ITEM 1. BUSINESS.
General
The Company is a Delaware corporation whose principal executive offices are located at 823 Eleventh Avenue, New York, New York 10019-3535. Unless the context otherwise requires, the terms "Company" or "Registrant" as used herein refer to Gristede's Sloan's, Inc. (which is a holding corporation) and its wholly-owned subsidiaries.
The Company owns and operates 40 supermarkets, (the "Supermarkets"). Thirty-five Supermarkets are located in Manhattan, New York, three Supermarkets are located in Westchester County, New York, one Supermarket is located in Brooklyn, New York and one Supermarket is located in Long Island, New York. 11 of the Supermarkets are operated under the "Sloan's" name and 29 are operated under the "Gristede's" name. The Company leases all of its Supermarket locations.
During fiscal year 1998, the Company acquired one Supermarket, closed two Supermarkets for business consolidation, and closed two Supermarkets because their leases expired and were not renewed. Additionally the Company combined two physically adjacent Supermarkets into one Supermarket during the remodeling of the two stores.
The Company also owns City Produce Operating Corp. ("City Produce"), a corporation which operates a warehouse used as an internal distribution center, on leased premises in Bronx County, New York. The warehouse operation supplies the Company's Supermarkets with groceries and fresh produce. The warehouse also sells wholesale fresh produce to third parties.
The Company competes on the basis of providing customer convenience, service and a wide assortment of food products, including those that are appealing to the clientele in the neighborhoods where its Supermarkets are located. The Supermarkets, like most Manhattan supermarkets, are smaller than their suburban counterparts, ranging in size from approximately 3,200 to 23,000 square feet of selling space and averaging 9,000 square feet of selling space.
The Supermarkets offer, at competitive prices, broad lines of merchandise, including nationally and regionally advertised brands, private label and generic brands. Merchandise sold
includes food items such as fresh meats, produce, dry groceries, dairy products, baked goods, poultry and fish, fresh fruits and vegetables, frozen foods, delicatessen and gourmet foods, as well as many non-food items such as cigarettes, soaps, paper products, and health and beauty aids. The Company also operates an in-store pharmacy dispensing prescription drugs in one of its Supermarkets. Check-cashing services are available to qualified customers holding check-cashing cards and, for a small fee, the Company will deliver groceries to a customer's apartment door. The Supermarkets accept payment by Mastercard, Visa, American Express and Discover credit cards. Most of the Supermarkets are open sixteen hours per day, seven days a week and on holidays, including Christmas, New Year's and Thanksgiving. Most of the Supermarkets close two hours earlier on Sundays.
The Company's predecessor was incorporated in 1956 in New York. In 1985, the Company's domicile was changed to Delaware by merging the predecessor corporation into a newly formed Delaware corporation, incorporated for such purpose. The Company became a public company in 1968 and listed its Common Stock on the American Stock Exchange in 1972. Until 1992, the Company engaged in the jewelry business, operating under the name Designcraft Industries, Inc. for most of such time. The Company changed its name to Sloan's Supermarkets, Inc. in September 1993 and to Gristede's Sloan's, Inc. in November 1997 to reflect its current business.
Recent Developments
In January, 1999, the Company commenced operating an in-store pharmacy dispensing prescription drugs in one of its Supermarkets.
In February 1998, the Company acquired from an affiliate of John Catsimatidis, the Chairman of the Board and Chief Executive Officer of the Company, the assets of a Supermarket located at 1644 York Avenue, New York, New York. For information concerning the terms of such acquisition see Item 13. "Certain Relationships and Related Transactions." The acquisition did not have a material effect on the Company's revenues or expenses.
On November 10, 1997 a Merger Agreement was consummated pursuant to which four corporations directly or indirectly owned by Mr. Catsimatidis merged into four newly formed wholly owned subsidiaries of the Company. As a result of the mergers (collectively, the "Merger"), the Company acquired the assets and business of 29 operating supermarkets. Pursuant to the Merger Agreement, John Catsimatidis and Red Apple Group Inc. ("Group"), a corporation wholly owned by John Catsimatidis, as the sole stockholders of the four corporations acquired in the Merger, became entitled to receive an aggregate of $ 40,000,000 in market value of the Company's Common Stock. The aggregate market value of the shares of the Company's Common Stock issued in the Merger was reduced by an amount equal to the amount of certain liabilities of the acquired companies to John Catsimatidis and entities controlled by him which were assumed by the surviving corporations in the Merger. The aggregate amount of such liabilities was $4,000,000.
Growth Strategy
The Company believes that the Merger has allowed it to realize synergies and increased operating leverage while providing management with the necessary resources and focus to streamline operations, automate facilities and capitalize on strategic opportunities. The Company also believes that the Merger has enabled it to achieve the critical mass necessary to execute its future growth strategy.
The Company has embarked on a capital expenditure program for its Supermarkets that includes extensive remodelings, the introduction of a centralized point-of-sale information system and the opening of in-store pharmacies dispensing drugs in its Supermarkets. The Company has obtained an $8,000,000 five year term loan from certain banks to partly finance such capital improvements and is currently negotiating an increase in its bank facilities (see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation-Liquidity and Capital Resources").
During the fiscal year ended November 29, 1998, 10 stores were remodeled for an aggregate capital expenditure of approximately $10,000,000. During the fiscal year ending November 28, 1999, the Company anticipates it will spend approximately $10,000,000 in aggregate capital expenditures to complete the remodeling of 12 additional stores, open two new stores and open four in-store pharmacies. The Company anticipates that it will continue opening new stores, and pharmacies in future years. The modernized smaller Supermarkets are being re-named "Gristede's 2001", and the larger Supermarkets are being re-named "Gristede's Mega Stores".
The largest of the remodeled stores is located in Roosevelt Island, in New York City and has been expanded in size to 23,000 square feet of selling space from the previous 8,000 square feet.
Average sales increases at the remodeled stores have exceeded 50%. Modernization has resulted in a more enjoyable shopping atmosphere with more rapid check-out lines due to scanners and improved lighting facilities.
The Company may also expand its operations through the acquisition of supermarkets and/or acquisition of businesses which the Company believes would complement its core supermarket business. However, pursuant to an order embodying a Settlement Agreement between the Federal Trade Commission (the "FTC"), John Catsimatidis, the Company and certain other companies controlled by Mr. Catsimatidis (collectively, the "companies"), for a period of ten years from March 6, 1995, the Company cannot, without prior FTC approval, acquire any interest in any existing supermarket in a designated area in Manhattan. The order does not restrict the Company from acquiring an interest in a supermarket (in such designated area) by leasing or purchasing a new location that at the time of acquisition (and for six months prior to the acquisition) is not (or was not) being operated as a supermarket. There are no restrictions on the Company acquiring supermarkets that are located outside the designated area. For further information concerning the Settlement Agreement and proceeding brought by the FTC against the companies which prompted the Settlement Agreement, see Note 12 of Notes to the Financial Statements of the Company.
Marketing
The Company advertises in local newspapers on a weekly basis. The Company's advertising emphasizes competitive prices and variety of merchandise. Some of the Company's vendors offer cooperative advertising allowances, which the Company receives for advertising particular products in its newspaper advertisements.
Competition
The Company's retail business is subject to intense competition, characterized by low profit margins and requiring regular advertising. All of the Supermarkets are in direct competition with Food Emporium, D'Agostino, A&P, Pathmark and independent supermarket/grocery operators which do business under the names "Pioneer", "Key Food" and "Associated", many of which are larger and have substantially greater resources than the Company. The Supermarkets also compete with other outlets which sell products sold by supermarkets in New York City. Those outlets include gourmet food stores, health and beauty aid stores, drug stores, produce stores, bodegas, delicatessens and other retail food establishments. In addition, several of the Company's competitors have announced plans to open larger stores.
Sources of Supply; Inventory Policy
During fiscal 1998 the Company obtained approximately 45% of the merchandise sold in its stores from one principal merchandise supplier, White Rose Foods, and the balance from other vendors, none of which accounted for more than 10% of merchandise purchased by the Company. The Company believes that its supplier relationships are currently satisfactory. The Company is not dependent on these supplier relationships since merchandise is readily available from numerous sources under different brand names, subject to conditions affecting food supplies generally.
The Company's policy is to have its Supermarkets fully stocked with merchandise at all times. This policy requires the Company to carry significant amounts of inventory. As stated above, replenishment merchandise is readily available from the Company's suppliers and, on average, approximately 76% of the Company's inventory is sold before the Company is required to pay its suppliers.
Tradenames
The Company owns the "Gristede's" and "Sloan's" tradenames. Such names have an established reputation in the areas served by the Supermarkets for convenience, competitive prices, service and a wide variety of quality produce and merchandise.
Gristede's is a federally registered trademark. While the Company is not aware that its use of the tradename infringes upon the rights of any persons, it has not obtained any federal or state trademark registration for the tradename "Sloan's." The assertion by a third party of superior rights in the tradename "Sloan's" or the loss of the Company's right to use either tradename could have a material adverse effect on the Company.
