S-1/A 1 a2214357zs-1a.htm S-1/A

Table of Contents

As filed with the Securities and Exchange Commission on April 15, 2013

Registration No. 333-184063

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Fairway Group Holdings Corp.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  5411
(Primary Standard Industrial
Classification Code Number)
  74-1201087
(I.R.S. Employer
Identification Number)

2284 12th Avenue
New York, New York 10027
(646) 616-8000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Herbert Ruetsch, Chief Executive Officer
Fairway Group Holdings Corp.
2284 12th Avenue
New York, New York 10027
(646) 616-8000
(Name, address, including zip code, and telephone number, including area code, of agent for service)



With copies to:

Paul Jacobs, Esq.
Roy L. Goldman, Esq.
Steven I. Suzzan, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Telephone (212) 318-3000
Fax (212) 318-3400

 

Nathalie Augustin, Esq.
Senior Vice President—General Counsel
Fairway Group Holdings Corp.
2284 12th Avenue
New York, New York 10027
Telephone (646) 616-8070
Fax (212) 234-2603

 

Robert Evans III, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Telephone (212) 848-4000
Fax (646) 848-8830



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.



          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

           
 
Title of Each Class of Securities
to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Aggregate Offering
Price(2)

  Amount of
Registration Fee(3)

 

Class A common stock, par value $0.00001 per share

  15,697,500   $188,370,000   $22,423.67

 

(1)
Includes the shares of common stock that may be sold if the over-allotment option granted by certain of our stockholders to the underwriters is exercised.

(2)
Estimated solely for the purpose of calculating the registration fee under Rule 457(a) of the Securities Act.

(3)
Previously paid.



          The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

SUBJECT TO COMPLETION, DATED APRIL 15, 2013

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

13,650,000 Shares

LOGO

FAIRWAY GROUP HOLDINGS CORP.

Class A Common Stock



        This is the initial public offering of shares of our Class A common stock. Prior to this offering, there has been no public market for our Class A common stock. We are selling 13,363,564 shares of Class A common stock, and the selling stockholders identified in this prospectus are selling 286,436 shares of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. The initial public offering price of our Class A common stock is expected to be between $10.00 and $12.00 per share. We have applied to list our Class A common stock on the NASDAQ Global Market under the symbol "FWM".

        We have two classes of common stock, Class A common stock and Class B common stock, which have identical rights, except voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes and is convertible at any time into one share of Class A common stock. The holders of our outstanding shares of Class B common stock will hold approximately 85.7% of the voting power of our outstanding capital stock following this offering, and investment funds affiliated with Sterling Investment Partners will hold approximately 72.5% of the voting power of our outstanding capital stock following this offering through their ownership of Class B common stock and approximately 77.1% of the voting power of our outstanding common stock following this offering through their ownership of Class A common stock and Class B common stock.

        We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act.

        Investing in our common stock involves risks. See "Risk Factors" on page 19.

        The underwriters have an option to purchase up to an additional 2,047,500 shares of Class A common stock from certain of our stockholders at the initial public offering price less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments of shares.

 
  Initial public
offering price
  Underwriting
discount
  Proceeds, before
expenses, to
Fairway
  Proceeds to
selling
stockholders
 
Per Share   $     $     $     $    
Total   $     $     $     $    

        Delivery of the shares of Class A common stock will be made on or about                           , 2013.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Credit Suisse   BofA Merrill Lynch   Jefferies   William Blair

BB&T Capital Markets                
    Guggenheim Securities            
        Oppenheimer & Co.        
            Wolfe Trahan Securities    
                Morgan Joseph TriArtisan

   

The date of this prospectus is                           , 2013


GRAPHIC


GRAPHIC


TABLE OF CONTENTS

 
  Page  

BASIS OF PRESENTATION

    ii  

TRADEMARKS AND TRADE NAMES

    ii  

TERMS USED IN THIS PROSPECTUS

    ii  

MARKET AND INDUSTRY DATA

    ii  

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    19  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    46  

