
Norwood, Massachusetts. In addition, as of the end of fiscal 1996, the
Company owned one non-operating retail site located in Rhode Island. The
Company has granted mortgages on all of its real estate to the lenders under
its Senior Credit Facility to secure the Company's obligations thereunder.
The Company sold one non-operating retail site during fiscal 1996, and in
February 1997, subsequent to fiscal 1996, the Company completed a sale-
leaseback transaction for one of its operating properties.
At the end of fiscal 1996, the Company leased 40 stores throughout the
metropolitan Boston area and Cape Cod, Massachusetts. The leases for the 40
stores have an average life of approximately 32 years until final
expiration, and only one lease has a remaining term of less than five years.
The Company will continue to evaluate additional sale-leaseback transactions
for properties owned, and the sale of the remaining non-operating property
to partially finance the anticipated growth of the Company.
Item 3. Legal Proceedings
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From time to time, the Company has been involved in various legal
proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of the Company's business, and that
none of such litigation, if determined adversely to the Company, would have
a material adverse effect on the financial condition or results of
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during the 13-week
period ended February 1, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
- ------------------------------------------------------------------------------
There is no established public trading market for the Company's common
equity. The authorized common stock of the Company consists of 10,000 shares
of common stock, par value $.01 per share ("Common Stock"). At April 21,
1997, there were 5,000 shares of Common Stock issued and outstanding, all of
which are held of record by Holdings. All outstanding shares of Common Stock
are pledged to secure the Company's obligations under its Senior Credit
Facility and, pursuant to restrictions contained therein, the Company is not
expected to be able to pay dividends on its Common Stock for the foreseeable
future, other than certain limited dividends permitted under the Senior
Credit Facility.
The Company's 13% Senior Subordinated Notes due 2004 (the "Subordinated
Notes") were issued pursuant to an indenture (the "Indenture") containing
certain covenants that also restrict the payment of dividends, the
repurchase of capital stock and the making of other Restricted Payments (as
defined in such indenture), subject to certain exceptions similar to those
contained in the Senior Credit Facility.
Item 6. Selected Financial Data
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The following table sets forth summary historical financial data of Star
Markets and the Company for the five fiscal years ended February 1, 1997.
For financial statement purposes, the Acquisition was accounted for as a
purchase effective September 10, 1994. As a result, the Company has adopted
a new basis of accounting that reflects estimated fair values for assets and
liabilities at that date. For additional information, see the Financial
Statements included elsewhere in this report.
<TABLE>
<CAPTION>
Predecessor The Company
----------------------------------------- -----------------------------------------
(52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)
Fiscal Year Fiscal Year 32-Week 20-Week Fiscal Year Fiscal Year
Ended Ended Period Ended Period Ended Ended Ended
January 30, January 29, September 10, January 28, February 3, February 1,
1993 1994 1994 1995 1996 1997
------------------------------------------------------------------------------------
(Dollars in thousands)
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<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues
Retail $703,622 $716,979 $427,762 $268,617 $ 763,513 $ 877,827
Wholesale 122,794 119,326 69,227 39,687 90,991 76,704
---------------------------------------------------------------------------------
Total revenues 826,416 836,305 496,989 308,304 854,504 954,531
Gross profit
Retail 171,613 176,408 104,249 65,293 191,418 234,514
Wholesale 5,704 6,156 4,058 2,230 6,273 4,927
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Total gross profit 177,317 182,564 108,307 67,523 197,691 239,441
Depreciation and amortization 12,557 12,841 8,295 7,218 19,326 22,178
Operating income 26,715 29,705 15,266 6,384 19,642 19,949
Interest expense 350 79 27 9,781 28,382 28,894
Income (loss) before extraordinary loss 15,905 17,476 8,592 (3,507) (8,890) (9,336)
Extraordinary loss (2,094)
Net income (loss) 15,905 17,476 8,592 (5,601) (8,890) (9,336)
Store Data (Period End):
Number of stores 31 32 33 33 38 48
Selling square footage 752,496 797,346 842,146 859,773 1,144,486 1,419,013
Balance Sheet Data (Period End):
Total assets $186,440 $209,445 $208,084 $421,355 $ 425,503 $ 453,270
Long-term debt 240,057 257,400 271,827
Redeemable preferred stock 10,037 10,134 10,230
</TABLE>
Item 7. Management's Discussion and Analysis of the Results of Operations
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and Financial Condition
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Fiscal 1996 and Fiscal 1995
Revenues
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Revenues from retail operations for the 52-week period ended February 1,
1997 increased 15.0% to $877.8 million from $763.5 million for the 53-week
period ended February 3, 1996. The increase in revenues from retail
operations was due to both an increase in the number of stores operated and
to increased revenues from existing stores. For stores open more than one
year ("same store sales"), adjusted to reflect a 52-week comparison,
revenues increased by 3.2% from the prior period. Revenues from wholesale
operations for the 52-week period ended February 1, 1997 declined 15.7% to
$76.7 million from $91.0 million for the 53-week period ended February 3,
1996. The decrease in wholesale revenues was primarily due to the loss of
certain wholesale accounts which ceased operations due to increased
competition in their respective trading areas.
Gross Profit
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Gross profit from retail operations for the 52-week period ended February 1,
1997 increased 22.5% to $234.5 million from $191.4 million for the 53-week
period ended February 3, 1996 primarily due to the increase in revenues.
Gross profit as a percentage of revenues for the retail operations for the
52-week period ended February 1, 1997 increased to 26.7% from 25.1% for the
53-week period ended February 3, 1996. The increase in gross profit as a
percentage of revenues was primarily attributable to an increase in the
gross margin rate in the perishable categories. Gross profit from wholesale
operations for the 52-week period ended February 1, 1997 decreased 21.5% to
$4.9 million from $6.3 million for the 53-week period ended February 3,
1996. Gross profit as a percentage of revenues for wholesale operations for
the 52-week period ended February 1, 1997 decreased to 6.4% from 6.9% for
the 53-week period ended February 3, 1996.
Operating and Administrative Expenses
- -------------------------------------
Operating and administrative expenses for the 52-week period ended February
1, 1997 increased by 24.3% to $197.3 million from $158.7 million for the 53-
week period ended February 3, 1996. Operating and administrative expenses as
a percentage of total revenues for the 52-week period ended February 1, 1997
increased to 20.7% from 18.6% for the 53-week period ended February 3, 1996.
The increase in operating and administrative expenses as a percentage of
total revenues was attributable to a number of factors: continued
investment in increased service levels in the stores; an increase in retail
operations which incur a higher rate of operating and administrative
expenses than wholesale operations; an increase in rent expense as a result
of sale-leaseback transactions which occurred in October 1995 and January
1996; the acquisition of 10 locations during the period; the opening of the
two new Wild Harvest stores as well as the operating and administrative
infrastructure established to support existing and future Wild Harvest
locations; and additional administrative costs as the Company continues to
grow.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense, which includes the amortization of
goodwill, was 2.3% of total revenues for the 52-week period ended February
1, 1997 and the 53-week period ended February 3, 1996.
Non-Operating Expenses
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Interest expense for the 52-week period ended February 1, 1997 increased to
$28.9 million from $28.4 million for the 53-week period ended February 3,
1996. The Company recorded state income tax expense of $0.4 million for the
52-week period ended February 1, 1997 and $0.3 million for the 53-week
period ended February 3, 1996. The Company did not record a federal or state
tax benefit associated with the losses recorded in the 52-week period ended
February 1, 1997 and the 53-week period ended February 3, 1996.
Fiscal 1995 and Fiscal 1994
Revenues
- --------
Revenues from retail operations for the 53-week period ended February 3,
1996 increased 9.6% to $763.5 million from $696.4 million for the 52-week
period ended January 28, 1995. For stores open more than one year ("same
store sales"), adjusted to reflect a 52-week comparison, revenues declined
by 1.0% from fiscal 1994. Same store sales results by quarter for the
adjusted period ending February 3, 1996, were -3.7%, -4.5%, 0.3%, and 4.0%,
respectively. The decline in same store sales during the first two quarters
was primarily due to reduced promotional activity as compared to the prior
year. Revenues from wholesale operations for the 53-week period ended
February 3, 1996 declined 16.5% to $91.0 million from $108.9 million for the
52-week period ended January 28, 1995. The decrease in wholesale revenues
was primarily due to the loss of certain wholesale accounts which ceased
operations due to increased competition in their respective trading areas.
Gross Profit
- ------------
Gross profit from retail operations for the 53-week period ended February 3,
1996 increased 12.9% to $191.4 million from $169.5 million for the 52-week
period ended January 28, 1995 primarily due to the increase in revenues.
Gross profit as a percentage of revenues for retail operations for the 53-
week period ended February 3, 1996 increased to 25.1% from 24.4% for the 52-
week period ended January 28, 1995. The increase in gross profit as a
percentage of revenues was primarily attributable to an increase in the
gross margin rate in the non-perishable categories. Gross profit from
wholesale operations for the 53-week period ended February 3, 1996 was $6.3
million, substantially the same as the 52-week period ended January 28,
1995. Gross profit as a percentage of revenues for wholesale operations for
the 53-week period ended February 3, 1996 increased to 6.9% from 5.8% for
the 52-week period ended January 28, 1995.
Operating and Administrative Expenses
- -------------------------------------
Operating and administrative expenses for the 53-week period ended February
3, 1996 increased by 15.3% to $158.7 million from $137.7 million for the 52-
week period ended January 28, 1995. Operating and administrative expenses as
a percentage of total revenues for the 53-week period ended February 3, 1996
increased to 18.6% from 17.1% for the 52-week period ended January 28, 1995.
The increase in operating and administrative expenses as a percentage of
total revenues was primarily attributable to continued investment in
increased service levels in the stores, the opening of two new superstores,
and the acquisition of three conventional stores during fiscal 1995.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense, which includes the amortization of
goodwill, was 2.3% of total revenues for the 53-week period ended February
3, 1996 and 1.9% of total revenues for the 52-week period ended January 28,
1995.
Non-Operating Expenses
- ----------------------
Interest expense for the 53-week period ended February 3, 1996 increased to
$28.4 million from $9.8 million for the 52-week period ended January 28,
1995. The increase in interest expense was attributable to indebtedness
incurred in connection with the Acquisition, the issuance of Subordinated
Notes, and borrowings under the revolving credit facility to fund fixed
asset and working capital requirements for new stores, acquisitions and
expansions. Income tax expense for the 53-week period ended February 3, 1996
decreased to $0.3 million from $6.1 million for the 52-week period ended
January 28, 1995. The Company recorded state income tax expense of $.3
million for the 53-week period ended February 3, 1996 and $0.1 million for
the 20-week period ended January 28, 1995. The Company did not record a
federal or state tax benefit associated with the losses recorded in the 53-
week period ended February 3, 1996 and the 20-week period ended January 28,
1995.
Extraordinary Loss.
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The Company recorded an extraordinary loss of $2.1 million for the 20-week
period ended January 28, 1995, resulting from the write-off of deferred
financing costs related to the repayment of indebtedness under the Company's
$75.0 million Subordinated Loan Facility dated September 8, 1994 (the
"Subordinated Loan Facility") with the proceeds from the offering of the
Subordinated Notes. The Company entered into the Subordinated Loan Facility
in connection with the Acquisition.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity needs arise primarily from debt service on the
indebtedness incurred in connection with the Acquisition and the funding of
the Company's store acquisitions, capital expenditure and working capital
requirements.
The Company's total indebtedness as of April 21, 1997 was $259.0 million,
which includes $110.0 million of Subordinated Notes due November 1, 2004,
$145.4 million due under the Senior Credit Facility, and a $3.6 million note
payable. The Senior Credit Facility provides for a $108.0 million term loan
facility and a $75.0 million revolving credit facility. As of April 21,
1997, the Company had $8.8 million drawn under the letter of credit
facilities of the Senior Credit Facility and $37.4 million drawn under the
revolving credit portion of the Senior Credit Facility leaving an aggregate
of $28.8 million of unused revolving credit availability under the Senior
Credit Facility. The Company paid $1.3 million in aggregate principal amount
which matured in 1996. An additional $0.9 million in aggregate principal
amount will mature in 1997.
During 1996, the Company acquired 10 supermarket locations from Stop & Shop
for an aggregate purchase price of $28.0 million, excluding related fees and
inventory. In January 1996, the Company's lenders executed an amendment to
the Senior Credit Facility which allowed the Company to utilize $12.0
million in proceeds from the sale of assets to fund a portion of this
acquisition. The amendment to the Senior Credit Facility contemplated one
additional location not included in the final agreement with Stop & Shop.
Accordingly, the terms of the Senior Credit Facility were amended a second
time in June 1996 to reflect the final agreement with Stop & Shop regarding
the acquired locations. In addition, the Company incurred approximately $4.0
million in long-term debt payable to Stop & Shop over five years and the
balance of the purchase price was funded by an equity contribution of $12.0
million from Holdings.
On April 21, 1997, the Company completed an amendment to the Senior Credit
Facility in order to accommodate continued investment in new store growth.
The amendment provides for a $108.0 million term loan facility and a $75.0
revolving credit facility, extends the revolving credit facility by two
years to December 31, 2001, amends certain covenant levels, and replaces a
term loan that was due in 1999 with a new term loan due in 2003.
Capital expenditures for fiscal 1996 were $54.8 million as compared to $65.3
million in fiscal 1995 and $29.8 million in fiscal 1994. Predecessor's
capital expenditures were funded through cash flow from operations.