Labor Contracts
All of the employees of the Company other than 98 administrative employees and executives and 56 store managers and co-managers are represented by unions. The table below sets forth the name of each union with which the Company has a collective bargaining agreement and the expiration date of such agreement.
Name of Union Expiration Date - ---------------------------------------- --------------- Retail, Wholesale & Chain Store October 5, 2002 Food Employees Union, Local 338 Amalgamated Meat Cutters and Retail Food October 23, 1999 Store Employees Union, Local 342-50 United Food and Commercial Workers Union December 21, 2002 ("UFCW"), Local 174 UFCW, Local 1500 June 23, 2002 UFCW, Local 464A May 1, 2003 International Brotherhood of Teamsters June 30, 1999 ("Teamsters"), Local 803 Teamsters, Local 202 December 31, 2003
Governmental Approvals
All of the Supermarkets have obtained all necessary governmental approvals, licenses and operating permits.
Employees
At February 14, 1999, the Company had approximately 1,323 employees, 1,207 of which are employed at the Supermarkets or the City Produce warehouse, and 116 of which are employed at the Company's executive offices. Approximately 390 of the employees were employed on a full-time basis.
Seasonality
The Company's Supermarkets are predominantly located in the borough of Manhattan in New York City and serve the more affluent carriage trade. Owing to the significant exodus of such customers during the summer months for vacation and holiday, together with an increased propensity by resident customers for out of home dining during such period, the Company traditionally incurs up to a 20% seasonal drop in sales during the months of July and August each year. The seasonal decline in sales does not have a material impact on the level of inventories carried by the Company.
Environmental Compliance
Compliance by the Company with Federal, State and local provisions which have been enacted or adopted regarding the discharge of materials into the environment, or otherwise relating to the protection of the environment, does not have a material financial impact on the Company.
ITEM 2.
ITEM 2. PROPERTIES.
The Company leases all 40 Supermarket locations and the warehouse and distribution center operated by City Produce. Five of such leases expire prior to 2001, 22 of such leases expire on dates from 2001 through 2010 and 13 of such leases expire on dates from 2011 through 2018. The Supermarkets range in size from approximately 3,200 to 23,000 square feet of selling space, averaging 9,000 square feet of selling space. All of the stores are air-conditioned, have all necessary fixtures and equipment and are suitable for the retail operations conducted thereat.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
On August 8, 1994, a lawsuit against the Company and Mr. Catsimatidis was instituted in the United States District Court for the Southern District of New York by RMED International, Inc. ("RMED"), a former stockholder of the Company.
The complaint alleges, among other things, that RMED and a purported class consisting of persons who purchased the Company's common stock on or after March 19, 1993 were damaged by alleged nondisclosures in certain filings made by the Company with the Securities and Exchange Commission between January 1993 and June 1994 relating to an investigation by the FTC. The complaint alleges that such nondisclosures constituted violations of Federal and New York State securities laws, as well as common law fraud and seeks damages (including punitive damages) in an unspecified amount, as well as costs and disbursements of the action. On June 2, 1994, the Company issued a press release which disclosed the FTC action.
On September 30, 1994, the defendants filed a motion to dismiss for failure to state a cause of action and for lack of subject matter jurisdiction over the state claims. The motion was denied. In June 1995, RMED filed a motion for class certification, and discovery was held in abeyance pending disposition of that motion. The motion was granted in March 1996. Fast discovery was completed by the end June 1998. Expert discovery was completed by the end of 1998.
Management believes that the lawsuit is without merit and intends to defend the action vigorously; however, the outcome cannot be determined.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
None.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
The Company's Common Stock is listed and traded on the American Stock Exchange. Since November 12, 1997 the Common Stock has been quoted under stock symbol "GRI." Prior thereto it was quoted under the symbol "SLO." For the year ended November 29, 1998 and for the
Transition Period from March 3, 1997 to November 30, 1997, the quarterly high and low price range for such common stock is shown in the following tabulation.
Fiscal Year Ended Transition Period from March 3, November 29, 1998 1997 to November 30, 1997 --------------------- -------------------------- Quarter High Low High Low - ----- ----- ------- ----- ----- First 2-3/8 1-11/16 3-1/8 2-1/4 Second 4-1/2 1-7/8 2-5/8 1-7/8 Third 3-13/16 2-7/8 2-11/16 2 Fourth 2-13/16 2-3/16 Not applicable Not applicable
The approximate number of holders of record of the Company's Common Stock on February 25,1999 was 218. The Company believes that there are a significant number of shares of the Company's Common Stock held in street name and, consequently, the Company is unable to determine the actual number of beneficial owners.
Dividends
The Company has never paid a cash dividend on its Common Stock and does not expect to pay a cash dividend in the near future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Company Background
The transition period from March 3, 1997 to November 30, 1997 (the "Transition Period") consisted of 39 weeks. The fiscal year ended November 29, 1998 consisted of 52 weeks.
Results of Operations (1998 Compared to Transition Period)
During the 36 week period from March 3, 1997 until November 9, 1997 the Company consisted of 15 stores and filed Quarterly Reports on Form 10-Q for the quarters ended June 1, 1997 and August 31, 1997.
On November 10, 1997, as a result of the Merger, the Company acquired certain assets net of liabilities of 29 selected supermarkets and a wholesale distribution business (the "Food Group") controlled by John Catsimatidis, the principal stockholder of the Company. The transaction was accounted for as the acquisition of the Company by the Food Group pursuant to Emerging Issues Task Force 90-13 as a result of the Food Group obtaining control of the Company after the transaction.
As a result of the Merger being accounted for as a reverse acquisition, the Transition Period referred to in the following summary of the Results of Operation for the 39 week period encompasses the operation of the Food Group for 36 weeks, and the operations of the new combined companies for the 3 week post- Merger period November 10, 1997 - November 30, 1997. Therefore, the 15 stores owned by the Company prior to the Merger contributed to sales, gross margin and overhead for only 3 weeks.
The following table sets forth, as a percentage of sales, components of the Results of Operations:
52 weeks ended 39 weeks ended November 29, 1998 November 30, 1997 ----------------- ----------------- Sales ................................ 100.0 % 100.0 % Cost of sales ........................ 59.9 % 62.4 % ------- ------- Gross profit ......................... 40.1 % 37.6 % Store operating, general and ......... 34.0 % 35.3 % administrative expense Depreciation and amortization ........ 2.5 % 2.0 % Non-store operating expense .......... 3.0 % 5.1 % ------- ------- Operating profit/ (loss) ............. 0.6 % (4.8 %) ======= =======
Sales for the 52 weeks ended November 29, 1998 were $157,462,869 as compared to sales for the 39 weeks ended November 30, 1997, on an annualized basis, of $103,878,260. The sales increase was mainly attributable to the 15 additional stores included in the entire 1998 period, one acquired store which opened in February 1998 and the results of the Company's remodeling program, which is continuing. Sales for the same 29 stores were
$100,797,076 for the 52 weeks ended November 29, 1998 as compared with annualized sales of $95,173,192 for the 39 weeks ended November 30, 1997, an increase of 5.6%.
Gross profit as a percentage of sales was 40.12 % for the 52 week period ended November 29, 1998 as compared to 37.63 % for the 39 week period ended November 30, 1997. The 1998 period includes the results of the additional 15 Sloan's stores which traditionally achieved higher gross margins.
Store operating, general and administrative expenses as a percentage of sales were 33.97 % for the 52 weeks ended November 29, 1998 as compared with 35.25 % for the 39 weeks ended November 30, 1997. The decrease in the 1998 period was mainly due to better cost controls resulting from the combining of the operations in the Merger.
Nonstore operating expenses as a percentage of sales were 3.01 % for the 52 week period ended November 29, 1998 as compared to 5.11 % of sales for the 39 week period ended November 30, 1997. Administrative payroll and fringes were 2.06 % of sales for the 1998 period as compared with 3.15 % of sales for the 1997 period. The decrease was the result of a reduction in administrative personnel. General office expense as a percentage of sales decreased to 0.70 % for the 1998 period as compared to 1.59 % of sales for the 1997 period as a result of the continuing efficiencies from the combining of the operations. Professional fees were 0.15 % of sales for the 1998 period as compared to 0.36 % of sales for the 1997 period. The decrease was due to the reduced need for outside legal counsel in connection with litigation, real estate and general corporate matters. Corporate expenses were 0.10 % of sales for the 52 week period ended November 29, 1998. Corporate expenses are those expenses attributable only to a public company and as such were only applicable to the last 3 weeks of the 1997 period.