USE OF PROCEEDS

    48  

DIVIDEND POLICY

    49  

CAPITALIZATION

    50  

DILUTION

    54  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

    56  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    63  

BUSINESS

    92  

MANAGEMENT

    108  

EXECUTIVE COMPENSATION

    119  

PRINCIPAL AND SELLING STOCKHOLDERS

    132  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    135  

DESCRIPTION OF CERTAIN INDEBTEDNESS

    141  

DESCRIPTION OF CAPITAL STOCK

    143  

SHARES ELIGIBLE FOR FUTURE SALE

    148  

MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS TO NON-U.S. HOLDERS

    150  

UNDERWRITING

    154  

LEGAL MATTERS

    159  

EXPERTS

    159  

WHERE YOU CAN FIND MORE INFORMATION

    159  

INDEX TO FINANCIAL STATEMENTS

    F-1  



        Neither we nor the selling stockholders have authorized anyone to provide you with information or to make any representations other than those contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.


Dealer Prospectus Delivery Obligation

        Until                                    , 2013 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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BASIS OF PRESENTATION

        Our fiscal year is the 52- or 53-week period ending on the Sunday closest to March 31. Our last four completed fiscal years ended on March 28, 2010, April 3, 2011, April 1, 2012 and March 31, 2013. For ease of reference, we identify our fiscal years in this prospectus by reference to the calendar year in which the fiscal year ends. For example, "fiscal 2012" refers to our fiscal year ended April 1, 2012.


TRADEMARKS AND TRADE NAMES

        This prospectus includes our trademarks and service marks, FAIRWAY®, FAIRWAY "Like No Other Market"®, LIKE NO OTHER MARKET® and FAIRWAY WINES & SPIRITS®, which are protected under applicable intellectual property laws and are the property of Fairway. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols. We do not intend our use or display of other parties' trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.


TERMS USED IN THIS PROSPECTUS

        As used in this prospectus, the term "Greater New York City metropolitan area" means New York City and the New York, New Jersey and Connecticut suburbs within a 50 mile radius of New York City. References to "stores in suburban areas" or similar expressions refer to stores located in the Greater New York City metropolitan area outside of the Borough of Manhattan in New York City. References to "Sterling Investment Partners" are to the investment funds managed by affiliates of Sterling Investment Partners that own shares of our common and preferred stock. The term "SKU" refers to inventory stock-keeping units. "Comparable store sales" refers to the percentage change in our same-store sales as compared to the prior comparable period. Our practice is to include sales from a store in same-store sales beginning on the first day of the fourteenth full month following the store's opening. This practice may differ from the methods that other food retailers use to calculate comparable or "same-store" sales. We define "store contribution margin" as gross profit less direct store expenses (excluding depreciation and amortization included in direct store expenses).


MARKET AND INDUSTRY DATA

        Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, such as the Buxton Company, Willard Bishop Consulting LLC, the Food Marketing Institute and other third-party sources (including industry publications, surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors." These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

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PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. You should read this entire prospectus, including the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before deciding to invest in our Class A common stock. Some of the statements in this summary constitute forward-looking statements, with respect to which you should review the section of this prospectus entitled "Special Note Regarding Forward-Looking Statements." Except where the context otherwise requires or where otherwise indicated, (i) the terms "Fairway" "we," "us," "our," "our Company" and "our business" refer to Fairway Group Holdings Corp., together with its consolidated subsidiaries as a combined entity, and (ii) "issuer" refers to Fairway Group Holdings Corp. as the issuer of the Class A common stock in this offering, exclusive of any of its subsidiaries.

Our Company

        Fairway Market is a high-growth food retailer offering customers a differentiated one-stop shopping experience "Like No Other Market". Since beginning as a small neighborhood market in the 1930s, Fairway has established itself as a leading food retailing destination in the Greater New York City metropolitan area, an approximately $30 billion food retail market that is the largest in the United States. Our stores emphasize an extensive selection of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries. Our prices typically are lower than natural / specialty stores and competitive with conventional supermarkets. We believe that the combination of our broad product selection, in-store experience and value pricing creates a premier food shopping experience that appeals to a broad demographic.