Successor's capital expenditures have been funded through cash flow from
operations, proceeds from sale-leaseback transactions, proceeds from the
sale of non-operating properties, and borrowings under the revolving credit
portion of its Senior Credit Facility. Subsequent to the end of fiscal 1996,
the Company completed a sale-leaseback transaction for one of its stores for
a gross selling price of $21.0 million.
The Company currently anticipates making capital expenditures of
approximately $43.2 million in fiscal 1997. Capital expenditures will
include opening two new superstores, opening a new superstore to replace an
existing conventional store, remodeling six existing stores, converting one
conventional store to a superstore, and opening two new Wild Harvest stores.
Planned capital expenditures for fiscal 1997 include approximately $6.1
million for maintenance, systems, and distribution.
The Company believes that funds generated from operations, proceeds from
additional sale-leaseback transactions and borrowings under the Senior
Credit Facility will provide sufficient resources through fiscal 1997 to
permit it to meet its working capital requirements, to make all interest and
principal payments due and payable on the Subordinated Notes and its
existing indebtedness and to fund planned capital expenditures. However, if
the Company's cash flow and capital resources are insufficient to fund its
debt service obligations, the Company may be required to reduce or delay
planned capital expenditures, sell assets, obtain additional equity capital
or restructure its debt.
Borrowings under the Senior Credit Facility are subject to variable interest
rates, which could cause the Company to be vulnerable to future increases in
prevailing interest rates. To the extent that the Company is required to
dedicate materially greater amounts of its cash flow from operations and
other capital resources to pay interest on its outstanding indebtedness as a
result of future interest rate increases, it will reduce the funds available
for other purposes.
Item 8. Consolidated Financial Statements and Supplementary Data
- ----------------------------------------------------------------
The Consolidated financial statements and supplementary data are included
under Item 14. of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The following table sets forth the name, age and position of each current
director and executive officer of the Company. Each director of the Company
will hold office until the next annual meeting of shareholders of the
Company or until his or her successor has been elected and qualified.
Officers of the Company are elected by the Board of Directors of the Company
and serve at the discretion of the Board of Directors. The size of the Board
of Directors may be increased from time to time.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Henry J. Nasella 50 Chairman of the Board of Directors,
President and Chief Executive Officer
Robert R. Spellman 49 Director, Executive Vice President,
Administration, and Chief Financial Officer
Edward Albertian 44 Executive Vice President, Operations and
Chief Operating Officer
Carole O'Connor Gates 39 Executive Vice President, Marketing
William P. Paul 50 Executive Vice President, Merchandising
</TABLE>
Henry J. Nasella became Chairman of the Board of Directors, President and
Chief Executive Officer of the Company in September 1994 upon the
consummation of the Acquisition. Prior to joining the Company, Mr. Nasella
was Chief Executive Officer of Staples, the Office Superstore Division of
Staples, Inc., a leading office products retailer, during 1993, and
President of Staples, Inc. from 1988 through 1993. Mr. Nasella is also a
director of Au Bon Pain Co., Inc.
Robert R. Spellman became a Director, Executive Vice President,
Administration, and Chief Financial Officer of the Company in October 1994
upon the consummation of the Acquisition. Prior to joining the Company, he
served as Senior Vice President, Finance of Staples, Inc. from September
1988, Secretary of Staples, Inc. from December 1988 through March 1993 and
was Treasurer of Staples, Inc. from September 1989 through August 1993.
Edward Albertian became Executive Vice President, Operations, and Chief
Operating Officer in May 1996. He joined the Company in May 1995 as Senior
Vice President, Operations. Prior to joining the Company, Mr. Albertian
served as Senior Vice President, Eastern Operations for Staples, Inc. from
1992.
Carole O'Connor Gates became Executive Vice President, Marketing in April
1996. She joined the Company in November 1994 as Senior Vice President,
Marketing. Prior to joining the Company, she served as Senior Vice
President, Advertising of BayBank, Inc. from January 1990.
William P. Paul became Executive Vice President, Merchandising in April
1996. He joined the Company in May 1995 as Senior Vice President,
Merchandising. Prior to joining the Company, he served as Vice President of
Merchandising of Staples, International from February 1994 to May 1995, and
Vice President of Merchandising of Staples, Inc. from September 1990 to
February 1994.
Director Compensation
- ---------------------
The Company pays no remuneration to its employees or to executives of
Investcorp or any of its wholly-owned subsidiaries for serving as directors.
See "Management--Executive Compensation." There are no family relationships
among any of the directors or executive officers.
Item 11. Executive Compensation
- -------------------------------
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer and the four other
most highly compensated executive officers for fiscal years 1996 and 1995,
and the short fiscal year ended January 28, 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Awards
- ---------------------------------------------------------------------------------------
Number of
Other Shares
Annual Underlying All Other
Name and Principal Salary(2) Bonus(3) Compensation Options/SARs Compensation(4)
Position Year(1) ($) ($) ($) (#) ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Henry J. Nasella 1996 300,000 0 0 0 12,046
Chairman, President and 1995 300,000 100,000 0 0 13,140
Chief Executive Officer 1994 125,000 115,500 0 76,239 10,026
- ----------------------------------------------------------------------------------------------------------
Robert R. Spellman 1996 250,000 50,000 0 0 9,334
Executive Vice President, 1995 250,000 50,000 0 0 9,368
Administration and Chief 1994 83,333 38,500 0 8,083 18,892(5)
Financial Officer
- ----------------------------------------------------------------------------------------------------------
Edward Albertian 1996 197,583 63,238 0 500 7,998
Executive Vice President, 1995 131,396 26,279 0 4,114 5,868
Operations and Chief
Operating Officer
- ----------------------------------------------------------------------------------------------------------
Carole O'Connor Gates 1996 168,333 51,667 0 0 7,495
Executive Vice President, 1995 160,000 32,000 0 5,477 1,181
Marketing 1994 42,540 75,000 0 0 95
- ----------------------------------------------------------------------------------------------------------
William P. Paul 1996 159,167 32,142 0 0 8,381
Executive Vice President, 1995 109,792 21,958 0 3,328 4,928
Merchandising
- ----------------------------------------------------------------------------------------------------------
<F1> Star Markets Company, Inc. began operations on September 9, 1994, as
successor to the Star Market Company operating division of Jewel Food
Stores, Inc.
<F2> Represents salary paid since date of employment. Dates on which the
employment of each named executive commenced were September 1, 1994
for Mr. Nasella, October 1, 1994 for Mr. Spellman, October 26, 1994
for Ms. O'Connor Gates, May 15, 1995 for Mr. Albertian and May 15,
1995 for Mr. Paul.
<F3> Represents amounts paid for the relevant fiscal year. Bonuses are
reported in the fiscal year earned and typically paid during the
following fiscal year.
<F4> The compensation reported represents: amounts contributed by the
Company under the 401(K) Savings Plan and imputed income on the value
of Company provided term life insurance in excess of $50,000.
- Company contributions under the 401(K) Savings Plan for fiscal
1994 were as follows: $5,190 for Mr. Nasella and Mr. Spellman,
and $0 for Ms. O'Connor Gates. Imputed income on the value of
Company provided term life insurance in excess of $50,000 in
fiscal 1994 was as follows: $4,836 for Mr. Nasella, $508 for Mr.
Spellman, and $95 for Ms. O'Connor Gates.
- Company contributions under the 401(K) Savings Plan for fiscal
1995 were as follows: $6,332 for Mr. Nasella, $6,932 for Mr.
Spellman, $5,095 for Mr. Albertian, $613 for Ms. O'Connor Gates
and $4,025 for Mr. Paul. Imputed income on the value of Company
provided term life insurance in excess of $50,000 in fiscal 1995
was as follows: $6,808 for Mr. Nasella, $2,436 for Mr. Spellman,
$773 for Mr. Albertian, $568 for Ms. O'Connor Gates, and $903 for
Mr. Paul.
- Company contributions under the 401(K) Savings Plan for fiscal
1996 were as follows: $5,458 for Mr. Nasella, $6,898 for Mr.
Spellman, $6,898 for Mr. Albertian, $6,898 for Ms. O'Connor Gates
and $6,898 for Mr. Paul. Imputed income on the value of Company
provided term life insurance in excess of $50,000 in fiscal 1996
was as follows: $6,588 for Mr. Nasella, $2,436 for Mr. Spellman,
$1,100 for Mr. Albertian, $597 for Ms. O'Connor Gates, and $1,483
for Mr. Paul.
<F5> Includes a $13,194 reimbursement of certain amounts forfeited in
connection with termination of prior employment.
</TABLE>
Option Grants
The following table sets forth certain information concerning grants of
stock options in respect of Class C Stock of Star Markets Holdings, Inc.
("Holdings") during the fiscal year ended February 1, 1997 to the executive
officers named in the Summary Compensation Table.
Option Grants in 1996
Individual Grants
-----------------
<TABLE>
<CAPTION>
Number of Percent of
Shares of Total Potential Realized Value at
Class C Options Assumed Annual Rates of Stock
Stock Granted to Price Appreciation for Option
Underlying Employees Exercise Term(2)
Options in Fiscal Price per Expiration
Name Granted Year Shares($) Date 0%($) 5%($) 10%($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry J. Nasella 0 - - - - - -
- ---------------------------------------------------------------------------------------------------------
Robert R. Spellman 0 - - - - - -
- ---------------------------------------------------------------------------------------------------------
Edward Albertian 500(1) 41.7 75 7/19/06 0 23,584 59,765
- ---------------------------------------------------------------------------------------------------------
Carole O'Connor Gates 0 - - - - - -
- ---------------------------------------------------------------------------------------------------------
William Paul 0 - - - - - -
- ---------------------------------------------------------------------------------------------------------
<F1> Each option becomes exercisable on a cumulative basis in five equal
annual installments beginning on the last day of fiscal year 1996,
provided the optionee continues to be employed by the Company on such
dates, and subject to the achievement of certain earnings targets. In
addition, the exercisability of stock options will accelerate upon an
initial public offering and may accelerate upon a change of control.
<F2> In accordance with the rules of the Securities and Exchange
Commission, the amounts shown on this table represent hypothetical
gains that could be achieved for the respective options if exercised
at the end of the option term. These gains are based on assumed rates
of stock appreciation of 0%, 5% and 10% compounded annually from the
date the respective options were granted to their expiration date.
The gains shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the
exercise. Actual gains, if any, on stock option exercises will depend
on many factors, including the future performance of the Company, the
option holder's continued employment through the option period, and
the date on which the options are exercised.
</TABLE>
Option Exercises and Holdings
The following table sets forth certain information related to stock options
in respect of Class C Stock of Holdings for the fiscal year ended February
1, 1997 for each of the executive officers named in the Summary Compensation
Table; and the number and value of options held by each of these executives
on February 1, 1997.
<TABLE>
<CAPTION>
Number of Number of Shares of
Shares Common Stock Underlying Value of Unexercised In-
Common Unexercised Options at The-Money Options at
Stock Fiscal Year End Fiscal Year End(1)
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Henry J. Nasella 0 $0 7,624 68,615 $0 $1,429,500
- ---------------------------------------------------------------------------------------------------------------
Robert R. Spellman 0 0 1,617 6,466 0 0
- ---------------------------------------------------------------------------------------------------------------
Edward Albertian 0 0 823 3,791 0 0
- ---------------------------------------------------------------------------------------------------------------
Carole O'Connor Gates 0 0 1,095 4,382 0 0
- ---------------------------------------------------------------------------------------------------------------
William Paul 0 0 666 2,662 0 0
- ---------------------------------------------------------------------------------------------------------------
<F1> Underlying shares are not publicly traded and are subject to
repurchase by Holdings under certain circumstances at the employee's
cost or at the then current value of the underlying share, as
determined by the Holding's Board of Directors upon the termination
of the employee's employment with the Company. Only those options
granted to Mr. Nasella at an exercise price of $37.50 per share are
classified as in-the-money for purposes of this table based on an
estimated value of such shares of $75.00 per share. Neither Holdings
nor the Company has established any recent valuations for such
shares.
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
All of the Company's issued and outstanding capital stock is owned by
Holdings. Class D Stock, par value $.01 per share, is the only class of
Holdings' stock that currently possesses voting rights. At February 1, 1997
there were 5,000 shares of Holdings' Class D Stock issued and outstanding.
Members of the Company's management own 38,935 shares, and have the right to
acquire an additional 19,149 shares subject to presently exercisable
options, of Holdings' Class C Stock, par value $.01 per share, which stock
has no voting rights except in certain limited circumstances. The following
tables set forth the beneficial ownership of each class of issued and
outstanding securities of Holdings by each director of the Company, each of
the executive officers of the Company listed under "Management," the
directors and executive officers of the Company as a group and each person
who beneficially owns more than 5% of the outstanding shares of any class of
voting securities of Holdings.
<TABLE>
<CAPTION>
Class D Voting Stock:
- ---------------------
Number of Voting
Shares(1) Percentage(1)
--------- -------------
<S> <C> <C>
INVESTCORP S.A.(2)(6) 5,000 100.0%
37 rue Notre-Dame,
Luxembourg
SIPCO Limited(3) 5,000 100.0%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
CIP Limited(4)(5) 4,600 92.0%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
Ballet Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Denary Limited(4)(5) 460 9.2%
West Wind Building
George Town, Grand Cayman
Cayman Islands
Gleam Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Highlands Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Noble Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Outrigger Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Quill Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Radial Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Shoreline Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Zinnia Limited(4)(5) 460 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
INVESTCORP Investment Equity Limited(6) 400 8.0%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
<F1> As used in this table, beneficial ownership means the sole or shared
power to vote, or to direct the voting of a security, or the sole or
shared power to dispose, or direct the disposition of, a security.