Results of Operation (Transition Period Compared to 1997)
The following table sets forth, as a percentage of sales, components of the Results of Operation:
39 weeks ended 52 weeks ended November 30, 1997 March 2, 1997 ----------------- -------------- Sales ..................................... 100.0 % 100.0 % Cost of sales ............................. 62.4 % 61.4 % ------- ------- Gross profit .............................. 37.6 % 38.6 % Store operating, general and .............. 35.3 % 32.5 % administrative expense Depreciation and amortization ............. 2.0 % 2.0 % Non-store operating expense ............... 5.1 % 6.1 % ------- ------- Operating loss ............................ (4.8 %) (2.0 %) ======= =======
Sales for the 39 weeks ended November 30, 1997, on an annualized basis, were $103,878,260 as compared to $104,168,864 for the 52 weeks ended March 2, 1997. The net sales decrease was the result of several factors. Sales for the 39 week period did not include the busy Christmas and New Year's holiday sales periods. The favorable summer weather in the New York City area during 1997 resulting in prolonged vacations, as well as
continuing deflationary pressures in food prices also contributed to the decrease in sales. The decreases were partially offset by increases in sales attributable to the fact that 15 stores not included as part of the prior year's numbers were included for 3 weeks in the November 30, 1997 period. The sales of the 15 stores amounted to $3,870,221 of the annualized 39 week's sales. In addition, the remodeling of 4 stores during the 39 week period resulted in substantial sales increases. Sales for the same 29 stores were $71,379,894 for the 39 weeks ended November 30, 1997 as compared with $74,119,743 for the 39 weeks ended December 1, 1996, a decrease of 3.70%. The sales decline in the 1997 period was due to the same favorable weather conditions during such period and continuing deflationary pressures in food prices previously noted.
Gross profit as a percentage of sales was 37.63% for the 39 week period ended November 30, 1997 as compared to 38.63% for the 52 week period ended March 2, 1997. The decreases in gross profit margin was mainly due to the curtailment of our long-term forward buying program in the November period as compared to the March period. In addition, construction activity taking place during the store remodelings and grand opening promotions for the remodeled stores affected overall gross profit margins during the November period.
Store operating, general and administrative expenses as a percentage of sales were 35.25% for the 39 week period ended November 30, 1997 as compared to 32.47% of sales for the 52 week period ended March 2, 1997. Operating expenses as a percentage of sales increased in the November period due to increases in occupancy cost, labor costs associated with the store remodels and advertising costs.
Non-store operating expenses, including bad debt expense, as a percentage of sales were 5.11% for the 39 week period ended November 30, 1997 as compared to 6.07% of sales for the 52 week period ended March 2, 1997. Administrative payroll and fringes were 3.15% of sales for the 39 week period ended November 30, 1997 as compared with 4.06% of sales for the 52 week period ended March 2, 1997. The decrease was the result of a reduction in administrative personnel. General office expense, including bad debt expense, as a percentage of sales was 1.59% for the 39 week period ended November 30, 1997 as compared with 1.46% for the 52 week period ended March 2, 1997. The percentage increase is attributable to additional travel and related costs incurred to monitor the newly remodeled stores during the 39 week period which were magnified as a percentage of sales by the fact that the sales for the 39 week period did not include the busy Christmas and New Year's holiday sales periods. Professional fees were 0.36% of sales for the 39 week period ended November 30, 1997 as compared with 0.55% of sales for the 52 week period ended March 2, 1997. The decrease was due to the reduced need for the services of outside legal counsel in connection with litigation, real estate and general corporate matters. The subcategory "corporate expenses" are those expenses attributable only to a public company and are thus solely applicable to the 3 week period ended November 30, 1997.
Liquidity and Capital Resources
On November 10, 1997, the Company completed its financial arrangements with a group of banks for a credit facility in the aggregate amount of $25,000,000. Under the credit agreement the Company obtained a term loan in the amount of $12,000,000 to refinance prior bank debt, an improvement term loan line of credit in the amount of $8,000,000 to finance capital improvements to its Supermarkets and a revolving line of credit in the amount of $5,000,000 to provide working capital. The $12,000,000 term loan matures on October 31, 2002. The improvement term loan line of credit and the revolving line of credit mature on October 31, 2002 and November 29, 1999, respectively, at which times all amounts outstanding thereunder are payable.
Presently, the bank facilities are fully utilized and the Company is negotiating an increase in the credit facilities with its banks. There is no assurance that the Company will be able to negotiate such an increase on terms satisfactory to the Company. If the Company is unable to obtain its desired financing from its bank, the Company will seek increased financing from third party leasing companies and/or additional financing from the Company's principal shareholder and other sources.
The Company has not incurred any material commitments for capital expenditures, although it anticipates spending approximately $10,000,000 on its store remodeling and expansion program in fiscal 1999. Such amount is subject to adjustment based on the availability of funds.
Borrowings under the facility bear interest at a spread over either the prime rate of the bank acting as agent for the group of banks or a LIBOR rate, with the spread dependent on the ratio of the Company's funded debt to EBITDA ratio, as defined in the credit agreement. The average interest rate on amounts outstanding under the facility during the 52 weeks ended November 29, 1998 was 8.0 % per annum.
The credit facility contains covenants, representations and events of default typical of credit facility agreements, including financial covenants which require the Company to meet, among other things, a minimum tangible net worth, debt service coverage ratios and fixed charge coverage ratios, and which limit transactions with affiliates. The facility is secured by equipment, inventories and accounts receivable. During fiscal 1998 the Company and the banks amended the credit facility to, among other things, modify certain of the financial covenants and extend the term of the revolving line of credit by one month until November 29, 1999.
The Company has available approximately $4.0 million in third party leasing lines of credit to lease finance equipment for its store remodeling and expansion program.
Year 2000 Issue
The Company has assesed its information technology ("IT") systems for the Year 2000 readiness and has given the highest priority to those IT systems it considers mission critical. The systems the Company considers mission critical are its store automation systems (including point of sale systems) and its computer systems at its main office which support these store systems.
Management expects all in-store IT systems as well as the host support system located in the Company's main office will be certified by the original vendor as Year 2000 compliant by May 31, 1999. These systems were either Year 2000 compliant as installed or are being upgraded by the original vendors to a Year 2000 compliant status under the existing maintenance programs. No additional expense has or will be incurred by the Company to bring these systems in to Year 2000 compliance since any necessary changes are provided by the vendors under software maintenance programs.
The Company has assessed its other IT systems, including accounting and payroll systems, deployed at its main office and its City Produce warehouse facility for Year 2000 compliance and has identified the steps necessary to ensure systems will be Year 2000 Compliant.
The Company has developed and tested a methodology that will allow its existing software programs to be Year 2000 compliant by making minor changes to some of the existing programs. The existing data files need not be altered. The Company will perform application level review to identify processes that involve the input of output of a date. That program will require a minor modification (utilizing the already tested code), to make it Year 2000 compliant. These systems will then be tested to confirm that they function as expected. Some of the Company's hardware is not now Year 2000 compliant and the Company has budgeted for the replacement or modification of such hardware as necessary in the first half of 1999.
The Company expects to spend $70,000 for hardware and will spend an additional $30,000 for software modifications and related expenses to ensure that these systems are compliant. The Company expects that the necessary funds for these expenditures will come from cash flow generated from its operations. All testing on these systems in expected to be completed by June 30, 1999 at which time it is expected that these systems will be Year 2000 compliant.
The Company does not currently intend to hire an outside firm to independently verify that its systems are Year 2000 compliant.
The Company has assessed the majority of its non-IT systems for Year 2000 readiness and has identified a small number of systems, including certain equipment at store level, which may not be Year 2000 ready. The Company is working with the vendor of these systems of identify the best approach. While these systems have an internal clock and date, the date is not necessary for the systems to be productive. Such systems could therefore continue to function as need and management does not anticipate that these systems will pose any significant Year 2000 problem or expense.
The Company has begun to review the Year 2000 readiness plans of its major vendors in an effort to ensure that operations remain unaffected by Year 2000 related failures. The company will place preset orders with certain major vendors to help ensure product deliveries in the event that the vendor is affected by failures at some level of its operations but is still able to deliver merchandise. In the event a major vendor is unable to provide products the Company will increase its purchases from other vendors from which it currently buys.
The Company purchases merchandise sold in its stores from multiple vendors and is not reliant on any one vendor for the normal conduct of its operations. The Company is not dependant on these supplier relationships since merchandise is readily available from numerous sources under different brand names, subject to conditions affecting food supplies generally.
The Company believes that its efforts will result in Year 2000 compliance. However, the impact on business operations of failure by the Company to achieve compliance of failure by external entities which the Company cannot control, such as vendors, to achieve compliance, could be material to the Company's consolidated results of operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page No. -------- Report of independent certified public accountants
Consolidated balance sheets of Gristede's Sloan's, Inc. and its subsidiaries as of November 29, 1998 and November 30, 1997
Consolidated Statements of Operations of Gristede's Sloans, Inc. and its subsidiaries for the fifty-two weeks ended November 29, 1998 and three weeks ended November 30, 1997
Consolidated Statements of Sales and Expenses of Gristede's Sloan's, Inc. and its subsidiaries for the 36 weeks ended November 9, 1997, the 53 weeks ended March 2, 1997
Consolidated Statement of Stockholders' Equity of Gristede's Sloan's, Inc. and its subsidiaries for the fifty-two weeks ended November 29, 1998 and three weeks ended November 30, 1997
Consolidated Statement of Cash Flows of Gristede's Sloan's, Inc. and its subsidiaries for the fifty-two weeks ended November 29, 1998 and three weeks ended November 30, 1997
Notes to Financial Statements
Report of Independent Certified Public Accountants
Board of Directors of Gristede's Sloan's, Inc. New York, New York
We have audited the accompanying consolidated balance sheets of Gristede's Sloan's, Inc. and subsidiaries as of November 29, 1998 and November 30, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the fifty two weeks and three weeks then ended respectively and the related statements of sales and expenses for the thirty six weeks ended November 9, 1997 and the fifty two weeks ended March 2, 1997 (see Note 1).