        We operate 12 high-volume locations in the Greater New York City metropolitan area, three of which include Fairway Wines & Spirits stores.(1) We expect to open an additional food store in Manhattan's Chelsea neighborhood in summer 2013 and in Nanuet, New York in fall 2013. Four of our food stores, which we refer to as our "urban stores," are located in Manhattan, and the remainder, which we refer to as our "suburban stores," are located in New York (outside of Manhattan), New Jersey and Connecticut.

        We believe our stores are among the most productive in the industry in net sales per store and net sales per square foot as a result of our distinctive merchandising strategies, value positioning and efficient operating structure. We have increased our net sales from $401.2 million in fiscal 2010 to $554.9 million in fiscal 2012, or 38.3%, and our Adjusted EBITDA from $23.9 million in fiscal 2010 to $35.8 million in fiscal 2012, or 49.8%, while significantly investing in corporate infrastructure to support our growth, including new store expansion. We increased our net sales from $404.5 million in the thirty-nine weeks ended January 1, 2012 to $482.5 million in the thirty-nine weeks ended December 30, 2012, or 19.3%, and our Adjusted EBITDA from $24.9 million in the thirty-nine weeks ended January 1, 2012 to $33.8 million in the thirty-nine weeks ended December 30, 2012, or 35.9%, due principally to new store openings and leveraging our infrastructure. We had net losses of $7.1 million, $18.6 million, $11.9 million, $10.0 million and $56.2 million in fiscal 2010, fiscal 2011 and fiscal 2012 and the thirty-nine weeks ended January 1, 2012 and December 30, 2012, respectively. For a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net loss, see note 11 to the tables included in "—Summary Historical Consolidated Financial and Other Data."

   


(1)
Our Red Hook, Brooklyn, New York location was temporarily closed from October 29, 2012 to February 28, 2013 due to substantial damage sustained during Hurricane Sandy.

 

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        Fairway provides a highly differentiated one-stop shopping experience "Like No Other Market".

GRAPHIC


*
The companies shown are companies that we view as strong operators in the category listed.

Our Competitive Strengths

        We believe the following strengths contribute to our success as a premier destination food retailer and position us for sustainable growth:

        Iconic brand.    We believe our Fairway brand has a well established reputation for delivering high-quality, value-priced fresh, specialty and conventional groceries. Fairway has served millions of passionate customers in the Greater New York City metropolitan area for more than 75 years, recording approximately 12.7 million customer transactions in fiscal 2012. We believe the strength of the Fairway brand enhances our ability to: (i) attract a broad demographic of customers from a wider geographic radius than a conventional supermarket; (ii) source hard-to-find, unique gourmet and specialty foods; (iii) build a trusted connection with our customers that results in a high degree of loyalty; (iv) attract and retain highly talented employees; (v) secure attractive real estate locations; and (vi) successfully open new stores.

        Destination food shopping experience "Like No Other Market".    We provide our customers a differentiated one-stop shopping experience by offering a unique mix of product breadth, quality and value in a visually appealing in-store environment. Fairway creates a fun and engaging atmosphere in which customers select from an abundance of fresh foods and other high-quality products while

 

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interacting with our attentive and knowledgeable employees throughout the store. Customers will find in our stores a "specialty shop" orientation designed to recreate the best features of local specialty markets, such as a gourmet cheese purveyor, full service butcher shop, seafood market and bakery, all in one location. We believe the distinctive Fairway food shopping experience drives loyalty, referrals and repeat business.

        Distinctive merchandising strategy.    Our merchandising strategy is the foundation of our highly differentiated, one-stop shopping experience. We offer a unique product assortment generally not found in either conventional grocery stores or natural / specialty stores, consisting of a large variety of high-quality produce, meats and seafood, as well as gourmet, specialty and prepared foods and a full selection of everyday conventional groceries. High-quality perishables and prepared foods account for approximately 65% of our sales, compared to the more typical one-quarter to one-third of a conventional grocer's sales. We believe that our distinctive merchandising strategy has enabled us to build a trusted connection with our customers.