<F2> Investcorp does not directly own any stock in Holdings. The number of
shares shown as owned by Investcorp includes all of the shares owned
by INVESTCORP Investment Equity Limited (see (6) below). Investcorp
owns no stock in Ballet Limited, Denary Limited, Gleam Limited,
Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited,
Radial Limited, Shoreline Limited, Zinnia Limited, or in the
beneficial owners of these entities. Investcorp may be deemed to
share beneficial ownership of the shares of voting stock held by
these entities because the entities have entered into revocable
management services or similar arrangements with an affiliate of
Investcorp pursuant to which each of such entities has granted such
affiliate the authority to direct the voting and disposition of the
Holdings voting stock owned by such entity for so long as such
agreement is in effect. Investcorp is a Luxembourg corporation.
<F3> SIPCO Limited may be deemed to control Investcorp through its
ownership of a majority of a company's stock that indirectly owns a
majority of Investcorp's shares.
<F4> CIP Limited ("CIP") owns no stock in Holdings. CIP owns less than
0.1% of the stock in each of Ballet Limited, Denary Limited, Gleam
Limited, Highlands Limited, Noble Limited, Outrigger Limited, Quill
Limited, Radial Limited, Shoreline Limited and Zinnia Limited (see
(5) below). CIP may be deemed to share beneficial ownership of the
shares of voting stock of Holdings held by such entities because CIP
acts as a director of such entities and the ultimate beneficial
shareholders of each of those entities have granted CIP revocable
proxies in companies that own those entities' stock. None of the
ultimate beneficial owners of such entities beneficially owns
individually more than 5% of Holdings' voting stock.
<F5> CIP, Ballet Limited, Denary Limited, Gleam Limited, Highlands
Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial
Limited, Shoreline Limited and Zinnia Limited each is a Cayman
Islands corporation.
<F6> INVESTCORP Investment Equity Limited is a Cayman Islands corporation,
and a wholly-owned subsidiary of Investcorp.
</TABLE>
<TABLE>
<CAPTION>
Class C Non-Voting Stock:
- -------------------------
Number of
Shares(1)
---------
<S> <C>
Henry J. Nasella 34,291(2)
625 Mount Auburn Street
Cambridge, MA 02138
Robert R. Spellman 4,950(3)
625 Mount Auburn Street
Cambridge, MA 02138
Edward Albertian 1,423(4)
625 Mount Auburn Street
Cambridge, MA 02138
Carole O'Connor Gates 1,735(5)
625 Mount Auburn Street
Cambridge, MA 02138
William P. Paul 1,266(6)
625 Mount Auburn Street
Cambridge, MA 02138 ------
All directors and executive officers of
the Company as a group (5) persons 43,665
======
<F1> As used in this table, beneficial ownership means the sole or shared
power to vote, or direct the voting of a security, or the sole or
shared power to dispose, or direct the disposition of, a security.
Each of the persons listed is deemed to beneficially own shares
issuable upon the exercise of stock options that are currently
exercisable ("Presently Exercisable Options").
<F2> Includes 7,624 shares subject to Presently Exercisable Options.
<F3> Includes 1,617 shares subject to Presently Exercisable Options.
<F4> Includes 823 shares subject to Presently Exercisable Options.
<F5> Includes 1,095 shares subject to Presently Exercisable Options.
<F6> Includes 666 shares subject to Presently Exercisable Options.
</TABLE>
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Holdings was originally capitalized with $75.0 million of equity contributed
by Investcorp, its affiliates, other international and domestic investors
and senior management of the Company and $10.0 million in the form of $11.0
million principal amount of junior subordinated indebtedness (the "Junior
Notes") provided, and acquired at a discount, by Invifin S.A. ("Invifin"),
an affiliate of Investcorp. Holdings capitalized the Company with $86.0
million in exchange for 100% of the outstanding common and redeemable
preferred stock of the Company in connection with the consummation of the
Acquisition. This capital contribution to the Company, in addition to
borrowings under the Senior Credit Facility and the Subordinated Loan
Facility, provided the sources of the consideration for the Acquisition and
related costs and fees. In connection with the Acquisition, the Company paid
Investcorp International, Inc. ("International") advisory fees of $5.7
million. The Company also paid approximately $5.1 million to International
for arranging the commercial bank financing and $165,000 in commitment fees
to Invifin in connection with the Junior Notes.
In July 1996, Holdings issued an additional $12.0 million of equity
securities to affiliates of Investcorp. Holdings contributed the proceeds
from the issuance of securities as additional paid-in-capital to the Company
to partially fund the acquisition of 10 supermarket locations from Stop &
Shop in July 1996.
In connection with the Acquisition, the Company entered into an agreement
for management advisory and consulting services (the "Management Agreement")
with International pursuant to which the Company agreed to pay International
$750,000 per annum for a five-year term. At the closing of the Acquisition,
the Company paid International approximately $2.3 million for the first
three years in accordance with the terms of the Management Agreement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) 1. The financial statements listed in the List of Financial Statements
on page F-2 are filed as part of this Annual Report on Form 10-K.
(a) 2. Financial Statement Schedules
All schedules are omitted as the required information is
inapplicable or are presented in the financial statements or
related notes.
(a) 3. List of Exhibits:
Each management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K is identified with an asterisk ("*")
below.
Exhibit
Number Description of Exhibits
- ------- -----------------------
3(a) Amended and Restated Articles of Organization of the Company, dated
as of September 6, 1994 (filed as Exhibit 3(a) to the Registration
Statement (No. 33-86690) on Form S-4 (the "Registration Statement")
and incorporated herein by reference).
3(b) By-laws of the Company (filed as Exhibit 3(b) to the Registration
Statement and incorporated herein by reference).
3(c) Certificate of Designation relating to the Preferred Stock of the
Company, dated September 7, 1994 (filed as Exhibit 3(c) to the
Registration Statement and incorporated herein by reference).
4(a) Indenture between the Company and State Street Bank and Trust
Company, as Trustee, dated as of November 1, 1994 (filed as Exhibit
4(a) to the Registration Statement and incorporated herein by
reference).
4(b) Exchange and Registration Rights Agreement among the Company,
Chemical Securities Inc. and BT Securities Corporation, dated
November 2, 1994 (filed as Exhibit 4(b) to the Registration
Statement and incorporated herein by reference).
10(a) Asset Purchase Agreement between Jewel Food Stores, Inc. and Star
Acquisition Corp., dated July 28, 1994 (filed as Exhibit 10(a) to
the Registration Statement and incorporated herein by reference).
10(b) First Amendment to Asset Purchase Agreement between Jewel Food
Stores, Inc. and Star Acquisition Corp., dated August 3, 1994
(filed as Exhibit 10(b) to the Registration Statement and
incorporated herein by reference).
10(c) Second Amendment to Asset Purchase Agreement between Jewel Food
Stores, Inc. and the Company, dated September 8, 1994 (filed as
Exhibit 10(c) to the Registration Statement and incorporated herein
by reference).
10(d) Purchase Agreement among the Company, Chemical Securities Inc. and
BT Securities Corporation, dated October 26, 1994 (filed as Exhibit
10(d) to the Registration Statement and incorporated herein by
reference).
10(e) Credit Agreement among the Company, Chemical Bank, as
Administrative Agent, and the lenders party thereto, dated as of
September 8, 1994 (filed as Exhibit 10(e) to the Registration
Statement and incorporated herein by reference).
10(f) Security Agreement made by the Company in favor of Chemical Bank,
as Administrative Agent, dated as of September 8, 1994 (filed as
Exhibit 10(f) to the Registration Statement and incorporated herein
by reference).
10(g) Transition Services Agreement between Jewel Food Stores, Inc. and
the Company, dated as of September 8, 1994 (filed as Exhibit 10(g)
to the Registration Statement and incorporated herein by
reference).
10(h) Interim Limited Management Agreement between the Company and Star
Market Liquors, Inc., dated as of September 8, 1994 (filed as
Exhibit 10(h) to the Registration Statement and incorporated herein
by reference).
10(i) Agreement for Management Advisory and Consulting Services between
Investcorp International, Inc. and the Company, dated as of
September 8, 1994 (filed as Exhibit 10(i) to the Registration
Statement and incorporated herein by reference).
10(j)* Employment Agreement between the Company and Henry Nasella, dated
as of September 8, 1994 (filed as Exhibit 10(j) to the Registration
Statement and incorporated herein by reference).
10(k) Trust Agreement between the Company and Fidelity Management Trust
Company, dated as of September 8, 1994 (filed as Exhibit 10(m) to
the Registration Statement and incorporated herein by reference).
10(l) Third Amendment to Asset Purchase Agreement between Jewel Food
Stores, Inc. and Star Acquisition Corp., dated January 13, 1995
(filed as Exhibit 10(n) to the Registration Statement and
incorporated herein by reference).
10(m)* Star Markets Retirement Estates plan description dated November 7,
1994 (filed as Exhibit 10(o) to the Registration Statement and
incorporated herein by reference).
10(n)* 1994 Stock Incentive Plan of Holdings, dated September 8, 1994
(filed as Exhibit 10(p) to the Registration Statement and
incorporated herein by reference).
10(o) First Amendment to Credit Agreement among the Company, Chemical
Bank, as Administrative Agent, and the lenders party thereto, dated
as of January 16, 1996 (filed as Exhibit 10(q) to the Company's
1995 Form 10-K and incorporated herein by reference).
10(p)** Second Amendment to Credit Agreement among the Company, Chemical
Bank, as Administrative Agent, and the lenders party thereto,
dated as of June 25, 1996.
10(q)** Third Amendment to Credit Agreement among the Company, Chemical
Bank, as Administrative Agent, and the lenders party thereto,
dated as of April 21, 1997.
27** Financial Data Schedule for the 52 weeks ended February 1, 1997.
(b) No reports were filed on Form 8-K for the 13-week period ended
February 1, 1997.
** As filed herewith.
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Star Markets Company, Inc.
DATE: May 2, 1997 BY: /s/ Henry J. Nasella
Henry J. Nasella
Chairman of the Board of Directors
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Henry J. Nasella
- -------------------------
Henry J. Nasella Chairman of the Board of Directors May 2, 1997
President and Chief Executive Officer
(Principal Executive Officer)
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert R. Spellman
- -------------------------
Robert R. Spellman Director May 2, 1997
Executive Vice President, Administration
Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
Not Applicable. No Annual Report or proxy material has been sent to holders
of the Registrant's securities.
Annual Report on Form 10-K
Item 8, Item 14 (a) 1.
List of Financial Statements
Financial Statements
Exhibit
52 weeks ended February 1, 1997,
53 weeks ended February 3, 1996,
20 weeks ended January 28, 1995, and
32 weeks ended September 10, 1994
Star Markets Company, Inc.
Cambridge, MA
Form 10-K - Item 14 (a) 1.
Star Markets Company, Inc.
52 weeks ended February 1, 1997,
53 weeks ended February 3, 1996,
20 weeks ended January 28, 1995, and
32 weeks ended September 10, 1994
List of Financial Statements
The following financial statements of Star Markets Company, Inc. ("The
Company") are included herein:
Balance sheets - February 1, 1997 and February 3, 1996
Statements of operations - 52 weeks ended February 1, 1997, 53 weeks
ended February 3, 1996 and 20 weeks ended January 28, 1995
Statements of equity - 52 weeks ended February 1, 1997, 53 weeks ended
February 3, 1996 and 20 weeks ended January 28, 1995
Statements of cash flows - 52 weeks ended February 1, 1997, 53 weeks
ended February 3, 1996 and 20 weeks ended January 28, 1995
Notes to financial statements - February 1, 1997.
The following financial statements of Star Markets ("Predecessor") are
included herein:
Statement of operations - 32 weeks ended September 10, 1994
Statement of equity - 32 weeks ended September 10, 1994
Statement of cash flows - 32 weeks ended September 10, 1994.
Report of Ernst & Young LLP, Independent Auditors
Shareholder and Board of Directors
Star Markets Company, Inc.
We have audited the accompanying balance sheets of Star Markets Company,
Inc. ("Successor") as of February 1, 1997 and February 3, 1996 and the
related statements of operations, changes in equity, and cash flows for the
52 week period ended February 1, 1997, the 53 week period ended February 3,
1996, and the 20 week period ended January 28, 1995 ("Successor periods").
We have also audited the accompanying statements of operations, changes in
equity, and cash flows of Star Market Company ("Predecessor") for the 32
week period ended September 10, 1994 ("Predecessor period"). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Star Markets Company,
Inc. at February 1, 1997 and February 3, 1996 and the results of its
operations and its cash flows for the Successor periods and the Predecessor
period in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Boston, Massachusetts
March 28, 1997, except for
Note 5, as to which the date is
April 21, 1997
Star Markets Company, Inc.