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements of sales and expenses were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, and are not intended to be a complete presentation of Gristede's Sloan's, Inc.'s results of operations for the period noted above.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, (i) the financial position of Gristede's Sloan's, Inc. and subsidiaries as of November 29, 1998 and November 30, 1997, and the results of their operations and their cash flows for the fifty two weeks and three weeks then ended, and (ii) the sales and expenses for the thirty six weeks and fifty two weeks ended November 9, 1997 and March 2, 1997, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP - -------------------- BDO Seidman, LLP
New York, NY
February 27, 1999
Gristede's Sloan's, Inc. and Subsidiaries
Consolidated Balance Sheets
Gristede's Sloan's, Inc. and Subsidiaries
Consolidated Balance Sheets
Gristede's Sloan's, Inc. and Subsidiaries
Consolidated Statements of Operations
Gristede's Sloan's, Inc. and Subsidiaries
Consolidated Statements of Sales and Expenses
36 weeks ended 52 weeks ended November 9, 1997 March 2, 1997 ========================================== ============= ============= Sales ................................. $ 68,683,570 $ 104,168,864 Cost of sales ......................... 42,860,656 63,932,541 ========================================== ============= ============= Gross profit ..................... 25,822,914 40,236,323 Direct operating expenses ............. 24,708,065 33,821,475 ------------- ------------- 1,114,849 6,414,848 Corporate overhead .................... 3,716,800 6,207,930 ------------- ------------- (2,601,951) 206,918 Depreciation and amortization ......... 1,365,673 2,092,403 Bad debt expense ...................... -- 113,242 ------------- ------------- Excess of expenses over sales ......... $ (3,967,624) $ (1,998,727) ========================================== ============= =============
See accompanying notes to consolidated financial statements.
Gristede's Sloan's, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Fifty two weeks ended November 29, 1998 and three weeks ended November 30, 1997
Gristede's Sloans, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Business and Basis of On November 4, 1997, Sloan's Supermarkets, Inc. Presentation ("Sloan's") changed its name to Gristede's Sloan's, Inc. ("GRI" or the "Company"). On November 10, 1997, GRI acquired certain assets, net of liabilities of 29 selected supermarkets and a wholesale distribution business ("The Food Group") controlled by Mr. John Catsimatidis, a 37% shareholder of GRI. The transaction was accounted for as the acquisition of Sloan's by The Food Group pursuant to Emerging Issues Task Force 90-13 as a result of The Food Group obtaining control of Sloan's after the transaction. The assets and liabilities of The Food Group (the "Acquiror") are recorded at their historical cost. Sloan's assets and liabilities were recorded at their fair value to the extent acquired. Consideration for the transaction was based on an aggregate of $36,000,000 in market value of the Company's common stock and the assumption of $4,000,000 of liabilities. 16,504,298 shares of common stock were issued on the date of the acquisition based on a market price of $2.18 per share.
The accompanying statement of operations for the 52 weeks ended November 29, 1998 and for the three weeks ended November 30, 1997 represents the consolidated operations of The Food Group and GRI. Retained earnings at November 30, 1997 represent the cumulative net operating results for both The Food Group and GRI from November 10, 1997 (the date the acquisition was consummated) to November 30, 1997.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Food Group's financial statements, rather than complete financial statements, are presented for periods prior to November 9, 1997 because the business acquired consisted of only certain net assets of the stores and there are certain assets of The Food Group that were not acquired. Accordingly, the statements present only the the sales and expenses directly attributable to The Food Group. The financial statements consist of a historical consistent comparison of the operating results only of those stores transferred to the public company. The entities owning The Food Group (the "Group"), in addition to owning the above stores, also have other operations included within its consolidated group. Corporate overhead costs for the entire Group are allocated to the Group's respective operations, including The Food Group. Corporate overhead included in the accompanying statements of sales and expenses include identified overhead costs for payroll and other directly attributable overhead costs pertaining to the retail stores owned by the Group which also includes costs incurred for selected stores not being sold. No tax benefit has been recognized due to the fact that the losses remain with the corporate parent of The Food Group.
2. Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Gristede's Sloan's, Inc. and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
FISCAL YEAR
On January 13, 1998, the Company's Board of Directors elected to change the Company's fiscal year-end from the Sunday closest to the last day of February to the Sunday closest to the last day of November.
INVENTORIES
Store inventories are valued principally at the lower of cost or market with cost determined under the retail method.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
PROPERTY AND EQUIPMENT
Depreciation of furniture, fixtures and equipment is computed by the straight-line method over the estimated useful lives of the assets, with lives ranging from seven to ten years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term by the straight-line method.
As of November 30, 1997 the Company recorded approximately $4.3 million to leasehold rights on the consummation of the acquisition discussed in Note 1 due to favorable leasing terms. The leasehold rights are amortized over the ten year life of the individual store leases by the straight-line method.
LEASES
The Company charges the cost of operating lease payments and beneficial leaseholds to operations on a straight-line basis over the lives of the leases.
DEFERRED ADVERTISING
Advertising rebates and space allocation allowances are deferred and recognized in income over the period of the agreement, generally up to three years.
ADVERTISING EXPENSE
The Company expenses advertisement costs when the advertisement is first shown.
DEFERRED COSTS
Deferred costs consist of a noncompete agreement, acquisition and financing costs; and are amortized on a straight-line basis over five to ten years.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
INCOME TAX
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company will not recognize gain or loss as a result of the completion of the transactions set forth in the merger agreement between The Food Group and the Company. The Company believes that it underwent an "Ownership Change" within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, as a future consequence of the transaction. As a result, the Company's ability to offset its net operating loss carryforwards against income earned after the transaction will be limited. (As of November 29, 1998, the Company had net operating loss carryforwards of approximately $3,000,000). Thus, the transaction could result in taxation of some future Company income that, absent the transaction, might have been offset by net operating loss carryforwards.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets, liabilities, income and expense and disclosures of contingencies. Future events could alter such estimates.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
STOCK-BASED COMPENSATION PLANS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" allows either adoption of a fair value method of accounting for stock-based compensation plans or continuation of accounting under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations with supplemental disclosures.
The Company has chosen to account for all stock-based compensation arrangements under APB Opinion No. 25 with related disclosures under SFAS No. 123. Pro forma net earnings (loss) per common share amounts as if the fair value method had been adopted are presented in Note 11.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure About Instruments" requires companies to disclose the fair value of financial instruments. The carrying values of cash and cash equivalents, accounts receivable and accounts payable reported in the accompanying consolidated balance sheets approximate fair value due to the short-term maturities of these assets.
The fair value of long-term debt, consisting of the term loans and revolving loan payable as of November 29, 1998 and November 30, 1997, approximates the recorded book values because of the fluctuating interest rates. It was not practical to determine the fair value of the amount due to affiliate, because of the uncertain repayment terms.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
LONG-LIVED ASSETS
During 1995, SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of", was issued. SFAS 121 requires the Company to review long-lived assets and certain identifiable assets related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. If the undiscounted future cash flows of the enterprise are less than their carrying amounts, their carrying amounts are reduced to fair value and an impairment loss is recognized. No impairment losses have been necessary through November 29, 1998.
INCOME/(LOSS) PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," ("EPS") which requires a presentation of basic EPS and diluted EPS. Basic EPS excludes dilution and is computed by dividing earning available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes conversion of convertible debt and the issuance of common stock for all other potentially dilutive equivalent shares outstanding. Diluted EPS is not shown since it is anti-dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income", requires an entity to report comprehensive income and its components for fiscal years beginning after December 15, 1997. The Company believes SFAS No. 130 will have little, if any, effect on the information already disclosed in the Company's financial statements.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" requires an entity to report financial and descriptive information about its reportable operating segments for fiscal years beginning after December 15, 1997. The Company believes SFAS No. 131 will have little, if any, effect on the information already disclosed in the Company's financial statements.
SFAS No. 133 "Accounting for Derivatives Instrument and Hedging Activities" establishes accounting and reporting standards for derivative instruments. The Company has not in the past nor does it anticipant, that it will engage in transactions involving derivative instruments which will impact the financial statements.
Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", requires an entity to expense all software development costs incurred in the preliminary project stage, training costs and data conversion costs for fiscal years beginning after December 15, 1998. The Company believes that this statement will not have a material effect on the Company's accounting for computer software acquisitions.
Statement of Position 98-5, "Accounting for Start-up Costs", requires an entity to expense all start-up related costs as incurred for fiscal years beginning after December 15, 1998. The Company believes that this statement will not have a material effect on the Company's accounting for start-up costs.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. Acquisition of The Food Group As discussed in Note 1, the following table reflects unaudited pro forma combined results of operations of Sloan's and The Food Group on the basis that the acquisition had taken place at the beginning of the 1997 fiscal year for each of the periods presented.