        Powerful store format with industry leading productivity.    We believe our stores are among the most productive in the industry in net sales per store, net sales per square foot and store contribution margin. During fiscal 2012, for food stores open more than 13 full months, our net sales per store and net sales per selling square foot averaged $64.8 million and $1,859, respectively. In addition, during fiscal 2012, the contribution margin of our food stores open more than 13 full months was 12.3%. Our highly productive store format delivers attractive returns on investment due to the following key characteristics:

    High-volume one-stop shopping destination.  Our high volumes result in operating efficiencies and generate high inventory turnover, which enables us to maintain a fresher selection of quality perishables than most of our competitors, in turn helping to drive customer traffic and sales.

    Attractive product mix.  Our broad assortment of high-quality fresh, natural and organic products and prepared foods, which account for approximately 65% of our sales, and specialty items, which account for approximately 7% of our sales, enhance gross margins and store productivity.

    Direct-store delivery.  We believe that our "farm-to-shelf" time is shorter than that of many of our competitors. The majority of our perishables are delivered directly to our stores and not stored in a warehouse during the transport period, reducing supply chain costs while enhancing product freshness.

    Strong vendor relationships.  We have built valued, long-standing relationships with both large and small vendors that enable us to achieve attractive pricing on our broad merchandise offering.

    Maximum merchandising flexibility.  We generally enable our merchandising teams to control our on-shelf product selection and positioning, rather than permitting vendors to do so through slotting fees.

        Proven ability to replicate store model.    Since March 2009, we have successfully opened eight new food stores, including three Fairway Wines & Spirits locations, more than doubling our store base.

        Our urban food store operating model for new stores is based primarily on a store size of approximately 40,000 gross square feet (approximately 25,000 selling square feet), a net cash investment, including store opening costs, of approximately $16 million, not all of which requires an immediate cash outlay, net sales after two years of approximately $75 million to $85 million, a contribution margin at maturity of approximately 17% to 20%, and an average payback period on our initial investment of less than two years.

        Our suburban food store operating model for new stores is based primarily on a store size of approximately 60,000 gross square feet (approximately 40,000 selling square feet), a net cash

 

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investment, including store opening costs, of approximately $15 million, not all of which requires an immediate cash outlay, net sales after two years of approximately $45 million to $55 million, a contribution margin at maturity of approximately 10% to 13%, and an average payback period on our initial investment of approximately 3 to 3.5 years.

        We may elect to opportunistically open stores in desirable locations that differ from our prototypical new store model in square footage and/or net sales but that we believe will provide similar contribution margins and returns on invested capital.

        Passionate and experienced management team.    We are led by a management team with a proven track record, complemented by hands-on senior merchants and store operations managers who have broad responsibility for merchandising and store operations. Our senior merchants have an average of 32 years in the food retailing industry and an average of 14 years at Fairway, and we believe they are widely recognized as authorities in their product categories.

Our Growth Strategy

        We plan to pursue the following growth strategies:

        Open stores in existing and new markets.    We currently plan to open two new stores in fiscal 2014, and for the next several years thereafter, we intend to grow our store base in the Greater New York City metropolitan area at a rate of three to four stores annually. Over time, we also plan to expand Fairway's presence into new, high-density metropolitan markets. Based on demographic research conducted for us by the Buxton Company, a customer analytics research firm, we believe, based on these demographics, we have the opportunity to more than triple the number of stores in our existing marketing region, the Northeast market (from New England to the District of Columbia) can support up to 90 stores and the U.S. market can support more than 300 additional stores (including stores in the Northeast) operating under our current format.

        Capitalize on consumer trends.    We believe that our differentiated format positions us to capitalize on evolving consumer preferences and other key trends currently shaping the food retail industry, which include:

    Increasing focus on the customer shopping experience;

    Increasing consumer focus on healthy eating; and

    Increasing consumer interest in private label product offerings.

        Improve our operating margins.    We intend to improve our operating margins by leveraging our well-developed and scalable infrastructure and continuing to implement our key operating initiatives. We have made significant investments in management, information technology systems, infrastructure, compliance and marketing to enable us to pursue our growth plans without a significant increase in infrastructure spending.