Balance Sheets
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
----------- -----------
Assets
<S> <C> <C>
Current assets:
Accounts receivable, net of reserve for doubtful
accounts of $1,589 in 1996 and $1,779 in 1995 $ 21,815 $ 13,544
Inventory 65,550 62,915
Prepaid expenses 4,959 5,044
-----------------------
Total current assets 92,324 81,503
Property and equipment at cost:
Land 31,015 32,402
Building 66,603 68,876
Equipment & fixtures 88,623 71,148
Leasehold improvements 44,024 28,670
-----------------------
Total property & equipment 230,265 201,096
Less accumulated depreciation and amortization 35,569 19,423
-----------------------
Net property and equipment 194,696 181,673
Other assets, net 33,058 25,885
Goodwill, net 133,192 136,442
-----------------------
Total Assets $453,270 $425,503
=======================
Liabilities and Shareholder's Equity
Current liabilities:
Accounts payable $ 46,798 $ 39,770
Accrued payroll & benefits 12,842 12,509
Current portion self-insurance 8,121 7,967
Accrued interest 6,003 5,133
Other current liabilities 13,637 10,170
-----------------------
Total current liabilities 87,401 75,549
Self-insurance reserves, less current portion 18,960 19,687
Other liabilities 3,772 3,532
Long-term debt 271,827 257,400
Redeemable preferred stock, redemption
value $11,000 10,230 10,134
Shareholder's equity:
Common stock, $.01 par value, 10,000 shares
authorized and 5,000 shares outstanding 0 0
Additional paid-in-capital 84,907 73,692
Retained earnings (deficit) (23,827) (14,491)
-----------------------
Total shareholder's equity 61,080 59,201
-----------------------
Total Liabilities and Shareholder's Equity $453,270 $425,503
=======================
</TABLE>
See accompanying notes.
Star Markets Company, Inc.
Statements of Operations
(Amounts in thousands)
<TABLE>
<CAPTION>
The Company Predecessor
----------------------------------------- -------------
52 Weeks 53 Weeks 20 Weeks 32 Weeks
Ended Ended, Ended Ended
February 1, February 3, January 28, September 10,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Total revenues $954,531 $854,504 $308,304 $496,989
Cost of goods sold 715,090 656,813 240,781 388,682
------------------------------------------------------
Gross profit 239,441 197,691 67,523 108,307
Operating and administrative expenses 197,314 158,723 53,921 83,823
Depreciation and amortization 22,178 19,326 7,218 8,295
------------------------------------------------------
19,949 19,642 6,384 16,189
Parent charges 923
Interest expense 28,894 28,382 9,781 27
Other income (expenses), net (13) 100 (10) (676)
------------------------------------------------------
Income (loss) before income taxes and
extraordinary items (8,958) (8,640) (3,407) 14,563
Income taxes 378 250 100 5,971
------------------------------------------------------
Income (loss) before extraordinary items (9,336) (8,890) (3,507) 8,592
Extraordinary loss (2,094)
------------------------------------------------------
Net income (loss) $ (9,336) $ (8,890) $ (5,601) $ 8,592
=====================================================
</TABLE>
See accompanying notes.
Star Markets Company, Inc.
Statements of Equity
(Amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In- Retained
The Company Stock Capital Earnings Total
----------- ------ ---------- -------- -----
<S> <C> <C> <C> <C>
Balance at September 10, 1994
(Inception) - - - -
Proceeds from issuance of common stock $ 75,000 $75,000
Net loss $ (5,601) (5,601)
Accretion of preferred stock (37) (37)
Preferred stock dividend (483) (483)
-------------------------------------------
Balance at January 28, 1995 $ 0 74,480 (5,601) 68,879
Net loss (8,890) (8,890)
Accretion of preferred stock (97) (97)
Preferred stock dividend (1,248) (1,248)
Deferred compensation 557 557
-------------------------------------------
Balance at February 3, 1996 0 73,692 (14,491) 59,201
Net loss (9,336) (9,336)
Accretion of preferred stock (96) (96)
Preferred stock dividend (1,230) (1,230)
Deferred compensation 556 556
Equity contribution, net of
issuance costs 11,985 11,985
-------------------------------------------
Balance at February 1, 1997 $ 0 $ 84,907 $(23,827) $61,080
===========================================
</TABLE>
<TABLE>
<CAPTION>
Division
Predecessor Equity
----------- --------
<S> <C>
Balance at January 29, 1994 $ 83,906
Net income 8,592
--------
Balance at September 10, 1994 (Pre-acquisition) 92,498
Cancellation of Predecessor equity (92,498)
--------
Balance at September 10, 1994 (Post-acquisition) $ 0
========
</TABLE>
See accompanying notes.
Star Markets Company, Inc.
Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
The Company Predecessor
----------------------------------------- -----------
52 Weeks 53 Weeks 20 Weeks 32 Weeks
Ended Ended, Ended Ended
February 1, February 3, January 28, September 10,
1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss) $ (9,336) $ (8,890) $ (5,601) $ 8,592
Adjustments to reconcile net loss to net
cash provided by operating activities:
Extraordinary loss 2,094
Amortization of deferred financing costs 1,543 1,564 914
Depreciation and amortization 22,178 19,326 7,218 8,295
Loss (gain) on sale or disposal of
property and equipment 15 (93) 16 305
Changes in operating assets and liabilities:
Accounts receivable (8,271) 2,008 (1,588) 2,160
Inventories (2,636) (3,529) (3,926) (165)
Prepaid expenses 85 (1,888) (2,463) (217)
Accounts payable 7,028 1,139 9,744 (2,637)
Accrued payroll and benefits 333 1,686 2,192 585
Self-insurance reserves (571) (2,445) 838 36
Accrued interest 870 1,231 3,902
Other current liabilities 2,754 (1,604) 3,458 (11,323)
Other 524 (4,263) 393 (1)
------------------------------------------------------
Net cash provided by operating activities 14,516 4,242 17,191 5,630
Investing activities
Purchases of property and equipment (34,762) (60,710) (25,494) (4,319)
Proceeds from sale of property and equipment 4,365 56,296 36
Decrease (increase) in restricted cash 6,028 (6,028)
Purchase of other intangibles (500)
Purchase of Cape Ann Market, Inc. (5,293)
Acquisition of leasehold interests (20,064)
Purchase of business and assets net of cash
acquired (299,416)
------------------------------------------------------
Net cash used in investing activities (44,433) (15,735) (325,410) (4,283)
Financing Activities
Net proceeds from revolving credit facility 12,400 18,400
Proceeds from long-term debt 4,087 341,000
Repayment of long-term debt (1,340) (1,000) (100,000)
Net proceeds from issuance of redeemable
preferred stock 10,000
Net proceeds from issuance of common stock 75,000
Preferred dividends paid (1,230) (1,226) (178)
Deposits refunded (made) 4,000 (4,500)
Equity contribution 12,000
Deferred financing costs (181) (17,603)
Change in due from/to Parent and affiliates 6,578
------------------------------------------------------
Net cash provided by financing activities 29,917 11,493 308,219 6,578
Net increase in cash and cash equivalents 0 0 0 7,925
Cash and cash equivalents beginning of period 0 0 0 (3,079)
------------------------------------------------------
Cash and cash equivalents end of period $ 0 $ 0 $ 0 $ 4,846
======================================================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 26,374 $ 25,382 $ 5,939 $ 0
Cash paid for income taxes 370 359 0 0
</TABLE>
See accompanying notes.
Star Markets Company, Inc.
Notes to Financial Statements
February 1, 1997
1. Background
Star Markets Company, Inc., a Massachusetts corporation (the "Company"), is
a leading food retailer in the metropolitan Boston area and operated 48
stores as of February 1, 1997. Additionally, the Company operates a
wholesale business which provides warehousing, distribution and certain
administrative services to independent store locations throughout the New
England area.
The Company is a wholly-owned subsidiary of Star Markets Holdings, Inc., a
Massachusetts corporation ("Holdings"). Both Holdings and the Company were
formed for purposes of the acquisition described below.
2. Acquisitions
Star Market Company ("Predecessor") was operated as a division of Jewel Food
Stores, Inc. ("Jewel"), a wholly-owned subsidiary of American Stores Company
(the "Parent" or "ASC"). On September 8, 1994, the Company acquired all of
the business and assets of Predecessor from Jewel and other affiliates of
ASC (the "Acquisition").
For financial statement purposes, the Acquisition was accounted for as a
purchase effective September 10, 1994. The acquisition resulted in a new
basis of accounting reflecting estimated fair values for assets and
liabilities at that date. Accordingly, the financial statements for the
periods subsequent to September 10, 1994 are presented on the Company's new
basis of accounting, while the financial statements at September 10, 1994
and the prior period are presented on the Predecessor's historical cost
basis of accounting. The assets and business were acquired for an aggregate
purchase price of $293.3 million, exclusive of related fees and expenses.
The purchase price, including approximately $11.0 million in related fees
and expenses, has been allocated based upon the fair value of the Company's
assets and liabilities as follows (in millions):
<TABLE>
<S> <C>
Historical basis of net assets acquired $126.4
Fair value and other adjustments:
Property, plant and equipment 40.9
Inventory 5.6
Accounts receivable (1.1)
Liabilities (5.1)
------
Fair market value of net assets 166.7
Goodwill 137.6
------
Total purchase price $304.3
======
</TABLE>
During 1995, the Company adjusted the amount of goodwill initially recorded
by approximately $3.0 million as a result of the resolution of contingencies
identified as part of the original purchase price allocation.
In May 1995, the Company purchased the operations, which consisted of three
conventional supermarkets, and certain assets of Cape Ann Market, Inc. for
an aggregate purchase price of $5.0 million, exclusive of related fees and
expenses.
3. Significant Accounting Policies
Basis of Presentation
The historical financial statements of Predecessor for the 32-week period
ended September 10, 1994 are presented as if Predecessor existed as a
separate entity from Jewel/ASC during the period presented and include
financial information directly related to its operations.
Reclassification
Certain amounts in the historical financial statements of the Company and
Predecessor have been reclassified to conform with the Company's current
method of presentation.
Fiscal Year
The fiscal year of the Company ends on the Saturday nearest to January 31.
All references herein to "1996", "1995", the "20 week period", the "32 week
period", and "1994", mean the 52-week fiscal year ended February 1, 1997,
the 53-week fiscal year ended February 3, 1996, the 20-week period ended
January 28, 1995, and the 32-week period ended September 10, 1994,
respectively. The effect of the additional week on 1995 results of
operations was not material.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, using the FIFO (first-in,
first-out) and weighted average cost methods, or market.
Goodwill
Goodwill represents the excess of the cost of the purchased businesses over
the fair value of the net underlying assets and is being amortized using the
straight-line method over 40 years. Accumulated amortization at February 1,
1997 and February 3, 1996 was $8.3 million and $4.8 million, respectively.
At each balance sheet date, management assesses whether there has been a
permanent impairment in the value of goodwill by comparing anticipated
undiscounted future cash flows from operating activities with the carrying
value of the goodwill. The amount of any resulting impairment is calculated
using the same undiscounted cash flows from operating activities. The
factors considered by management in this assessment include operating
results, trends and prospects, as well as the effects of demand, competition
and other economic factors.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Deferred Financing Costs
Deferred financing costs, included in other assets, are amortized over the
term of the related financing. Amortization of deferred financing costs is
included in interest expense in the Statement of Operations. Accumulated
amortization at February 1, 1997 and February 3, 1996 was $3.6 million and
$2.1 million, respectively.
Depreciation and Amortization
Depreciation and amortization is provided on a straight-line basis over the
estimated useful lives of owned assets. Leasehold improvements are amortized
over the estimated useful life of the property or over the term of the
lease, whichever is shorter. Depreciation begins when the asset is placed in
service.
Costs of Opening and Closing Stores
The costs of opening new stores are charged against operations as incurred.
When a store is closed, the remaining investment, net of salvage value, is
charged against operations and, for leased stores, a provision is made for
the remaining lease liability, net of expected sublease income.
Recently Issued Accounting Pronouncements
Effective February 4, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). SFAS No.
121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amounts. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. There was no effect
on the financial statements due to the adoption of the provisions of this
statement.
Advertising Expense
Total advertising expense amounted to $10.5 million, $9.8 million, $3.3
million, and $5.3 million in 1996, 1995, the 20 week period, and the 32 week
period, respectively. The Company expenses all advertising costs as
incurred.
4. Financial Instruments
The following methods and assumptions were used by the Company to estimate
the fair value of its financial instruments:
Cash and cash equivalents, receivables, and accounts payable and other
current liabilities: the carrying amounts reported in the balance sheet
approximate fair value. Long-term debt: the fair value of the Company's 13%
Senior Subordinated Notes is based on quoted market prices; the fair value
of other long-term debt approximates carrying amounts.
The carrying amounts and fair values of the Company's financial instruments
are as follows (in thousands):
<TABLE>
<CAPTION>
February 1, 1997 February 3, 1996
--------------------- --------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $273,548 $287,298 $258,400 $260,325
</TABLE>
5. Long-term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
April 21, 1997 February 1, 1997 February 3, 1996
-------------- ---------------- ----------------
<S> <C> <C> <C>
Senior Credit Facility:
Term Loan: Tranche A $ 38,500 $ 39,250
Tranche B $ 39,750 39,750 39,875
Tranche C 29,750 29,750 29,875
Additional Tranche C 38,500 0 0
Revolving credit facility 37,400 51,800 39,400
-----------------------------------------------
Total Senior Credit Facility 145,400 159,800 148,400
13% Senior subordinated notes 110,000 110,000 110,000
8% Note Payable 3,573 3,748 0
-----------------------------------------------
Total 258,973 273,548 258,400
Less current maturities 1,054 1,721 1,000
-----------------------------------------------
$257,919 $271,827 $257,400
===============================================
</TABLE>
The following table presents the maturities of the long-term debt for the
next five fiscal years and thereafter (in thousands) as of April 21, 1997,
after the third amendment to the Senior Credit Facility:
<TABLE>
<S> <C>
Fiscal 1997 $ 865
1998 1,099
1999 1,163
2000 20,796
2001 and thereafter 235,050
--------
Total $258,973
========
</TABLE>
Senior Credit Facility
The Senior Credit Facility (as first amended in January 1996, amended again
in June 1996, and further amended on April 21, 1997), dated as of September
8, 1994, provides for a total of $183.0 million of term and revolving loan
credit (the "loans").