36 weeks ended 52 weeks ended November 9, 1997 March 2, 1997 ======================== ========================= ========================== Revenues $101,157,570 $150,721,403 Operating income 1,679,004 11,085,809 ======================== ========================= ==========================
In management's opinion, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisition been consummated on March 4, 1996 or of future operations of the combined companies under the ownership and management of GRI.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Related Party Transactions (a) On February 6, 1998 the Company purchased substantially all of the assets and assumed certain of the liabilities of a supermarket located at 1644 York Avenue, New York, New York owned by a corporation controlled by John Catsimatidis. The acquisition was recorded at its book value of approximately $31,000, subject to an appraisal. The purchase price is to be the value of the supermarket based upon an appraisal to be conducted by a firm selected by a committee of independent directors of the Company less the amount of certain liabilities assumed by the Company. The appraisal will be based on, among other things, a review of the operating statement of the supermarket for the period from February 6, 1998 to a date no earlier than January 31, 1999. The purchase price will be subject to adjustment to the extent that the acquired inventory is greater or less than the sum of trade payable and liabilities for employee vacation and sick pay that have been assumed by the Company. The purchase price will be paid at such time and by such method as shall be recommended by a committee of the independent directors of the Company and approved by the Board of Directors of the Company, John Catsimatidis abstaining.
(b) The Company had advanced funds to a company owned by the Chairman of the Board who is also the principal stockholder of the Company. As of November 30, 1997, the Company was owed approximately $352,000, including $148,000 of accrued interest. Such advances bear interest at prime plus 1.25% per annum (9.75% at November 30, 1997). During the 1998 fiscal year these advances were fully repaid.
(c) The Company and The Food Group allocate volume, advertising and other rebates. Rebates, whether allocated or directly attributed to the Company, are recorded as reductions to cost of sales or advertising expense over the life of the related agreement. Rebates recorded as reductions to expenses approximated $ 4.8 million, $0.4 million, $1.5 million and $3.2 million for the 52 weeks ended November 29, 1998, the 3 weeks ended November 30, 1997 the 36 weeks ended November 9, 1997 and the fiscal ended March 2, 1997, respectively.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(d) Prior to the merger, Red Apple Management Inc., a company wholly owned by John Catsimatidis, provided certain payroll, related employee benefit services and office services for The Food Group. Such services included accounting, merchandising, human resources, maintenance, executive salaries and employee benefits. During the 36 weeks ended November 9, 1997 and the fiscal year ended 1997, the Company incurred approximately, $2.7 million and $3.8 million, respectively. These services ended on November 9, 1997.
(e) Newspaper advertising for the Company is frequently pooled with advertising for other supermarkets which are not owned by the Company. In such cases, the Company pays a proportionate share of such advertising expenses based upon its number of Supermarkets covered in the advertisements. Such amounts allocated to the Company approximated, $388,000 and $319,000 during the 36 weeks ended November 9, 1997 and the fiscal years ended March 2, 1997, respectively. These services ended on November 9, 1997.
(f) Under a Management Agreement, dated November 10, 1997 (the "Management Agreement"), Namdor Inc., a subsidiary of the Company, performs consulting and managerial services for three supermarkets owned by corporations controlled by John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to receive on a quarterly basis a cash payment of one and one-quarter (1.25%) percent of all sales of inventory and merchandise made at or from the managed supermarkets. During the fiscal year ended November 29, 1998 management fee income was $ 119,000.
(g) MCV Advertising Associates Inc. a company 85% owned by John Catsimatidis provides advertising services to the Company. For the year ended November 29, 1998 the costs incurred were $ 1,072,544.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(h) Mr. John Catsimatidis issued each year a limited $ 1,000,000 guarantee of the collection of all accounts receivable. Futhermore, Mr. Catsimatidis has agreed not to permit the level of the Company's liability due to the affiliate to fall below $ 1,000,000, prior to the issuance of the fiscal year ended November 29, 1999 audited financial statements.
(i) Wolf, Block, Schorr and Solis Cohen, LLP,. a law firm of which a director of the Company is a member, charged the Company $219,035, $-0-, $341,000 and, $194,000 in fees for rendering legal services to the Company during the 52 weeks ended November 29, 1998, 3 weeks ended November 30, 1997, 36 weeks ended November 9, 1997 and the fiscal year ended March 2, 1997, respectively.
Capitalized Lease Obligations Due to Affiliate
(j) Certain stores have entered into capital and operating leases with an affiliate, C & S Acquisition Corp, (formerly Red Apple Leasing, Inc). (a company wholly owned by John Catsimatidis). Such leases are primarily for store operating equipment. Obligations under capital leases at November 29, 1998 and November 30, 1997 were $821,305 and $1,206,932 respectively and require monthly payments of $35,114 through March 1, 2001. Obligations under operating leases at March 2, 1997 require 84 payments of $14,594. Obligations under operating leases at June 2, 1997 and September 1, 1997 require 60 monthly payments of $10,783 and $16,297, respectively.
Notes Receivable
During 1994, the Company sold two stores. Pursuant to the United States Federal Trade Commission settlement agreement (see Note 12), the Company also sold four stores during 1996 and 1997. At the time of the sale, the Company accepted a note receivable on each store. These notes bear interest at rates of 8.5% to 10% and have terms of 4 to 6 years.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Deferred Costs At November 29, 1998 and November 30, 1997
6. Due to Affiliate Amounts due to affiliate, United Acquisition Corp., a corporation wholly owned by John Catsimatidis, represent liabilities in connection with the consummation of the merger as discussed in Note 1. The affiliate has agreed not to demand payment of these liabilities in the next fiscal year. Accordingly, the liability has been classified as noncurrent. As of November 29, 1998, $ 3 million of the amount due to affiliate was subordinated to the Company's banks. The Subordination Agreement expired on November 30, 1998. The liability does not bear interest.
7. Commitments and Contingencies The Company operates primarily in leased facilities, under noncancelable operating leases expiring at various dates through 2018. Certain leases provide for contingent rents (based upon store sales exceeding stipulated amounts or on the Consumer Price Index), escalation clauses and renewal options ranging from five to fifteen years. The Company is obligated under all leases to pay for taxes, insurance and common area maintenance expenses.
Rent expense under noncancelable operating leases, including leases with related parties for the fiscal periods ended November 29, 1998, November 30, 1997, November 9, 1997 and March 2, 1997, respectively, is as follows:
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Related party rent expense was $675,750, $51,823, $446,760 and $267,000 for the 52 weeks ended November 29, 1998, 3 weeks ended November 30, 1997, 36 weeks ended November 9, 1997 and the fiscal year ended March 2, 1997, respectively.
Future minimum lease commitments under noncancelable leases as of November 29, 1998 are:
Fiscal year ending ========================================= 1999 $ 9,218,000 2000 9,411,000 2001 8,635,000 2002 8,077,000 2003 7,332,000 Thereafter 53,629,000 ---------- $ 96,302,000 =========================================
In addition to related party capital leases (Note 4(f)), the Company has other capital equipment leases. The net book value of all assets under capital leases at November 29, 1998 is approximately $3.8 million.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Future net minimum lease payments under capital leases are as follows:
Fiscal year ending ================================================= 1999 $ 1,044,414 2000 1,044,415 2001 728,385 2002 623,042 2003 605,329 Thereafter 504,086 --------- 4,549,671 Less: Amount representing interest 868,000 --------- Present value of net minimum lease payments 3,681,671 Due within one year 695,664 --------- Total $ 2,986,007 =================================================
8. Income Taxes Deferred tax expense or benefit is the change in the computed tax asset or liability balance. As of November 29, 1998, the Company had total deferred tax assets of approximately $3,200,000 of which approximately $1,200,000 is related to net operating loss carryforwards which are available to offset income earned in future years, and approximately $2,000,000 relates to the different tax and book bases of leasehold rights. The net deferred tax assets at November 29, 1998 were offset by valuation allowances of an equal amount. Accordingly, no deferred income taxes were recognized in any of the periods. The Company believes that it underwent an "Ownership change" within the meaning of section 382 of the Internal Revenue Code of 1986 and as a future consequence of the transaction the company's ability to offset its net operating loss carryforwards against income earned after the transaction may be limited. If any of the net operating loss carryforwards, is realized any tax benefit will be credited to additional paid-in-capital.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Debt (a) Credit Facility and Term Loan Agreement
On November 10, 1997, the Company entered into an aggregate $25,000,000 five-year credit facility with European American Bank, as agent, and certain other participating banks. The credit facility is comprised of a $12,000,000 five-year term loan, a $8,000,000 five-year term loan line for remodeling and capital improvements to the Company's stores and a $5,000,000 two-year revolving credit facility for general working capital purposes. Borrowings under the facility bear interest at a "spread" over either the bank's prime rate or LIBOR rates, with the spread dependent on the ratio of the Company's funded debt to EBITDA ratio, as defined in the credit agreement. The credit facility contains covenants, representations and events of default typical of credit facility agreements, including financial covenants which require the Company to meet, among other things, a minimum tangible net worth, debt service coverage ratios and fixed charge coverage ratios, and which limit transactions with affiliates. The facility is secured by equipment, inventories and accounts receivable.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Long-term debt at November 29, 1998 and November 30, 1997 consists of the following:
Interest on prime-based loans is payable monthly in arrears and interest on LIBOR-based loans is payable at the end of the applicable interest period.