Risks Affecting Our Business

        While we have set forth our competitive strengths above, food retail is a large and highly competitive industry, and our business involves many risks and uncertainties, including:

    our ability to open new stores on a timely basis or at all;

    our ability to achieve sustained sales and profitable operating margins at new stores;

    the availability of financing to pursue our new store openings on satisfactory terms or at all;

    our ability to compete effectively with other retailers;

 

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    our ability to maintain price competitiveness;

    the geographic concentration of our stores;

    our ability to maintain or improve our operating margins;

    our history of net losses;

    ordering errors or product supply disruptions in the delivery of perishable products;

    restrictions on our use of the Fairway name other than on the East Coast and in California and certain parts of Michigan and Ohio;

    our ability to retain and attract senior management, key employees and qualified store-level employees;

    rising costs of providing employee benefits, including increased healthcare costs and pension contributions due to unfunded pension liabilities;

    our ability to satisfy our ongoing capital needs and unanticipated cash requirements;

    funds managed by affiliates of Sterling Investment Partners, which own common stock representing approximately 67.6% of the voting power of our outstanding common stock before this offering and the Exchange referred to below, will, upon completion of this offering, own shares of Class A common stock and Class B common stock representing approximately 52.0% of our outstanding common stock and approximately 77.1% of the voting power of our common stock, enabling them to control all matters submitted to our stockholders and limiting or precluding other stockholders from influencing corporate matters for the foreseeable future;

    we will be a "controlled company" with less stringent requirements concerning the independence of our board of directors and its committees under the corporate governance rules of the NASDAQ Global Market;

    the market price of our Class A common stock may be volatile or may decline, and you may not be able to resell your shares at or above the initial public offering price; and

    we qualify as an "emerging growth company" under the JOBS Act, and as such will be permitted to, and intend to, rely on exemptions from certain accounting and executive compensation disclosure and stockholder advisory vote requirements that are applicable to other public companies.

Investing in our Class A common stock involves substantial risk. The factors that could adversely affect our results and performance, including those identified above, are discussed under the heading "Risk Factors" immediately following this summary. Before you invest in our Class A common stock, you should carefully consider all of the information in this prospectus, including matters set forth under the heading "Risk Factors."

Recent Developments

        Our fourth fiscal quarter and our fiscal year ended on March 31, 2013 and, accordingly, our results for the quarter and fiscal year are not yet available. We track sales on a daily basis and, as a result, based on information available to date, we expect to report total net sales for our fourth fiscal quarter of between $175 million and $178 million, compared to $150 million for the fourth fiscal quarter ended April 1, 2012, and comparable store sales growth of between 2.0% and 2.3% for the fourth quarter of fiscal 2013, compared to (8.1%) for the fourth quarter of fiscal 2012, excluding the Red Hook store in both periods. This growth in net sales was principally due to the three new stores we opened in fiscal 2013, partially offset by the effect of the temporary closure of our Red Hook, Brooklyn, New York store for almost all of the first two months of the fiscal fourth quarter as a result of damages suffered

 

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during Hurricane Sandy, which we expect will negatively impact our financial results for the fourth quarter of fiscal 2013. Sales at the Red Hook store in the fourth quarter of fiscal 2012 for the same period that the Red Hook store was closed in the fourth quarter of fiscal 2013 were approximately $12 million. We reopened our Red Hook store on March 1, 2013, and for the month of March 2013 our net sales at our Red Hook store were approximately 13% greater than our net sales at that store in March 2012, due in part to increased promotional activities associated with the reopening of the store. The occurrence of the Easter and Passover holidays in the fourth quarter of fiscal 2013, but not in the fourth quarter of fiscal 2012, may have modestly impacted our sales growth rates for the quarter.

        We have provided ranges for the information above because our fiscal quarter just ended and we have not completed our financial closing procedures. Our independent registered public accounting firm has not audited, reviewed, compiled or performed any procedures with respect to such information. Our independent registered public accounting firm is in the process of beginning its review of our financial statements for the fiscal quarter and fiscal year ended March 31, 2013. We currently expect that our final results will be consistent with the estimates described above. However, the estimates described above are preliminary and represent the most current information available to management. Our presentation of net sales without other financial measures does not provide a complete presentation of our results of operations and financial condition for fiscal 2013. As described under "Risk Factors," we expect to incur net losses through at least fiscal 2014. Please refer to the section entitled "Cautionary Statement Regarding Forward-Looking Statements" in this prospectus for additional information.