The availability under the revolving credit facility may be utilized to meet
the Company's current working capital requirements, including issuance of
letters of credit. The Company can also utilize the remaining availability
to fund capital expenditures. The revolving credit facility expires on
December 31, 2001. At February 1, 1997, the Company had outstanding letters
of credit totaling $8.8 million as required by certain contracts relating to
inventory and self-insurance, which reduced the amount available under the
revolving credit facility.
The loans are secured by a first priority security interest in substantially
all the assets of the Company and a pledge of all the issued and outstanding
stock of the Company. In addition, the loans are guaranteed by Holdings.
Borrowings under the loans accrue interest at a floating interest rate,
which at the option of the Company is either (a) the greater of (i) the
bank's announced reference rate, (ii) a rate which fluctuates with the
secondary market rate for certificates of deposits, plus 1% or (iii) the
federal funds rate, plus .5%, in each case plus a margin varying from 1.25%
to 2.25% depending on the type and maturity of the loan, or (b) LIBOR, plus
a margin varying from 2.50% to 3.50% depending on the type and maturity of
the loan.
At February 1, 1997, the interest rates on the term loan facility ranged
from 8.00% to 9.00% and the weighted average interest rate on amounts
outstanding under the revolving credit facility at February 1, 1997 and
February 3, 1996 were 8.11% and 8.50%, respectively.
The loans require that under certain circumstances, proceeds from the
issuance of certain debt or equity or specified asset sales, exchanges or
excess cash flow are required to prepay indebtedness under the loan
facility. The terms of the Senior Credit Facility have been amended to allow
for certain proceeds from the sale of assets to be used to partially fund
acquired store locations. The Company also obtained a waiver to the Senior
Credit Facility for the fourth quarter ended February 1, 1997, relating to
certain financial covenants. In order to accommodate continued investment in
new store growth, the terms of the Senior Credit Facility were further
amended on April 21, 1997. This amendment, dated April 21, 1997, provides
for a $108.0 million term loan facility and a $75.0 revolving credit
facility, extends certain term loans, extends the revolving credit facility
by two years to December 31, 2001, and amends certain financial covenants.
13% Senior Subordinated Notes
On November 2, 1994, the Company issued $110 million of Senior Subordinated
Notes ("Notes"), due November 1, 2004. The Notes were offered and sold
pursuant to Rule 144A under the Securities Act and net proceeds were used as
follows: (i) approximately $75.8 million was used to repay the outstanding
indebtedness under the Company's Subordinated Loan Facility and all accrued
and unpaid interest thereon, (ii) approximately $25.1 million was used to
repay outstanding indebtedness under the term loan portion of the Company's
Senior Credit Facility and all accrued and unpaid interest due thereon and
(iii) the remaining proceeds were retained by the Company for general
corporate purposes, including working capital.
On November 22, 1994, the Company filed a registration statement on Form S-4
under the Securities Act of 1933 which was declared effective on March 9,
1995 pursuant to which an exchange offering was completed to exchange the
Notes for a series of notes of the Company with terms substantially
identical to the Notes.
8% Note Payable
The Company issued a $4.0 million note payable in connection with the store
locations acquired in July 1996. The note payable bears interest at 8.00%
per annum and requires quarterly payments of principal and interest through
July 2001.
Subordinated Loan Facility
The Subordinated Loan Facility, dated September 8, 1994, provided for
borrowings of $75.0 million of unsecured subordinated loans. The
indebtedness under the Subordinated Loan Facility was repaid in 1994 prior
to its maturity out of the proceeds of the Notes offering. Accordingly, the
write-off of deferred financing costs has been reflected as an extraordinary
item in the Statement of Operations for the 20-week period. The Subordinated
Loan Facility was subject to interest at a rate of 11.75% per annum.
Capitalized interest totaled $55,000, $1,839,000, $835,000, and $15,000 for
1996, 1995, the 20 week period, and the 32 week period, respectively.
6. Preferred Stock
The Company is authorized to issue 10,000 shares of preferred stock, par
value $.01 per share. During the 20-week period ended January 28, 1995, the
Company issued 5,000 preferred shares for $11.0 million, and concurrently
paid an issuance fee of $1.0 million on behalf of Holdings. All of the
outstanding preferred shares are held by Holdings.
Dividends on the preferred stock accrue at a rate of 11% per annum.
Dividends are cumulative and are payable when declared by the Board of
Directors of the Company, out of assets legally available therefore, on
April 30 and October 31 of each year, commencing on October 31, 1994. The
Company's Board of Directors declared, and the Company has paid, all
required dividends on the Company's cumulative preferred stock through
February 1, 1997. To the extent that dividends are accrued, but have not
been declared and paid, such undeclared and unpaid dividends will accrue
additional dividends from the date upon which such dividends accrued until
the date upon which they are paid at the rate of 13% per annum.
The shares of preferred stock are redeemable at the option of the Company at
a redemption price of $2,200 per share plus accrued and unpaid dividends
thereon to the date fixed for redemption. On December 31, 2005, the Company
is required to redeem all outstanding shares of preferred stock at $2,200
per share plus accrued and unpaid dividends thereon to the date fixed for
redemption.
7. Leases
The Company leases retail stores and equipment. The store leases have an
average of approximately 32 years until final expiration, with only one
store having less than five years until final maturity. The store leases
generally have renewal options and provide for contingent rent based on
sales levels in excess of specified levels.
The summary below shows the aggregate future minimum lease commitments at
February 1, 1997. Operating leases are shown net of an aggregate $4.8
million of minimum rental income under noncancelable subleases.
<TABLE>
<CAPTION>
Operating
Leases
--------------
(In thousands)
<S> <C>
1997 $ 20,306
1998 20,220
1999 19,446
2000 17,674
2001 18,690
Thereafter 215,472
--------
Total minimum rent commitments $311,808
========
</TABLE>
Rent expense for real property was as follows:
<TABLE>
<CAPTION>
Minimum Sublease Contingent Total
Rent Rent Net Rent Rent
------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
1996 $16,639 $(970) $15,669 $ 338 $16,007
1995 9,876 (560) 9,316 431 9,747
20 weeks 3,030 (168) 2,862 220 3,082
32 weeks 3,877 (201) 3,676 1,170 4,846
</TABLE>
Additionally, rent expense for personal property totaled approximately $2.1
million, $1.7 million, $0.6 million, and $0.9 million for 1996, 1995, the 20
week period, and the 32 week period, respectively.
Leasehold interests were acquired in connection with the 10 locations
acquired during 1996 and represent the present value of the excess of market
rents over actual rents payable over the remaining lives of the leases. The
leasehold interests are being amortized on the straight-line method over the
remaining lives of the leases. Accumulated amortization at February 1, 1997
was $0.4 million.
8. Income Taxes
Federal and state income taxes charged to earnings are summarized below:
<TABLE>
<CAPTION>
The Company Predecessor
------------------------------------
1996 1995 20 weeks 32 weeks
------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $5,097
State $378 $250 $100 874
---------------------------------
Income taxes $378 $250 $100 $5,971
=================================
</TABLE>
The effective income tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
The Company Predecessor
---------------------------- -----------
1996 1995 20 weeks 32 weeks
-------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate (34.0%) (34.0%) (34.0%) 35.0%
State income taxes, net of federal
income tax effect 4.2 2.9 1.8 6.0
Unbenefitted Losses / Loss Carryforward 34.0 34.0 34.0
-------------------------------------
Effective income tax rate 4.2% 2.9% 1.8% 41.0%
=====================================
</TABLE>
Deferred tax assets and liabilities as of 1996 and 1995 related to the
following temporary differences (in thousands):
<TABLE>
<CAPTION>
February 1, February 3,
1997 1996
--------------------------
<S> <C> <C>
Deferred tax liabilities:
Goodwill ($3,393) ($2,008)
Basis in fixed assets (3,786) (1,558)
Other, net (1,489) (1,313)
---------------------
Total deferred tax liabilities (8,668) (4,879)
Deferred tax assets:
Self-insurance reserves 14,522 13,367
Net operating loss carryforward 13,816 7,794
Compensation and benefits 2,194 2,010
Miscellaneous accruals 575 988
Other, net 1,777 940
---------------------
Total deferred tax assets 32,884 25,099
Valuation allowance (24,216) (20,220)
---------------------
Net deferred tax assets 8,668 4,879
---------------------
$ 0 $ 0
======================
</TABLE>
The Company has tax net operating loss carryforwards of $36.0 million that
expire through 2012. For financial reporting purposes, a valuation allowance
has been recognized to offset deferred tax assets in excess of deferred tax
liabilities since the Company has only incurred losses since inception and
realization of such assets is not probable at February 1, 1997.
9. Postretirement Health Care Benefits
Prior to January 1, 1996, it was the Company's practice that employees were
eligible to participate in a plan that provided certain health care benefits
to eligible retirees of certain defined employee groups under two unfunded
plans, a defined dollar and a full coverage benefit plan. Effective January
1, 1996 the Company revised its retiree health care practice. Eligible
retirees desiring health care coverage may now purchase it directly from a
local provider of such coverages. While the benefits provided to the
retirees remained essentially unchanged, none of the costs are borne by the
Company. As a result, the Company's postretirement benefit liability was
reduced by $1.5 million at February 3, 1996.
10. Retirement Plans
The Company established a defined contribution retirement plan, Star Markets
Retirement Estates ("SMRE"). This plan is authorized by the Board of
Directors for the purpose of providing retirement benefits for associates of
the Company. The plan covers associates meeting age and service eligibility
requirements, except those represented by a labor union, unless the
collective bargaining agreement provides for participation. Contributions to
SMRE are made at the discretion of the Board of Directors. Prior to
September 10, 1994, employees of Predecessor participated in and contributed
to a Parent-sponsored defined contribution retirement plan, American Stores
Retirement Estates, which was substantially identical to the SMRE.
The Company also contributes to multi-employer defined benefit retirement
plans in accordance with the provisions of the various labor contracts that
govern the plans. The plans cover all associates represented by a labor
union. The multi-employer plan contributions are generally based on the
number of hours worked. Information about these plans as to vested and
nonvested accumulated benefits and net assets available for benefits is not
available.
Retirement plan expense in each period was as follows (in thousands):
<TABLE>
<CAPTION>
The Company Predecessor
---------------------------- -----------
1996 1995 20 weeks 32 weeks
-----------------------------------------
<S> <C> <C> <C> <C>
Company-sponsored plans $2,685 $2,271 $1,701 $3,463
Multi-employer plans 2,102 1,929 685 1,127
----------------------------------------
$4,787 $4,200 $2,386 $4,590
========================================
</TABLE>
11. Related-Party Transactions
During fiscal 1995, the Company entered into two sale-leaseback transactions
with affiliates of INVESTCORP S.A. ("Investcorp"). The Company sold six of
its stores for an aggregate gross selling price of $53.4 million. Concurrent
with the sale, the Company leased the properties back for an initial term of
20 years. No gain or loss was recorded in connection with the sale-leaseback
transactions.
In connection with the Acquisition, the Company paid Investcorp and its
affiliates $13.2 million for acquisition, financing, management advisory and
consulting services.
Prior to September 10, 1994, Predecessor incurred parent company charges
which represented costs related to corporate salaries, benefits,
administrative, data processing, interest expense, and miscellaneous income
and expenses. Charges were allocated based upon relative operating profit of
Predecessor and other factors at the discretion of the management of the
Parent.
12. Commitments and Contingencies
The Company has identified environmental contamination sites related
primarily to underground petroleum tanks at various store, warehouse, and
office facilities. At most identified locations, remediation is either
underway or completed. Charges against earnings for environmental
remediation were not significant in any of the periods presented.
Pursuant to the asset purchase agreement, ASC would indemnify the Company
for the costs and expenses related to environmental contamination provided
that the Company paid the first $1 million of such costs. However, for costs
and expenses related to any non-governmental claim filed by a third-party,
ASC was not liable until the aggregate of such costs and expenses exceeded
$6 million. ASC's obligation to indemnify the Company expired on the second
anniversary of the Closing Date, except for those locations and claims for
which ASC has received specific notification from the Company.
Although the ultimate outcome and expense of environmental remediation is
uncertain, the Company believes that required remediation and continuing
compliance with environmental law will not have a material adverse effect on
the financial position or results of operations of the Company.
Star Markets Company, Inc. Exhibit 10(p)
Exhibit 10(p) - Second Amendment to Credit Agreement among the Company,
Chemical Bank, as Administrative Agent, and the lenders
party thereto, dated as of June 25, 1996.