During the year ended November 29, 1998 the interest rates ranged from 7.72% to 8.28% on the LIBOR-based loans and from 8.50% to 9.25% on the prime-based loans.
During the three weeks ended November 30, 1997, the interest rate was 9.25% (collateralized by certain assets of the Company, including receivables, inventory, and store equipment)
The loans are collateralized by certain assets of the Company, including receivables, inventory and store equipment.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Principal maturities of long-term debt as of November 29, 1998:
Fiscal year ending =========================================== 1999 $ 3,314,283 2000 8,314,283 2001 3,314,283 2002 7,035,369 ------------ $ 21,978,218 ===========================================
10. Retirement Plans The Company participates in various defined contribution multi- employer union pension plans which are administered jointly by management and union representatives and which sponsor most full- time and certain part-time union employees. The pension expense for these plans approximated $786,000, $153,000, $369,000 and $697,000 in the 52 weeks ended November 29, 1998, the 3 weeks ended November 30, 1997, 36 weeks ended November 9, 1997, and the fiscal year ended March 2, 1997, respectively. The Company could, under certain circumstances, be liable for unfunded vested benefits or other expenses of jointly administered union/management plans.
11. Stock Option Plans The following stock option plans were carried forward by The Food Group from Sloan's:
On October 7, 1994, the Company granted the Chairman a non-qualified stock option to purchase an aggregate of 275,000 shares of common stock at a price of $3.75 per share (the fair market value at that date).
On August 12, 1996, the Company granted the Chairman a non-qualified stock option to purchase an aggregate of 250,000 shares of common stock at a price of $2.875 per share.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company currently has one incentive grant and five nonqualified grants under which stock options may be granted to officers, directors and key employees of the Company - the 1994 Employee Incentive Grant (the "1994 Grant"), the 1994 Nonqualified Grant (the "1994 NQ Grant"), the 1995 Chairman's Nonqualified Options (the "Chairman's Grant"), the 1994 Director's Nonqualified Grant (the "Directors' Grant"), the 1994 Nonqualified Recruitment Grant (the "1994 Recruitment Grant") and the 1998 stock option plan("The 1998 Plan"). The options to purchase shares of common stock generally are issued at fair market value on the date of the grant, begin vesting on the date of the grant, and expire ten years from issuance and are conditioned upon continual employment during the vesting period.
Under the 1994 Grant, the 1994 NQ Grant and The 1998 Plan, the Company granted options to purchase up to 100,000, 35,000, and 500,000 shares of common stock, respectively.
In addition to the one incentive grant, the Company has granted stock options to certain key executives and directors. The options vest over five years and contractual lives of these grants are similar to that of the incentive plan.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations for its stock option grants. Generally, compensation expense is not recognized for stock option grants.
In accordance with SFAS No. 123, "Accounting for Stock-based Compensation", the Company discloses the pro forma impact of recording compensation expense utilizing the Black-Scholes model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the Black-Scholes model does not necessarily provide a reliable measure of the fair value of its stock options.
The accounting provisions of SFAS No. 123 did not have an effect on the Company's earnings per share and thus have not been presented.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A summary of the status of the Company's stock option plans is presented below:
Options exercisable as of November 29, 1998 and November 30, 1997 were 760,000 and 773,400, respectively.
All options prior to November 10, 1997 were assumed from Sloan's by the Company.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table summarizes information as of November 29, 1998 concerning outstanding and exercisable options:
12. Litigation In June 1994, the United States Federal Trade Commission (the "FTC") commenced an action alleging that certain acquisitions consummated by Mr. John Catsimatidis, the Company and three other entities (the "Red Apple entities") controlled by Mr. Catsimatidis, including corporations which presently own the acquisition stores (collectively, the "companies") of 32 Sloan's supermarkets between 1991 and 1993 violated Federal antitrust laws because the effect of the acquisitions might be substantially to lessen competition among supermarkets within four Manhattan residential neighborhoods. The complaint indicated that the FTC could seek divestiture of up to ten supermarkets owned by the companies.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In order to avoid the costs of protracted litigation in the matter and without admitting that any antitrust law was violated as alleged in the complaint, on November 21, 1994, the companies entered into a settlement agreement against them (the "Settlement Agreement"). The companies agreed in the Settlement Agreement that within twelve months from the date of a final order in the proceeding they would divest themselves of an aggregate of six supermarkets in Manhattan, chosen by them from a list of sixteen supermarkets specifically designated in the Settlement Agreement (none of which were owned by Sloan's) and certain alternate supermarkets referenced in the Settlement Agreement (five of which were then owned by Sloan's). Nothing in the Settlement Agreement required Sloan's to divest itself of any of its supermarkets, but any supermarkets divested by Sloan's counted towards satisfaction of the divesture obligations.
An order embodying the Settlement Agreement was made effective March 6, 1995 (the "Order"). Pursuant to that Order, for a period of ten years from March 6, 1995, the companies cannot, without prior FTC approval, acquire any interest in any existing supermarket in a designated area. The Order does not restrict the companies from acquiring an interest in a supermarket by leasing or purchasing a new location that at the time of acquisition (and for six months prior to the acquisition) is not being operated as a supermarket.
In March 1996, an application (the "Application") was made to modify the Order so as to lift the divesture requirements other than with respect to one store on the Upper West Side which was not owned by Sloan's. The FTC approved the divesture of that store and its divesture was completed on May 9, 1996. On April 29, 1996, the Application was revised; and it was further revised in August and September so as to seek relief solely with respect to the requirement of divesture of any supermarkets in the Chelsea section of Manhattan. On September 13, 1996, the FTC granted the Application as modified, and deleted the requirement of divestiture in Chelsea. Simultaneously, the FTC appointed a trustee to divest four supermarkets pursuant to the Order, as modified. The trustee was not granted any authority to divest until the FTC approved a trustee agreement between the trustee and the companies.
Subsequent to the modification of the Order, The Food Group sold an aggregate of four stores in compliance with the divestiture of the Order, as modified. Based thereon, the trustee agreement did not become effective.
Gristede's Sloan's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A settlement of FTC claims based on the companies' failure to divest supermarkets pursuant to the Order was agreed to, pursuant to which $600,000 was paid to the FTC. The $600,000 payment was not borne by The Food Group or Sloan's.
The companies may at times be involved in various legal proceedings which are routine and incidental to the conduct of its business. The companies do not believe that any current litigation, either individually or in the aggregate, could have a material adverse effect on the financial condition or results of operations of the companies.
On August 8, 1994, a lawsuit against the Company and Mr. Catsimatidis was instituted in the United States District Court for the Southern District of New York by RMED International, Inc. ("RMED"), a former stockholder of the Company.
The complaint alleges, among other things, that RMED and a purported class consisting of persons who purchased the Company's common stock on or after March 19, 1993 were damaged by alleged nondisclosures in certain filings made by the Company with the Securities and Exchange Commission between January 1993 and June 1994 relating to an investigation by the FTC. The complaint alleges that such nondisclosures constituted violations of Federal and New York State securities laws, as well as common law fraud, and seeks damages (including punitive damages) in an unspecified amount (although in discovery proceedings, the named plaintiff has claimed that its damages were approximately $800,000) as well as costs and disbursements of the action. On June 2, 1994, the Company issued a press release which disclosed the FTC action.
In June 1995, Plaintiff filed a motion for class certification, and discovery was held in abeyance pending disposition of that motion. The motion was granted in March 1996. Discovery was completed in December 1998. Management believes that the lawsuit is without merit and intends to vigorously defend the action; however, the outcome cannot be determined.
PART III
Item 9
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information as of February 25, 1999 with respect to all directors and executive officers of the Company.
Position with the Company or Director Other Principal Occupation Name and Age Since for the Past Five Years - ------------ ----- -----------------------------
John A. Catsimatidis 1988(1) Chairman of the Board, President and Chief (50) Executive Officer of the Company since July 28, 1988; Treasurer of the Company from July 28, 1988 to March 17, 1998; President and Chief Executive Officer of Red Apple Group, Inc. (holding company for supermarket chains) and Chairman of the Board and Chief Executive Officer and Director of United Refining Company (a refiner and retailer of petroleum products) for more than five years; Director of News Communications Inc., a public company whose stock is traded over-the-counter, since December 4, 1991.
Martin R. Bring 1988 Member of the law firm of Wolf, Block, (56) Schorr and Solis-Cohen LLP, New York, N.Y. and predecessor firm for more than five years.
Frederick Selby 1978 Chairman of Selby Capital Partners (61) (acquisition and sale of privately owned firms and divisions of public companies) for more than five years.