Exchange

        On April 12, 2013, we completed an internal recapitalization pursuant to which we effected a 118.58-for-one stock split and reclassified our outstanding common stock into shares of Class A common stock. As a result of the stock split and reclassification, our outstanding warrants became warrants to purchase 1,930,822 shares of Class A common stock. At the closing of this offering, we will issue 15,504,296 shares of our Class B common stock, of which 33,576 shares will automatically convert into 33,576 shares of Class A common stock at the closing of this offering, in exchange for our outstanding preferred stock (including accrued dividends thereon that are not being paid in cash with a portion of the proceeds of this offering). See "Use of Proceeds." For ease of reference, we collectively refer to the 118.58-for-one stock split, reclassification of our outstanding common stock into shares of Class A common stock and issuance of shares of Class B common stock in exchange for our preferred stock as the "Exchange." Our authorized capital stock consists of 150,000,000 shares of Class A common stock, par value $0.00001 per share, 31,000,000 shares of Class B common stock, par value $0.001 per share, and 5,000,000 shares of undesignated preferred stock, par value $0.001 per share. See "Description of Capital Stock."

Corporate Information

        The issuer was incorporated as a Delaware corporation on September 29, 2006. Our corporate headquarters is located at 2284 12th Avenue, New York, New York 10027. Our telephone number is (646) 616-8000. Our website address is http://www.fairwaymarket.com. The information on our website is not deemed, and you should not consider such information, to be part of this prospectus.

Implications of Being an Emerging Growth Company

        We qualify as an "emerging growth company" as defined in the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies. Accordingly, we have included only four, rather than five, years of selected financial data due to a change in our fiscal year, included detailed compensation information for only our three most highly compensated executive officers and

 

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not included a compensation discussion and analysis (CD&A) of our executive compensation programs in this prospectus. In addition, for so long as we are an emerging growth company, we will not be required to:

    have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act");

    comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (the "PCAOB") regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

    submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay", "say-on-frequency" and "say-on-golden parachutes"; and

    disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation.

        While we are an emerging growth company the JOBS Act also permits us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay the adoption of new or revised accounting pronouncements applicable to public and private companies until such pronouncements become mandatory for private companies.

        We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1 billion or more in annual gross revenues; (ii) the end of fiscal 2019; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter.

 

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THE OFFERING

Class A common stock offered by us

  13,363,564 shares.

Class A common stock offered by the selling stockholders

 

286,436 shares.

Class A common stock to be outstanding immediately after this offering

 

25,767,540 shares.

Class B common stock to be outstanding immediately after this offering

 

15,470,720 shares.

Total Class A common stock and Class B common stock to be outstanding immediately after this offering

 

41,238,260 shares.

Underwriters' option to purchase additional shares of Class A common stock from certain of our stockholders

 

2,047,500 shares.

Use of proceeds

 

We estimate that our net proceeds from this offering will be approximately $133.4 million, assuming an initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds that we receive from this offering for new store growth and other general corporate purposes, after (i) paying accrued but unpaid dividends on our Series A preferred stock totaling approximately $16.2 million (averaging $376.16 per share of Series A preferred stock), (ii) paying accrued but unpaid dividends on our Series B preferred stock totaling approximately $48.8 million ($762.35 per share of Series B preferred stock), (iii) paying $9.2 million to an affiliate of Sterling Investment Partners in connection with the termination of our management agreement with such affiliate and (iv) paying contractual initial public offering bonuses to certain members of our management totaling approximately $7.3 million.

 

If the price per share to the public is below $11.00, which is the midpoint of the price range set forth on the cover page of this prospectus, we intend to proportionately reduce the amount of the net proceeds we use to pay the accrued dividends on our preferred stock, and if the price per share to the public is above $11.00, we intend to proportionately increase the amount of the net

   

 

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proceeds we use to pay the accrued dividends on our preferred stock. The number of shares of Class B common stock that we issue in exchange for our preferred stock (including accrued dividends thereon that are not being paid in cash with a portion of the proceeds of this offering) will not change if we decrease or increase the amount of accrued dividends we pay in cash with the net proceeds of this offering.