AMENDMENT, dated as of June 25, 1996 (this "Amendment"), to and of the
Credit Agreement, dated as of September 8, 1994 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among STAR
MARKETS COMPANY, INC. (the "Company"), the Lenders from time to time parties
thereto (the "Lenders") and CHEMICAL BANK as administrative agent for the
Lenders (in such capacity, the "Administrative Agent")
WITNESSETH:
WHEREAS, the Company desires to acquire from The Stop & Shop
Supermarket Company ("Stop & Shop") and operate as its own three stores; and
WHEREAS, the Company desires to increase its Capital Expenditure limit
by $3,130,000 which may be used to acquire a fourth store from Stop & Shop
or otherwise; and
WHEREAS, the Company has requested the Lenders and the Administrative
Agent to amend the Credit Agreement in connection with the acquisition of
such stores from Stop & Shop and to increase such Capital Expenditure limit;
WHEREAS, the Lenders and the Administrative Agent are willing to so
amend the Credit Agreement, but only on, and subject to, the terms and
conditions hereof;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company, the Lenders and
the Administrative Agent hereby agree as follows:
Section 1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as therein defined.
Section 2. Amendment of Subsection 1.1 (Defined Terms). (a) Subsection
1.1 of the Credit Agreement is hereby amended by adding thereto in
appropriate alphabetical order the following new definition:
"'Stop & Shop Acquisition': the acquisition of three stores
located in the Company's trade area from The Stop & Shop Supermarket
Company for gross consideration of approximately $20,870,000."
(b) The second sentence of the definition of "Capital Expenditures" is
hereby amended by (1) deleting the word "and" appearing at the end of clause
(x) and substituting therefore the punctuation ",", (b) deleting the period
appearing at the end of clause (y) and substituting therefor the punctuation
and the word ", and" and (c) adding to the end thereof the following new
clause (z):
"(z) assets included in the Stop & Shop Acquisition."
Section 3. Amendment of Subsection 10.5 (Prohibition on Sales of
Assets). Subsection 10.5(c) of the Credit Agreement is hereby amended by
deleting the amount "$40,000,000" appearing in clause (i) and substituting
therefor the amount "$52,000,000".
Section 4. Amendment of Subsection 10.7 (Capital Expenditures).
Section 10.7 of the Credit agreement hereby amended by adding to the end
thereof "and that the Base Amount for 1996 and/or 1997 may be further
increased by $3,130,000 in the aggregate."
Section 5. Conditions Precedent. This Amendment shall become
effective as of the date (the "Amendment -Effective Date") that each of the
conditions precedent set forth below shall have been fulfilled to the
satisfaction of the Administrative Agent, provided that the Amendment
Effective Date may not occur later than the earlier of July 25, 1996 and the
closing of the initial acquisition under the Stop & Shop Acquisition:
(a) Amendment. The Administrative Agent shall have received
counterparts of this Amendment, duly executed by the Company, the Required
Lenders and the Administrative Agent.
(b) No Default or Event of Default. On and as of the Amendment
Effective Date and after giving effect to this Amendment, no Default or
Event of Default shall have occurred and be continuing.
(c) Representations and Warranties. The representations and
warranties made by the Company and its Subsidiaries in this Amendment and in
the Credit Documents after giving effect to this Amendment shall be true and
correct in all material respects on and as of the Amendment Effective Date
as if made on such date, except where such representations and warranties
expressly relate to an earlier date in which case such representations and
warranties shall be true and correct in all material respects as of such
earlier date.
(d) Certificate. The Administrative Agent shall have received a
certificate of a Responsible Officer of the Company, dated the Amendment
Effective Date, certifying the matters referred to in paragraphs (b) and (c)
above and (e) below.
(e) Equity Contribution. The Company shall have received an equity
contribution of at least $12,000,000.
Section 6. Representations and Warranties. To induce the Lenders to
enter into this Amendment, the Company hereby represents and warrants to the
Lenders that as of the Amendment Effective Date that the representations and
warranties made by the Company in the Credit Documents are true and correct
in all material respects on and as of the Amendment Effective Date, before
and after giving effect to the effectiveness of this Amendment, as if made
on and as of the Amendment Effective Date unless expressly stated to relate
to an earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date.
Section 7. Miscellaneous. (a) Except for the amendments and waivers
expressly provided herein, the Credit Agreement shall continue to be, and
shall remain, in full force and effect in accordance with its terms. The
amendments and waivers provided herein shall be limited precisely as drafted
and shall not be construed to be an amendment or waiver of any other
provision of the Credit Agreement other than as specifically provided
herein.
(b) The Company hereby confirms that, after giving effect hereto,
each Credit Document to which it is a party remains in full force and effect in
accordance with its terms.
(c) The Company agrees to pay or reimburse the Administrative Agent
for all of its out-of-pocket costs and reasonable expenses incurred in
connection with the Amendment any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of Simpson Thacher &
Bartlett counsel to the Administrative Agent.
(d) This Amendment may be executed in any number of counterparts by
the parties hereto, and all of said counterparts when taken together shall
be deemed to constitute one and the same instrument.
(e) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
(f) This Amendment replaces and supersedes in its entirety the
Amendment dated as of January 16, 1996 which shall be of no force or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duty executed and delivered in New York, New York by their proper and
duly authorized officers as of the date first above written.
STAR MARKETS COMPANY, INC.
By:
----------------
Title:
CHEMICAL BANK, as Administrative Agent,
Issuing Lender and a Lender
By:
----------------
Title:
BANKERS TRUST COMPANY
By:
----------------
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
----------------
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as Investment Advisor
By:
----------------
Title:
-------------
FLEET CREDIT CORPORATION
By:
----------------
Title:
-------------
GIROCREDIT BANK
By: ----------------
Title: -------------
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By:
----------------
Title:
-------------
MELLON BANK
By:
----------------
Title:
-------------
MERRILL LYNCH SENIOR FLOATING RATE
FUND INC.
By:
----------------
Title:
-------------
MERRILL LYNCH PRIME RATE PORTFOLIO
By:
----------------
Title:
-------------
MITSUBISHI TRUST AND BANKING CORPORATION
By:
----------------
Title:
-------------
NATIONAL WESTMINSTER BANK PLC
By:
----------------
Title:
-------------
PILGRIM PRIME RATE TRUST
By:
----------------
Title:
-------------
PROTECTIVE LIFE INSURANCE COMPANY
By:
----------------
Title:
-------------
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:
----------------
Title:
-------------
STRATA FUNDING LIMITED
By: Chancellor Senior Secured Management, Inc.
as Portfolio Advisor
By:
----------------
Title:
-------------
Star Markets Company, Inc. Exhibit 10(q)
Exhibit 10(q) - Third Amendment to Credit Agreement among the Company,
Chemical Bank, as Administrative Agent, and the lenders
party thereto, dated as of April 21, 1997.
AMENDMENT, dated as of April 21, 1997 (this "Amendment"), to and of
the Credit Agreement, dated as of September 8, 1994 (as amended,
supplemented or otherwise modified from time to time, the "Credit
Agreement"), among STAR MARKETS COMPANY, INC. (the "Company"), the Lenders
from time to time parties thereto (the "Lenders") and THE CHASE MANHATTAN
BANK as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
W I T N E S S E T H :
WHEREAS, the Company has requested the Lenders and the Administrative
Agent to: (i) extend the Revolving Credit Termination Date under the Credit
Agreement from December 31, 1999 to December 31, 2001, (ii) provide a new
$38,500,000 Term Loan for the purpose of refinancing the Tranche A Term
Loans and (iii) establish new financial covenant levels; and
WHEREAS, the Lenders and the Administrative Agent are willing to so
amend the Credit Agreement, but only on, and subject to, the terms and
conditions hereof;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein and for other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company, the Lenders and
the Administrative Agent hereby agree as follows:
Section 1. Defined Terms. Unless otherwise defined herein, terms defined
in the Credit Agreement are used herein as therein defined.
Section 2. Amendments of Subsection 1.1 (Defined Terms). Subsection 1.1
of the Credit Agreement is hereby amended by: (a) deleting the definition
"Applicable Margin" in its entirety and replacing it with the following:
"'Applicable Margin': for Tranche A Term Loans, Tranche B Term Loans,
Tranche C Term Loans, Additional Tranche C Term Loans, Revolving Credit
Loans and Swing Line Loans of the Types set forth below, the rate per annum
set forth under the relevant column heading opposite such Loans below:
<TABLE>
<CAPTION>
Alternate
Base Rate Eurodollar
Loans Loans
--------- ----------
<S> <C> <C>
Tranche A Term Loans: 1.25% 2.50%
Tranche B Term Loans: 1.75% 3.00%
Tranche C Term Loans: 2.25% 3.50%
Additional Tranche C Term Loans 2.25% 3.50%
Revolving Credit Loans: 1.25% 2.50%
Swing Line Loans: 1.25% Not applicable"
</TABLE>
(b) adding the punctuation and the words ", Additional Tranche C Term
Loan Commitment" after the words "Tranche C Term Loan Commitment" in the
definition of "Commitment",
(c) adding the punctuation and the words ", its Additional Tranche C
Term Loan Commitment Percentage" after the words "its Tranche C Term Loan
Commitment Percentage" in the definition of "Commitment Percentage",
(d) deleting the year "1999" and replacing it with the year "2001" in
the definition of "Revolving Credit Termination Date",
(e) deleting the word "and" and substituting therefore the punctuation
", " and adding the words "and the Additional Tranche C Term Loan Notes"
after the words "the Tranche C Term Loan Notes" in the definition of "Term
Loan Notes",
(f) deleting the word "and" and substituting therefore the punctuation
", " and adding the words "and the Additional Tranche C Term Loans" after
the words "the Tranche C Term Loans" in the definition of "Term Loans", and
(g) by adding thereto in appropriate alphabetical order the following
new definitions:
"'Additional Tranche C Amendment': the Amendment to this
Agreement dated as of April 8, 1997."
"'Additional Tranche C Amendment Effective Date': as defined in
the Additional Tranche C Amendment."
"'Additional Tranche C Lenders': the Lenders listed in Schedule
I to the Additional Tranche C Amendment."
"'Additional Tranche C Term Loan' and 'Additional Tranche C Term
Loans': as defined in subsection 4.4."
"'Additional Tranche C Term Loan Commitment': as to any Lender,
its obligation to make an Additional Tranche C Term Loan to the
Company pursuant to subsection 4.4 in an aggregate amount not to
exceed the amount set forth under such Lender's name in Schedule I to
the Additional Tranche C Amendment opposite the caption "Additional
Tranche C Term Loan Commitment" or in Schedule 1 to the Assignment and
Acceptance pursuant to which a lender acquires its Additional Tranche
C Term Loan Commitment, as the same may be adjusted pursuant to
subsection 13.6(c); collectively, as to all the Lenders, the
'Additional Tranche C Term Loan Commitments'."
"'Additional Tranche C Term Loan Commitment Percentage': as to
any Lender at any time, the percentage of the aggregate Additional
Tranche C Term Loan Commitments then constituted by such Lender's
Additional Tranche C Term Loan Commitment."
"'Additional Tranche C Term Loan Note': as defined in
subsection 6.13(e)."
Section 3. Amendments of Section 4 (Tranche C Term Loans). (a) The
heading of Section 4 is amended hereby by adding the words "AND ADDITIONAL
TRANCHE C TERM LOANS" after the words "TRANCHE C TERM LOANS".
(b) Section 4 is hereby amended by adding the following
subsections:
"4.4 Additional Tranche C Term Loans: Subject to the terms and
conditions hereof, each Lender severally agrees to make a loan in
Dollars (individually, an 'Additional Tranche C Term Loan'; and
collectively, the 'Additional Tranche C Term Loans') to the Company on
the Additional Tranche C Amendment Effective Date, in an aggregate
principal amount equal to such Lender's Additional Tranche C Loan
Commitment. The Additional Tranche C Term Loans shall be made
initially as Alternate Base Rate Loans.
4.5 Repayment of Additional Tranche C Term Loans. the Company
shall repay the Additional Tranche C Term Loans as provided in
subsection 6.4(c).
4.6 Use of Proceeds. The proceeds of the Additional Tranche C
Term Loans shall be used for the purpose of refinancing in full the
outstanding Tranche A Term Loans."
Section 4. Amendments of Section 6 (General Provisions Applicable to
Loans). (a) Subsection 6.1(a) clause (D) is hereby amended by deleting it
in its entirety and substituting therefore the following:
"(D) whether the loan is a Tranche A Term Loan, a Tranche B Term Loan, a
Tranche C Term Loan, an Additional Tranche C Term Loan, a Swing Line
Loan or a Revolving Credit Loan."
(b) Subsection 6.2(b) clause (iii) is hereby amended by deleting
it in its entirety and substituting therefore the following:
"(iii) after the date that is one month prior to the Revolving Credit
Termination Date (in the case of continuations of Revolving Credit
Loans) or the date of the final installment of principal of the
Tranche A Term Loans, the Tranche B Term Loans, the Tranche C Term
Loans or the Additional Tranche C Term Loans, as applicable."
(c) The first sentence of subsection 6.4(a) is hereby amended
by deleting it in its entirety and substituting therefore the
following:
"The Company may at any time and from time to time prepay Loans, in
whole or in part, without premium or penalty, upon at least two
Business Days' (or, in the case of Swing Line Loans, by 12:00 noon,
New York City time on the same Business Day) irrevocable notice to the
Administrative Agent in the case of alternate Base Rate Loans, and
three Business Days' irrevocable notice to the Administrative Agent in
the case of Eurodollar Loans, specifying the date and amount of
prepayment and whether the prepayment is of Revolving Credit Loans,
Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans or
Additional Tranche C Term Loans, provided that Eurodollar Loans may
not be optionally prepaid on other than the last day of any Interest
Period with respect thereto."
