Uni-Marts Files, Explores Sale

Economy, suit precipitate bankruptcy; will keep stores open during reorg

STATE COLLEGE, Pa. -- Filing for bankruptcy provides Uni-Marts LLC with the ability to pursue a dual path to maximize returns available to its creditors as well as exploring opportunities to sell the company. Uni-Marts and six subsidiaries filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the District of Delaware, a CSP Daily News Flash reported yesterday. In September 2007, the company hired Matrix Capital Markets Group LLC as its investment banker. Since that time, several strategic investors have expressed interest in buying the company's [image-nocss] stores.

"There has been significant interest in Uni-Marts among potential strategic buyers," said Thomas E. Kelso, managing director of Richmond, Va.-based Matrix. "Uni-Marts is well known in the industry as a solid performer, and the business will fit nicely into other existing chains. A bankruptcy sale creates a real opportunity for the right buyer."

Uni-Marts said it expects to file a motion soon with the Bankruptcy Court seeking approval of a stalking horse bidder to purchase substantially all of the operating assets. Uni-Marts also will seek approval of a competitive bidding and auction process to offer other interested bidders an opportunity to win the right to purchase the stores and supply operations.

The retailer operates a network of 283 company and dealer-operated convenience stores and gas stations in Pennsylvania, New York and Ohio. The company will operate its stores and service its customers without interruption during the reorganization, it said. Uni-Marts will continue to pay its employees in the normal course and also filed a motion with the court seeking to honor its pre-petition employee obligations.

"The overall condition of the economy, aggressive competition in the areas in which we operate, increased fuel and other inventory prices and other matters outside our control have reduced the company's cash reserves which prevented us from executing our business plans and tightened our operating margins," said Henry Sahakian, Uni-Marts founder and CEO. "Additionally in January 2007, certain dealer/operators sued the company related to Uni-Marts' sale of certain stores to the dealers. While we do not believe the company committed any wrongdoing, we agreed to settle the matter in November 2007 in order to avoid further litigation costs. The costs of defending and settling the litigation substantially reduced our cash reserves."

The company is currently in litigation with its insurer due to the insurance company's denial of coverage for this matter.

The company also was on the losing end of a lawsuit in October, in which Uni-Marts LLC was ordered to pay $2 million to owners of convenience stores around Pennsylvania, as well as pay for other services and operating costs, as part of a settlement of a 10-month-old lawsuit, as previously reported by CSP Daily News.

Owners of 172 stores in the commonwealth sued Uni-Mart for "extensive and ongoing wrongful conduct," including the misrepresentation and omission of information in materials soliciting buyers for the stores, said the report. Store owners suffered financially as a result, the lawsuit alleged.

The $2 million was to be split among the owners of 67 stores who will continue to do business with Uni-Mart. The settlement also limited Uni-Mart to selling gasoline to store owners for 2 cents per gallon more than the price at which it was purchased.

It is not known how this settlement may have weighed in the bankruptcy filing.

The company said it believes that it has adequate cash and sufficient cashflows to continue to pay its post-petition creditors according to normal terms; however, to provide an additional back-stop, Uni-Marts has secured, subject to Bankruptcy Court approval, $3.5 million of debtor-in-possession (DIP) financing from SC Capital Group LLC. The DIP agreement will allow Uni-Marts to maintain adequate working capital and have access to additional liquidity throughout its restructuring process.

Uni-Marts Ohio LLC in its bankruptcy documents claimed between 200 and 999 creditors owed between $10 million and $50 million, according to court documents. The company's four largest creditors include it major suppliers, including $8.5 million owed to BP Products North America, $5.3 million owed to Exxon Mobil Corp., $5.1 million owed to Petroleum Products Corp. and $4.6 million owed to McLane Co.

Sahakian noted that Uni-Marts has taken back 61 dealer-run store locations in recent years when those dealers were no longer able to satisfy their ongoing obligations. As a result, the company has dedicated significant time and spent more than $8 million to restock, renovate, reequip, address prime landlord obligations and reopen many of those stores. Despite those efforts, the stores often have taken months to return to their prior sales volumes and profitability.

Uni-Marts anticipates that it will close approximately 45 underperforming company-operated stores in the short-term. "The decision to close stores was difficult but very important in order to maximize the return to creditors through the bankruptcy process. Uni-Marts will realize significant cost savings as a result of the closures. In many cases, the closed stores are near a stronger performing Uni-Mart store that will continue. We regret that there will likely be some instances when we will exit a particular market," Sahakian said. Once the company has finalized its list of stores to close, it will file a motion with the Bankruptcy Court to reject the related leases and exit the stores.

Sahakian concluded, "We are optimistic that we will achieve the expected results and complete the Chapter 11 process soon. Regardless of whether we will sell the company or reorganize and emerge, we are confident that Uni-Marts will be stronger at the end of this process. We have appreciated the tremendous support of our customers, employees and vendors throughout our history and look forward to continued good relations during this important phase."

In 1972, Henry D. Sahakian founded Uni-Marts as a division of Unico Corp., a family-owned real estate company. That same year, he opened his first convenience store in State College, Pa. In December 1986, with 208 stores in operation, Uni-Marts was spun off from Unico and became a publicly traded company on the American Stock Exchange. In July 2004, Uni-Marts finalized a merger and once again became a private company.