Kishore Lall 1997 Director of the Company since October, 1997; (51) consultant to Red Apple Group, Inc. from January 1997 to October 1997; private investor from June 1994 to December 1996; Senior Vice President and Head of Commercial Banking ABN AMRO Bank, New York branch from January 1991 until May 1994.
- --------
(1) Mr. Catsimatidis also served as a director of the Company from November 4, 1986 to November 27, 1987.
Position with the Company or Director Other Principal Occupation Name and Age Since for the Past Five Years - ------------ ----- -----------------------------
Dennis E. Berberich 1998 Independent consultant. Prior to January, (60) 1999, President of Canada Dry Bottling Company of New York, a privately held soft drink distributor, for more than ten years prior thereto.
Martin Steinberg 1998 Independent consultant. Mr Steinberg also (65) served as a director of the Company from May 1974 to January 1991.
Stuart Spivak -- Executive Vice President and Chief Financial (62) Officer of the Company since March 17, 1998; Chief Financial Officer of the Food Group for more than ten years prior thereto.
Michael Seltzer -- Vice President and Secretary of the Company (49) since March 17, 1998; Vice President and Controller of the Food Group for more than ten years prior thereto.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires directors and officers of the Company and persons who own more than 10 percent of the Company's common stock to file with the Securities and Exchange Commission (the "Commission") initial reports of ownership and reports of changes in ownership of the common stock. Directors, officers and more than 10 percent stockholders are required by the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required during fiscal 1998, all Section 16(a) filings applicable to its directors, officers and more than 10 percent beneficial owners were timely filed.
Item 11.
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth for the fiscal year ended November 29, 1998, the Transition Period from March 3, 1997 to November 30, 1997 and the fiscal year ended March 2, 1997 certain information concerning the compensation paid or accrued to the Chief Executive Officer of the Company. During these periods, there were no persons serving as executive officers of the Company whose total salary and bonus exceeded $100,000.
Stock Options
No stock options were granted to or exercised by Mr. Catsimatidis during the fiscal year ended November 29, 1998. The following table sets forth certain information with respect to options to purchase Common Stock held by John Catsimatidis on November 29, 1998.
Number of Unexercised Value of Unexercised Options Held on in-the-Money Options on November 29, 1998 November 29, 1998 Name Exercisable/Unexercisable Exercisable/Unexercisable - -------------------------------------------------------------------------------- John Catsimatidis 525,000/0 0/0 - --------------------------------------------------------------------------------
The closing sales price of the Common Stock on the American Stock Exchange on November 25, 1998 (the last trading day before November 29, 1998) was $2.31. On November 29, 1998 Mr. Catsimatidis held options to purchase 275,000 shares of Common Stock at $3.75 per share and options to purchase 250,000 shares at $2.875 per share.
Compensation of Directors
Non-officer directors receive a quarterly stipend of $1,500 and $500 for each meeting attended. Directors who serve on committees receive $250 for each meeting attended.
Compensation Committee Interlocks and Insider Participation
The Board of Directors has a Compensation Committee of which Frederick Selby is currently the sole member. Mr. Selby is not and has never been an employee or officer of the Company. During fiscal 1998 Mr. Selby has had no relationship with the Company requiring disclosure under Item 13. "Certain Relationships and Related Transactions."
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership of Common Stock on February 25, 1999 by: (i) each stockholder known to the Company to own beneficially more than 5% of the outstanding shares of Common Stock; (ii) each of the Company's directors; and (iii) all officers and directors of the Company as a group. The number of shares listed in the table as beneficially owned by John Catsimatidis includes all shares acquired in the Merger. Except as otherwise indicated, the address of each person is c/o Gristede's Sloan's, Inc., 823 Eleventh Avenue, New York, N.Y. 10019-3535. The Company believes that ownership of the shares by the persons named below is both of record and beneficial and such persons have sole voting and investment power with respect to the shares indicated.
Name and Address of Number of Beneficial Owner Shares Percent of Class - ------------------------------------ ------------- ---------------- John Catsimatidis 18,279,750(1) 90.5% Frederick Selby 13,110(2) * Martin Bring 11,000(2) * Kishore Lall 15,000 * Martin Steinberg 112,642 * 2042 Whalen Ave Merrick, NY 11566 Dennis Berberich 20,000 * 128 Montery Ave Pelham, NY 10803 All officers and directors as a group 18,489,502(3) 90.6% (8 persons)
- --------- * Less than 1%.
(1) Includes an aggregate of 12,416,174 shares held by corporations controlled by Mr. Catsimatidis, 13,000 shares held by Mr. Catsimatidis as custodian, 2,057 shares held by a profit sharing plan of which Mr. Catsimatidis is a trustee, 605 shares held by Mr. Catsimatidis as a trustee of individual retirement accounts and currently exercisable options to purchase an aggregate of 525,000 shares of Common Stock.
(2) Includes for each of Messrs. Selby, and Bring an aggregate of 11,000 shares of Common Stock which may be purchased upon the exercise of currently exercisable stock options.
(3) Includes an aggregate of 563,000 shares of Common Stock which may be purchased upon the exercise of currently exercisable stock options.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under a Management Agreement, dated November 10, 1997 (the "Management Agreement"), Namdor Inc., a subsidiary of the Company, performs consulting and managerial services for three supermarkets owned by corporations controlled by John Catsimatidis. In consideration of such services, Namdor Inc. is entitled to receive on a quarterly basis a cash payment of one and one-quarter (1.25%) percent of all sales of inventory and merchandise made at or from the managed supermarkets. During the fiscal year ended November 29, 1998 management fee income was $ 119,000.
On February 6, 1998 the Company purchased substantially all of the assets and assumed certain of the liabilities of a supermarket located at 1644 York Avenue, New York, New York owned by a corporation controlled by John Catsimatidis. The purchase price is to be the value of the supermarket based upon an appraisal to be conducted by a firm selected by a committee of independent directors of the Company less the amount of certain liabilities assumed by the Company. The appraisal will be based on, among other things, a review of the operating statement of the supermarket for the period from February 6, 1998 to a date no earlier than January 31, 1999. The purchase price will be subject to adjustment to the extent that the acquired inventory is greater or less than the sum of trade payables and liabilities for employee vacation and sick pay that have been assumed by the Company. The purchase price will be paid at such time and by such method as shall be recommended by a committee of the independent directors of the Company and approved by the Board of Directors of the Company, John Catsimatidis abstaining.
In consideration of accommodations extended to the Company by H.S. Realty Corp. ("H.S. Realty"), a corporation wholly owned by John Catsimatidis which enabled the Company to consummate the sale of assets of the Company's Howard H. Sweet & Son Inc. subsidiary ("Sweet") to Tiffco Jewelry and Chain Crafts, Inc. ("Tiffco"), on January 23, 1990, the Company, among other things, advanced to H.S. Realty approximately $204,000.
The $204,000 advance was originally to be repayable on the earlier of January 23, 1991 or five days after the sale by H.S. Realty to Tiffco of certain real property leased to Tiffco by H.S. Realty after the sale of assets. Since January 23, 1991, the Board of Directors has extended the repayment date of the advance on an annual basis, the most recent extension being until January 23, 1999 or five days after the sale by H.S. Realty to Tiffco of the Sweet Property. Such indebtedness was fully repaid during the fiscal year ended November 29, 1998.
Effective as of January 1, 1994, the Company entered into Indemnification Agreements with each of its directors and officers other than Kishore Lall. The Company entered into an Indemnification Agreement with Kishore Lall effective as of October 30, 1997, and also entered into Indemnification Agreements with each of Stuart Spivak, and Michael Seltzer effective March 17, 1998, Martin Steinberg effective July 21, 1998 and Dennis Berberich effective August 18, 1998. Said agreements supplement the indemnification provisions of the Company's By-laws and the Delaware General Corporation Law. The stockholders of the Company authorized the Company to enter into such agreements with each of its directors at the Annual Meeting of Stockholders held on August 21, 1987. The Board of Directors has authorized the Company to enter into such agreements with each of its officers.
C & S Acquisition Corp. (formerly, Red Apple Leasing, Inc.,) a corporation wholly owned by John Catsimatidis, leases equipment to the Company. Such leases are primarily for store operating equipment. Obligations under capital leases at November 29, 1998 were $821,305 and require monthly payments of $35,114 through March 1, 2001. Obligations under operating leases were $41,676 per month during fiscal 1998.
Advertising services are provided to the Company by MCV Advertising Associates Inc., a company 85% owned by John Catsimatidis. For the year ended November 29, 1998 the costs incurred were $1,072,544.
On February 27, 1999, John Catsimatidis issued a limited $1,000,000 guarantee of the collection of accounts receivable assigned to the Company as a result of the Merger on November 10, 1997. In order to cover his contingent liability, Mr. Catsimatidis agreed not to permit the liabilities to Mr. Catsimatidis and certain of his affiliates which were assumed by the Company in the Merger to fall below $1,000,000 prior to the issuance of the Company's audited financial statements for the fiscal year ending November 28, 1999.
By virtue of his ownership of Common Stock (see Item 12. "Security Ownership of Certain Beneficial Owners and Management") and his position as Chairman of the Board of the Company, John Catsimatidis may be deemed to be a "parent" of the Company under rules promulgated by the Commission.