(d) The fourth sentence of Subsection 6.4(a) is hereby amended
by deleting it in its entirety and substituting therefore the
following:
"Prepayments of the Term Loans pursuant to this subsection 6.4(a)
shall be applied to the outstanding principal amounts of the Tranche A
Term Loans, Tranche B Term Loans, Tranche C Term Loans and Additional
Tranche C Term Loans ratably according to the outstanding principal
amounts of such Term Loans and shall be applied to the remaining
installments of such Term Loans ratably according to the amounts of
such installments."
(e) Subsection 6.4(c) is hereby amended by adding to the end
thereof:
"The Additional Tranche C Term Loans shall be repaid in 7 installments
on the dates set forth in Schedule II to the Additional Tranche C
Amendment (each such day, an 'Additional Tranche C Installment Payment
Date'), commencing on January 31, 1998 in an aggregate amount equal to
the amount specified for each such Additional Tranche C Installment
Payment Date on Schedule II to the Additional Tranche C Amendment
under the heading 'Additional Tranche C'."
(f) Subsection 6.13(a) is hereby amended by deleting the words
and punctuation "and (v)" which appears at the end of clause (iv) and
substituting therefore the words and punctuation ", (v) the principal
amount of the Additional Tranche C Term Loan of such Lender, in 7
installments, payable on each Additional Tranche C Installment Payment
Date (or the then unpaid principal amount of such Additional Tranche C
Term Loan, on the date that the Additional Tranche C Term Loans become
due and payable pursuant to Section 11) and (vi)".
(g) Subsection 6.13(e) is hereby amended by (i) deleting "(v)"
and (ii) by inserting the words and punctuation "(v) a promissory note
of the Company evidencing the Additional Tranche C Term Loan of such
Lender, substantially in the form of Exhibit C-1 with appropriate
insertions as to date and principal amount (an 'Additional Tranche C
Term Loan Note'), and/or (vi)" after the words and punctuation "(a
'Tranche C Term Loan Note'), and/or".
Section 5. Amendment of Section 10 (Negative Covenants). Section 10 is
hereby amended by deleting subsections 10.7, 10.8, 10.9 and 10.10 in their
entirety and substituting the following:
"10.7 Capital Expenditures. Make or commit to make any Capital
Expenditures, except that the Company and its Subsidiaries may make or
commit to make Capital Expenditures not exceeding the amount set forth
below (the "Base Amount") for each of the fiscal years of the Company
(or other period) set forth below:
<TABLE>
<CAPTION>
Fiscal Year
or Period Base Amount
--------------------------
<S> <C>
1996 $35,100,000
1997 40,500,000
1998 48,200,000
1999 35,000,000
2000 35,000,000
2001 35,000,000
2002 35,000,000
2003 35,000,000
</TABLE>
provided, however, that for any fiscal year of the Company the Base
Amount set forth above may be increased by a maximum of $15,000,000 for any
such fiscal year by carrying over to any such fiscal year any portion of the
Base Amount (as increased) not spent in the immediately preceding fiscal
year.
10.8 Consolidated EBITDA. At the last day of any fiscal quarter set
forth below, permit Consolidated EBITDA for the period of four fiscal
quarters ending on such day to be less than the amount set forth opposite
such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Quarter Amount
----------- -------------- ------
<S> <C> <C>
1996 Fourth $42,000,000
1997 First 43,000,000
Second 44,000,000
Third 45,000,000
Fourth 47,500,000
1998 First 47,500,000
Second 47,500,000
Third 50,000,000
Fourth 52,500,000
1999 First 52,500,000
Second 52,500,000
Third 55,000,000
Fourth 57,500,000
2000 First 57,500,000
Second 60,000,000
Third 62,500,000
Fourth 67,500,000
2001 First 67,500,000
Second 70,000,000
Third 72,500,000
Fourth 77,500,000
2002 First 77,500,000
Second 80,000,000
Third 82,500,000
Fourth 85,000,000
2003 First 85,000,000
Second 87,500,000
Third 90,000,000
</TABLE>
10.9 Consolidated Net Worth. At the last day of any fiscal year set
forth below, permit Consolidated Net Worth to be less than the amount set
forth below for such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1996 $105,000,000
1997 127,500,000
1998 150,000,000
1999 175,000,000
2000 205,000,000
2001 245,000,000
2002 290,000,000
</TABLE>
10.10 Interest Coverage; Fixed Charge Coverage. (a) At the last
day of any fiscal quarter set forth below, permit the Interest Coverage
Ratio to be less than the ratio set forth below for such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Quarter Amount
----------- -------------- ------
<S> <C> <C>
1996 Fourth 1.30 to 1
1997 First 1.35 to 1
Second 1.35 to 1
Third 1.35 to 1
Fourth 1.35 to 1
1998 First 1.35 to 1
Second 1.35 to 1
Third 1.40 to 1
Fourth 1.40 to 1
1999 First 1.40 to 1
Second 1.40 to 1
Third 1.45 to 1
Fourth 1.45 to 1
2000 First 1.45 to 1
Second 1.45 to 1
Third 1.50 to 1
Fourth 1.55 to 1
2001 First 1.55 to 1
Second 1.55 to 1
Third 1.60 to 1
Fourth 1.65 to 1
2002 First 1.65 to 1
Second 1.65 to 1
Third 1.70 to 1
Fourth 1.75 to 1
2003 First 1.75 to 1
Second 1.75 to 1
Third 1.80 to 1
</TABLE>
(b) At the last day of any fiscal quarter, permit the Fixed Charge
Coverage Ratio for such fiscal quarter shall to be less than 1.0 to 1.0:"
Section 6. Amendment of Section 13 (Miscellaneous). (a) Subsection
13.1(d) is amended by deleting it in its entirety and substituting therefore
the following:
" (d) without the consent of the Lenders which are holders of
the Tranche B Term Loans, the Tranche C Term Loans, the Additional
Tranche C Term Loans and the Revolving Credit Lenders only, the
Lenders which are holders of the Tranche A Term Loans may amend
this Agreement and the Tranche A Term Loan Notes to extend the
maturities of the installments of the Tranche A Term Loans; without
the consent of the Lenders which are holders of the Tranche A Term
Loans, the Tranche C Term Loans, the Additional Tranche C Term
Loans and the Revolving Credit Lenders only, the Lenders which are
holders of the Tranche B Term Loans may amend this Agreement and
the Tranche B Term Loan Notes to extend the maturities of the
installments of the Tranche B Term Loans; without the consent of
the Lenders which are holders of the Tranche A Term Loans, the
Tranche B Term Loans, the Additional Tranche C Term Loans and the
Revolving Credit Notes only, the Lenders which are holders of the
Tranche C Term Loans may amend this Agreement and the Tranche C
Term Loan Notes to extend the maturities of the installments of the
Tranche C Term Loans; without the consent of the Lenders which are
holders of the Tranche A Term Loans, the Tranche B Term Loans, the
Tranche C Term Loans and the Revolving Credit Notes only, the
Lenders which are holders of the Additional Tranche C Term Loans
may amend this Agreement and the Additional Tranche C Term Loan
Notes to extend the maturities of the installments of the
Additional Tranche C Term Loans; and without the consent of the
Lenders which are holders of the Term Loans, the Revolving Credit
Lenders may amend this Agreement and the Revolving Credit Notes to
extend the Revolving Credit Termination Date;"
(b) The second sentence of subsection 13.6(e) is hereby amended by
adding the words and punctuation ", Additional Trance C Term Loan Notes"
after the words "Tranche C Term Notes" each time they appear in said
sentence.
Section 7. Amendment of Exhibits. Exhibit C-1 hereto is hereby added to
the Credit Agreement as Exhibit C-1 thereto.
Section 8. Conditions Precedent. This Amendment shall become effective as
of the date (the "Additional Tranche C Amendment Effective Date") that each
of the conditions precedent set forth below shall have been fulfilled to the
satisfaction of the Administrative Agent.
(a) Amendment. The Administrative Agent shall have received
counterparts of this Amendment, duly executed by the Company, the Lenders
holding 100% of the Revolving Credit Commitments and 80% of the sum of the
aggregate unpaid principal amount of the Term Loans and the Revolving Credit
Commitments, the Administrative Agent and each Additional Tranche C Lender
and consented to by Holdings.
(b) No Default or Event of Default. On and as of the Additional
Tranche C Amendment Effective Date and after giving effect to this
Amendment, no Default or Event of Default shall have occurred and be
continuing.
(c) Representations and Warranties. The representations and
warranties made by the Company in this Amendment and in the Credit Documents
after giving effect to this Amendment shall be true and correct in all
material respects on and as of the Additional Tranche C Amendment Effective
Date as if made on such date, except where such representations and
warranties expressly relate to an earlier date in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date.
(d) Certificate. The Administrative Agent shall have received a
certificate of a Responsible Officer of the Company, dated the Amendment
Effective Date, certifying the matters referred to in paragraphs (b) and (c)
above.
(e) Fees and Expenses. The Administrative Agent shall have received
for its own account and the account of the Lenders the fees and expenses
required to be paid by the Company on the Amendment Effective Date pursuant
to the Fee Letter dated as of March 10, 1997 between the Administrative
Agent and the Company.
(f) Notes. The Administrative Agent shall have received for the
account of each Additional Tranche C Lender requesting the same an
Additional Tranche C Term Loan Note in the amount of its Additional Tranche
C Term Loan after giving effect hereto.
(g) Legal Opinions. The Administrative Agent shall have received,
dated the Amendment Effective Date and addressed to the Administrative Agent
and the Lenders, opinions of Gibson, Dunn & Crutcher and such local
Massachusetts counsel as shall be satisfactory to the Administrative Agent
covering the matters set forth in Exhibit D hereto with such assumptions,
qualifications and changes thereto as may be approved by and otherwise in
form and substance reasonably satisfactory to the Administrative Agent and
its counsel.
(h) Consents, Authorizations and Filings, etc. All consents,
authorizations and filings, if any, required in connection with the
execution, delivery and performance by the Company of this Amendment and the
validity and enforceability against the Company of the Credit Documents to
which it is a party, shall have been obtained or made, and such consents,
authorizations and filings shall be in full force and effect, except such
consents, authorizations and filings the failure to obtain which would not
have a material adverse affect on the business, assets, condition (financial
or otherwise) or results of operations of the Company.
(i) Closing Certificates. The Administrative Agent shall have
received a Certificate of the Company in form and substance satisfactory to
it and certifying as to (i) the incumbency of the officers of the Company
executing this Amendment and each other document delivered in connection
herewith and (ii) resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of the Credit Documents
entered into or amended on the Additional Tranche C Amendment Effective
Date.
(j) Tranche A Refinancing. The Company shall have refinanced its
outstanding Tranche A Term Loans with the proceeds of the Additional Tranche
C Term Loans.
Section 9. Representation and Warranties. To induce the Lenders to enter
into this Amendment, the Company hereby represents and warrants to the
Lenders as of the Amendment Effective Date that the representations and
warranties made by the Company in the Credit Documents are true and correct
in all material respects on and as of the Amendment Effective Date, after
giving effect to the effectiveness of this Amendment, as if made on and as
of the Amendment Effective Date unless expressly stated to relate to an
earlier date, in which case such representations and warranties shall be
true and correct in all material respects as of such earlier date.
Section 10. Additional Tranche C Lenders. Each Additional Tranche C Lender
(i) represents and warrants that it is legally authorized to enter into this
amendment; (ii) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
subsection 7.1 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter
into this Amendment; (iii) agrees that it will, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under the
Credit Agreement, the other Credit Documents or any other instrument or
document furnished pursuant hereto or thereto; (iv) appoints and authorizes
the Administrative Agent to take such action as agent on its behalf and to
exercise such powers and discretion under the Credit Agreement, the other
Credit Documents or any other instrument or document furnished pursuant
hereto or thereto as are delegated to the Administrative Agent by the terms
thereof, together with such powers as are incidental thereto; and (v) agrees
that it will be bound by the provisions of the Credit Agreement and will
perform in accordance with its terms all the obligations which by the terms
of the Credit Agreement are required to be performed by it as a Lender
including, if it is organized under the laws of a jurisdiction outside the
United States, its obligations pursuant to subsections 6.11(d) and 13.6(g)
of the Credit Agreement to deliver the forms prescribed by the Internal
Revenue Service of the United States certifying as to the Lender's exemption
from United States withholding taxes with respect to all payments to be made
to the Lender under the Credit Agreement, or such other documents as are
necessary to indicate that all such payments are subject to such tax at a
rate reduced by an applicable tax treaty.
Section 11. Miscellaneous. (a) Except for the amendments and waivers
expressly provided herein, the Credit Agreement shall continue to be, and
shall remain, in full force and effect in accordance with its terms. The
amendments and waivers provided herein shall be limited precisely as drafted
and shall not be construed to be an amendment or waiver of any other
provision of the Credit Agreement other than as specifically provided
herein.
(b) The Company hereby confirms that, after giving effect hereto,
each Credit Document to which it is a party remains in full force and effect
in accordance with its terms.
(c) The Company agrees to pay or reimburse the Administrative Agent
for all of its out-of-pocket costs and reasonable expenses incurred in
connection with the Amendment, any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of Simpson Thacher &
Bartlett counsel to the Administrative Agent.
(d) This Amendment may be executed in any number of counterparts by
the parties hereto, and all of said counterparts when taken together shall
be deemed to constitute one and the same instrument.
(e) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered in New York, New York by their proper and duly
authorized officers as of the date first above written.
STAR MARKETS COMPANY, INC.
By:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent, Issuing Lender
and a Lender
By:
Title:
BANKERS TRUST COMPANY
By:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
Title:
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By:
Title:
By:
Title:
CAPTIVA FINANCE LTD.
By:
Title:
FLEET NATIONAL BANK
By:
Title:
GIROCREDIT BANK AG DER SPARKASSEN,
GRAND CAYMAN ISLAND BRANCH
By:
Title:
KZH HOLDING CORPORATION
By:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
By:
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By:
Title:
ML CBO IV (CAYMAN) LTD.
By:
Title:
NATIONAL WESTMINSTER BANK PLC
By:
Title:
PILGRIM AMERICA PRIME RATE TRUST
By:
Title:
PRIME INCOME TRUST
By:
Title:
PROTECTIVE LIFE INSURANCE COMPANY
By:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management Research, as
Investment Advisor
By:
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.
By:
Title:
STRATA FUNDING LTD.
By:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By:
Title:
Consented to by:
----------------
STAR MARKETS HOLDINGS, INC.
By:
Title:
SCHEDULE I
----------
Additional Tranche C Lenders
----------------------------
<TABLE>
<CAPTION>
Additional Tranche C Additional Tranche C
Lenders Address for Notices Commitment
- -------------------- ------------------- --------------------
<S> <C> <C>
The Chase Manhattan Bank 270 Park Avenue, 10th Floor $15,500,000
New York, NY 10017
Attn: Neil Boylan
Telecopy: (212) 972-0009
Banque Francaise 645 Fifth Avenue $ 2,000,000
Du Commerce Exterieur, New York, NY 10022
Cayman Island Branch Attn: Peter Harris
Telecopy: (212) 872-5054
The First National Bank of 100 Federal Street $ 2,500,000
Boston Mail Stop 01-09-05
Boston, MA 02110
Attn: Judith Kelly
Telecopy: (617) 434-6685
KZH Holding Corporation c/o The Chase Manhattan Bank $ 3,000,000
450 West 33rd Street
15th Floor
New York, NY 10001
Attn: Robert Goodwin
Joseph Nerich
Telecopy: (212) 946-7776
Senior High Income Portfolio, c/o Merrill Lynch Asset $ 3,500,000
Inc. Management
800 Scudders Mill Road
Plainsboro, NJ 08536
Attn: Jill Montanye
Telecopy: (609) 282-2550
The Mitsubishi Trust and 520 Madison Avenue $ 2,500,000
Banking Corporation 25th Floor
New York, NY 10022
Attn: Susan LeFevre
Telecopy: (212) 644-6825
Pilgrim America Prime Rate Two Renaissance Square $ 3,500,000
Trust 40 North Central Avenue
Phoenix, AZ 85004-4424
Telecopy: (602) 417-8327
Prime Income Trust c/o Dean Witter Intercapital $ 2,500,000
Two World Trade Center
72nd Floor
New York, NY 10048
Attn: Louis Pistecchia
Telecopy: (212) 392-5345
Van Kampen American Capital c/o Van Kampen American $ 3,500,000
Prime Rate Income Trust Capital
One Parkview Plaza
Oakbrook Terrace, IL 60181
Attn: Jeffrey Maillet
Telecopy: (630) 684-6740
-----------
Total: $38,500,000
</TABLE>
SCHEDULE II
-----------
Term Loan Amortization Schedule
-------------------------------
<TABLE>
<CAPTION>
Installment
Payment Date: Installment Amount:
- ------------- -------------------
Additional
Tranche C
----------
<S> <C>
January 31, 1998 $ 125,000
January 31, 1999 125,000
January 31, 2000 125,000
January 31, 2001 125,000
January 31, 2002 125,000
January 31, 2003 125,000
December 31, 2003 $37,750,000
-----------
$38,500,000
</TABLE>
EXHIBIT C-1 to
Credit Agreement
----------------
ADDITIONAL TRANCHE C TERM LOAN NOTE
$__________ New York, New York
April 21, 1997
FOR VALUE RECEIVED, the undersigned, STAR MARKETS COMPANY, INC., a
Massachusetts corporation (the "Company"), promises to pay to the order of
_______________ (the "Lender") at the office of The Chase Manhattan Bank,
270 Park Avenue, New York, New York 10017, in lawful money of the United
States of America and in immediately available funds, the principal amount
of ____________________ DOLLARS ($__________), or, if less, the aggregate
unpaid principal amount of all loans made by the Lender pursuant to
subsection 4.4 of the Credit Agreement referred to below, which sum shall be
due and payable in such amounts and on such dates as are set forth in the
Credit Agreement, dated as of September 8, 1994 among the Company, the
Lender and certain other banks and financial institutions parties thereto,
and The Chase Manhattan Bank, as administrative agent (as the same may be
from time to time amended, supplemented or otherwise modified, the "Credit
Agreement"; terms defined therein being used herein as so defined). The
undersigned further agrees to pay interest at said office, in like money,
from the date hereof on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in subsection 6.5 of the
Credit Agreement. The holder of this Note is authorized to record the date,
Type and amount of the Additional Tranche C Term Loan made by the Lender
pursuant to subsection 4.4 of the Credit Agreement, the date and amount of
each payment or prepayment of principal hereof, and the date of each
interest rate conversion or continuation pursuant to subsection 6.2 of the
Credit Agreement and the principal amount subject thereto, on the schedules
annexed hereto and made a part hereof and any such recordation shall
constitute prima facie evidence of the information so recorded, provided
that the failure of the Lender to make such recordation (or any error in
such recordation) shall not affect the obligations of the Company hereunder
or under the Credit Agreement.
This Note is one of the Additional Tranche C Term Loan Notes referred
to in the Credit Agreement and is entitled to the benefits thereof and is
subject to optional and mandatory prepayment in whole or in part as provided
therein.
This Note is secured and guaranteed as provided in the Security
Documents and the Guarantees. Reference is hereby made to the Security
Documents and the Guarantees for a description of the properties and assets
in which a security interest has been granted, the nature and extent of the
security and guarantees, the terms and conditions upon which the security
interest and each guarantee was granted and the rights of the holder of this
Note in respect thereof. The undersigned agrees to pay all costs and
expenses incurred by the Lender in connection with the enforcement of its
rights and remedies under the Credit Agreement, this Note, the Security
Documents and each other Credit Document.
Upon the occurrence of any one or more of the Events of Default
specified in the Credit Agreement, all amounts then remaining unpaid on this
Note shall become, or may be declared to be, immediately due and payable all
as provided therein.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby
waive presentment, demand, protest and all other notices of any kind.
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS
OF THE CREDIT AGREEMENT. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE
REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE TERMS OF THE
CREDIT AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
STAR MARKETS COMPANY, INC.,
By:_____________________________
Title:
Schedule A to Additional Tranche C
Term Loan Note
--------------
ALTERNATE BASE RATE LOANS
AND REPAYMENTS OF ALTERNATE BASE RATE LOANS
-------------------------------------------
<TABLE>
<CAPTION>
Unpaid
Amount Principal
Amount of Converted to Amount Balance of
Alternate Alternate Amount of Converted to Alternate
Base Rate Base Rate Principal Eurodollar Base Rate Notation
Date Loans Loans Repaid Loans Loans Made By
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
Schedule B to Additional Tranche C
Term Loan Note
--------------
EURODOLLAR LOANS
AND REPAYMENTS OF EURODOLLAR LOANS
----------------------------------
<TABLE>
<CAPTION>
Interest
Period and Amount Unpaid
Amount Eurodollar Converted Principal
Amount of Converted to Rate with Amount of to Alternate Balance of
Eurodollar Eurodollar Respect Principal Base Rate Eurodollar
Date Loans Loans Thereto Repaid Loans Loans
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
EXHIBIT D
OPINIONS TO BE COVERED
1. The Company is a validly existing corporation in corporate good
standing under the laws of The Commonwealth of Massachusetts. The Company
has all requisite corporate power and authority to own and operate its
properties, conduct its business in the manner in which it presently is
conducted, and to execute and deliver the Amendment and the Additional
Tranche C Notes, and perform its obligations under the Credit Agreement, as
amended by the Amendment and the Additional Tranche C Notes (the "Amendment
Documents").
2. Each of the Amendment and the Additional Tranche C Notes has been
duly authorized by all necessary corporate action on the part of the
Company. Each of the Amendment and the Additional Tranche C Notes has been
duly executed and delivered on behalf of the Company.
3. Each of the Amendment Documents constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms.
4. Neither the execution and delivery by the Company of the Amendment
and the Additional Tranche C Notes, the performance by the Company of its
obligations under the Amendment Documents nor the consummation of the
transactions contemplated thereby constitutes a violation of any applicable
federal, Massachusetts or New York state law, Governmental rule or
regulation or, to our actual knowledge, any order of any court or
governmental authority that is applicable to the Company, or will result in
a breach of the Company's articles of incorporation or by-laws in their
present form. To our actual knowledge, neither the execution and delivery
by the Company of the Amendment and the Additional Tranche C Notes,
performance by the Company of its obligations under the Amendment Documents
nor the consummation of the transactions contemplated thereby will conflict
with, or result in any material breach of, or constitute a default under, or
result in the creation or imposition of any lien upon any property or assets
of the Company pursuant to, or require any consent not obtained under, any
indenture, mortgage, deed of trust, material agreement or other material
instrument identified to us and listed in Annex hereto to which the
Company is party or by which it or any of its property is to be bound or to
which it is subject, which conflict, breach or default, or lien created or
imposed, or the failure to obtain such consent, would have a material
adverse effect on the business, condition or results of operation of the
Company or on its ability to perform its obligations under the Amendment
Documents, or would give rise to liability on the part of the Lenders or the
Administrative Agent.
5. No consent, approval or authorization of, and no registration,
declaration or filing with any administrative, Governmental or other public
authority of the United States of America, The Commonwealth of Massachusetts
or the State of New York is required by law to be obtained or made in
connection with the execution and delivery, and performance by the Company
of the Amendment and the Additional Tranche C Notes, or for the validity or
enforceability against the Company, of any of the Amendment Documents, other
than (i) such consents, approvals, authorizations, registrations,
declarations and filings that have been made or obtained on or prior to the
date hereof and remain in full force and effect, and (ii) such consents,
approvals, authorizations, registrations, declarations and filings, the
failure to perform or obtain (a) which would not have a material adverse
effect on the business, condition or results of operation of the Company and
(b) which would not adversely affect the validity or enforceability of any
of the Amendment Documents or the rights or remedies of the Administrative
Agent or the Lenders thereunder, or the ability of any of them to perform
its obligations under the Amendment Documents to which it is party, or would
give rise to liability on the part of the Administrative Agent or the
Lenders.
6. The Company is not an "investment company" or a Person directly or
indirectly "controlled" by or "acting on behalf of" an "investment company"
within the meaning, of the Investment Company Act of 1940, as amended. The
Company is not a "holding company", or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company
Act of 1935, as amended.
7. Neither the making of the Additional Tranche C Term Loans on the
Additional Tranche C Amendment Effective Date pursuant to, nor application
of the proceeds thereof in accords with, the Amendment and the Credit
Agreement will violate Regulation G, T, U or X promulgated by the Board of
Governors of the Federal Reserve
System.
8. To our actual knowledge, except as disclosed in the Amendment and
the Credit Agreement or in any schedule, exhibit, annex or attachment
thereto, there is pending or threatened no action, suit or proceeding or
Governmental investigation, or any order, writ, judgment, injunction or
decree against the Company before or by any court, arbitrator or
governmental or administrative body that challenges the validity of any
Amendment Documents or any of the transactions contemplated thereby or that
restrains, prevents or imposes material adverse conditions upon, or seeks to
restrain, prevent or impose material adverse conditions upon, any such
transaction.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING BALANCE SHEET AS OF FEBRUARY 1, 1997 AND THE ACCOMPANYING
STATEMENTS OF OPERATIONS, CHANGES IN EQUITY, AND CASH FLOWS FOR THE 52 WEEK
PERIOD ENDED FEBRUARY 1, 1997 FOR STAR MARKETS COMPANY, INC., AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-1-1997
<PERIOD-END> FEB-1-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,815
<ALLOWANCES> 1,589
<INVENTORY> 65,550
<CURRENT-ASSETS> 92,324
<PP&E> 230,265
<DEPRECIATION> 35,569
<TOTAL-ASSETS> 453,270
<CURRENT-LIABILITIES> 87,401
<BONDS> 271,827
10,230
0
<COMMON> 0
<OTHER-SE> 84,907
<TOTAL-LIABILITY-AND-EQUITY> 453,270
<SALES> 954,531
<TOTAL-REVENUES> 954,531
<CGS> 715,090
<TOTAL-COSTS> 219,492
<OTHER-EXPENSES> (13)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,894
<INCOME-PRETAX> (8,958)
<INCOME-TAX> 378
<INCOME-CONTINUING> (9,336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,336)
<EPS-PRIMARY> (2,132.40)
<EPS-DILUTED> (2,132.40)
</TABLE>