The Company leases three locations from Red Apple Real Estate, Inc., a company solely owned by John Catsimatidis. During the 52 weeks ended November 29, 1998 the Company paid to Red Apple Real Estate, Inc. $605,373 for rent and real estate taxes under such leases.
Wolf, Block, Schorr and Solis-Cohen LLP, a law firm of which Martin Bring, a director of the Company, is a member, received fees of approximately $219,035 for rendering legal services to the Company during the 52 weeks ended November 29, 1998.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
A list of all financial statements filed as part of this report is contained in the index to Item 8, which index is incorporated herein by reference.
(2) Financial Statement Schedules
None.
(3) Exhibits
Number Description - ------ ----------- 3.1 Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K of the fiscal year ended February 28, 1990 (the "1990 10-K").
3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended February 27, 1994 (the "1994 10-KSB").
3.3 Amended and Restated Bylaws of the Registrant. Incorporated by reference to Exhibit 3.2 to the 1990 10-K.
3.4 Certificate of Amendment of Certificate of Incorporation of the Company, dated November 4, 1997. Incorporated by reference to Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the transition period ended November 30, 1997 (the "Transition Period 10-K").
10.1 Form of Indemnification Agreement dated as of January 1, 1994 between the Registrant and each director of the Registrant. Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.
10.2 Form of Indemnification Agreement dated as of January 1, 1994 between the Registrant and each officer of the Registrant. Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.
10.3 1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-KSB for the fiscal year ended February 26, 1995 ("1995 10-KSB").
10.4 Director Stock Option Plan. Incorporated by reference to Exhibit 10.13 of the Company's 1995 10- KSB.
10.5 Merger Agreement. Incorporated by reference to Exhibit A to the Company's definitive Proxy Statement for the Special and Annual Meeting of Stockholders of the Company held on October 31, 1997.
10.6 Loan Agreement dated as of November 7, 1997 between the Company, European American Bank ("EAB"), Israel Discount Bank of New York ("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi Trust Company of New York ("Bank Leumi"). Incorporated by reference to Exhibit 10.6 to the Transition Period 10-K. All exhibits and schedules to the Loan Agreement are omitted, but the Registrant undertakes to provide copies of any or all of the foregoing exhibits and schedules to the Securities and Exchange Commission upon its request.
10.7 Management Agreement dated November 10, 1997 between Namdor Inc., G Remainder Corp. and S Remainder Corp. Incorporated by reference to Exhibit 10.7 to the Transition Period 10-K.
10.8 Asset Purchase Agreement between G Remainder Corp. and Gristede's Operating Corp. Incorporated by reference to Exhibit 10.8 to the Transition Period 10-K. All exhibits and schedules to the Asset Purchase Agreement are omitted, but the Registrant undertakes to provide copies of any or all of the foregoing exhibits and schedules to the Securities and Exchange Commission upon its request.
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998 between the Company, IDBNY, Keybank and Bank Leumi. Incorporated by reference to Exhibit 10.9 to the Transition Period 10-K.
10.10 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.10 to the Transition Period 10-K.
10.11 Agreement dated February 27, 1999 between John Catsimatidis and the Company.*
10.12 Second Amendment to Loan Agreement dated as of August 29, 1998 between the Company, European American Bank, Israel Discount Bank of New York, Keybank and Bank Leumi.*
10.13 Third Amendment to Loan Agreement dated as of November 28, 1998 between the Company, European American Bank, Israel Discount Bank of New York, Keybank and Bank Leumi.*
11. Statement re computation of per share income (loss). Not required.
21. Listing of the Company's subsidiaries all of which are wholly owned by the Company.
Subsidiaries State of Incorporation ------------ ---------------------- Namdor Inc. New York SAC Operating Corp. New York Gristede's Operating Corp. New York City Produce Operating Corp. New York RAS Operating Corp. New York
The Registrant has one other wholly-owned subsidiary, the name of which is omitted herein because as of February 25, 1999 it did not constitute a significant subsidiary.
23. Consent of BDO Seidman, LLP Independent Certified Public Accountants.*
27. Financial Data Schedule.
- ---------------------- * Filed herewith.
(b) The Company did not file any Current Reports on Form 8-K during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GRISTEDE'S SLOAN'S, INC.
Dated: March 1, 1999 By: /s/ John A. Catsimatidis ---------------------------------- John A. Catsimatidis Chairman of the Board
Signature Title Date - -------------------------- --------------------------------- -------------
/s/ John A. Catsimatidis Chairman of the Board, President March 1, 1999 - ------------------------- and Chief Executive Office (Chief John A. Catsimatidis Executive Officer and Chief Operating Officer)
/s/ Martin Bring Director March 1, 1999 - ------------------------- Martin Bring
/s/ Frederick Selby Director March 1, 1999 - ------------------------- Frederick Selby
/s/ Kishore Lall Director March 1, 1999 - ------------------------- Kishore Lall
/s/ Stuart Spivak Executive Vice President and Chief March 1, 1999 - ------------------------- Financial Officer (Chief Financial Stuart Spivak Officer and Chief Accounting Officer)
/s/ Martin Steinberg Director March 1, 1999 - ------------------------- Martin Steinberg
/s/Dennis Berberich Director March 1, 1999 - ------------------------- Dennis Berberich
GRISTEDE'S SLOAN'S, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 29, 1998
Number Description
3.1 Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K of the fiscal year ended February 28, 1990 (the "1990 10-K").
3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended February 27, 1994 (the "1994 10-KSB").
3.3 Amended and Restated Bylaws of the Registrant. Incorporated by reference to Exhibit 3.2 to the 1990 10-K.
3.4 Certificate of Amendment of Certificate of Incorporation of the Company, dated November 4, 1997. Incorporated by reference to Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the transition period ended November 30, 1997 (the "Transition Period 10-K").
10.1 Form of Indemnification Agreement dated as of January 1, 1994 between the Registrant and each director of the Registrant. Incorporated by reference to Exhibit 10.11 to the 1994 10-KSB.
10.2 Form of Indemnification Agreement dated as of January 1, 1994 between the Registrant and each officer of the Registrant. Incorporated by reference to Exhibit 10.12 to the 1994 10-KSB.
10.3 1994 Stock Option Plan. Incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-KSB for the fiscal year ended February 26, 1995 ("1995 10-KSB").
10.4 Director Stock Option Plan. Incorporated by reference to Exhibit 10.13 of the Company's 1995 10-KSB.
10.5 Merger Agreement. Incorporated by reference to Exhibit A to the Company's definitive Proxy Statement for the Special and Annual Meeting of Stockholders of the Company held on October 31, 1997.
10.6 Loan Agreement dated as of November 7, 1997 between the Company, European American Bank ("EAB"), Israel Discount Bank of New York ("IDBNY"), Keybank National Association ("Keybank") and Bank Leumi Trust Company of New York ("Bank Leumi"). Incorporated by reference to Exhibit 10.6 to the Transition Period 10-K. All exhibits and schedules to the Loan Agreement are omitted, but the Registrant undertakes to provide copies of any or all of the foregoing exhibits and schedules to the Securities and Exchange Commission upon its request.
10.7 Management Agreement dated November 10, 1997 between Namdor Inc., G Remainder Corp. and S Remainder Corp. Incorporated by reference to Exhibit 10.7 to the Transition Period 10-K.
10.8 Asset Purchase Agreement between G Remainder Corp. and Gristede's Operating Corp. Incorporated by reference to Exhibit 10.8 to the Transition Period 10-K. All exhibits and schedules to the Asset Purchase Agreement are omitted, but the Registrant undertakes to provide copies of any or all of the foregoing exhibits and schedules to the Securities and Exchange Commission upon its request.
10.9 First Amendment and Waiver to Loan Agreement dated April 30, 1998 between the Company, IDBNY, Keybank and Bank Leumi. Incorporated by reference to Exhibit 10.9 to the Transition Period 10-K.
10.10 1998 Stock Option Plan. Incorporated by reference to Exhibit 10.10 to the Transition Period 10-K.
10.11 Agreement dated February 27, 1999 between John Catsimatidis and the Company.*
10.12 Second Amendment to Loan Agreement dated as of August 29, 1998 between the Company, European American Bank, Israel Discount Bank of New York, Keybank and Bank Leumi.*
10.13 Third Amendment to Loan Agreement dated as of November 28, 1998 between the Company, European American Bank, Israel Discount Bank of New York, Keybank Bank and Bank Leumi.*
11. Statement re computation of per share income (loss). Not required.
21. Listing of the Company's subsidiaries all of which are wholly owned by the Company.
Subsidiaries State of Incorporation ------------ ---------------------- Namdor Inc. New York SAC Operating Corp. New York Gristede's Operating Corp. New York City Produce Operating Corp. New York RAS Operating Corp. New York
The Registrant has one other wholly-owned subsidiary, the name of which is omitted herein because as of February 25, 1999 it did not constitute a significant subsidiary.
23. Consent of BDO Seidman, LLP Independent Certified Public Accountants.*
27. Financial Data Schedule.
- ---------------------- * Filed herewith.