 

The accrued dividends of $12,597,184 on the Series A preferred stock that are not paid in cash and the liquidation preference of the Series A preferred stock of $55,975,400 will be satisfied through the issuance of 6,233,871 shares of Class B common stock in connection with this offering. We received $43,058,000 in the aggregate, or $1,000 per share, upon the issuance of the Series A preferred stock. The accrued dividends of $37,957,698 on the Series B preferred stock that are not paid in cash and the liquidation preference of the Series B preferred stock of $64,016,980 will be satisfied through the issuance of 9,270,425 shares of Class B common stock in connection with this offering. We received $51,278,000 in the aggregate, or $1,000 per share, upon the issuance of the Series B preferred stock. In addition, we issued Series B preferred stock having a value of $12,738,980 to the sellers in connection with our acquisition of the four then existing Fairway stores in January 2007.

 

We will not receive any proceeds from the sale of shares being sold by the selling stockholders.

 

See "Use of Proceeds."

Risk factors

 

Investing in shares of our Class A common stock involves a high degree of risk. See "Risk Factors" beginning on page 19 of this prospectus for a discussion of factors you should carefully consider before investing in shares of our Class A common stock.

Voting rights

 

Shares of Class A common stock are entitled to one vote per share.

 

Shares of Class B common stock are entitled to ten votes per share.

   

 

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Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law. Investment funds affiliated with Sterling Investment Partners, which after our initial public offering will control approximately 77.1% of the voting power of our outstanding capital stock, will have the ability to control the outcome of all matters submitted to our stockholders for approval, including the election of our directors. See "Description of Capital Stock."

 

All outstanding shares of Class A common stock and Class B common stock will automatically convert into a single class of common stock when Sterling Investment Partners and its permitted transferees no longer own any shares of Class B common stock.

Proposed NASDAQ Global Market symbol

 

"FWM".

Reserved Share Program

 

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 682,500 of the shares offered by this prospectus for sale to some of our directors, officers, employees and related persons.

        The table below sets forth information concerning IPO-related bonuses that will be received by certain of our directors and officers and net offering proceeds that will be received by the selling stockholders in this offering:

Name
  Position   IPO-Related
Bonuses(1)
  Net Offering
Proceeds
 

Howard Glickberg

  Director and Vice Chairman of Development   $ 1,840,000 (2)    

Herbert Ruetsch

  Chief Executive Officer   $ 678,792   $ 279,003  

Nathalie Augustin

  Senior Vice President—General Counsel and Secretary   $ 150,000      

Kevin McDonnell

  Senior Vice President—Chief Operating Officer   $ 220,440      

Brian Riesenburger

  Senior Vice President—Chief Merchandising Officer   $ 678,792   $ 279,003  

Charles Farfaglia

  Vice President—Human Resources   $ 220,440      

Steven Jenkins

  Vice President—Specialty Products   $ 678,792   $ 279,003  

Peter Romano

  Vice President—Produce   $ 678,792   $ 279,003  

John Rossi

  Vice President—Deli & Bakery   $ 678,792   $ 279,003  

Paul Weiner

  Vice President—Organic Groceries   $ 678,792   $ 140,223  

Daniel Glickberg

  Former Director and Vice President   $ 145,000   $ 1,395,004  

Randi Glickberg

  Vice President   $ 647,266      

(1)
Assumes an initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Certain of these bonuses are based on the net proceeds we receive in this offering or the valuation of us based on this offering and therefore will increase if the initial offering price is above $11.00 per share or will decrease if the initial public offering price is below $11.00 per share.

(2)
Does not include IPO-related bonuses to be paid to Mr. Glickberg's sister and adult son.

 

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        Unless otherwise indicated, all information in this prospectus relating to the number of shares of capital stock outstanding immediately after this offering:

    gives effect to a 118.58-for-one stock split and the reclassification of our outstanding common stock into shares of Class A common stock, including the effect of the stock split and reclassification on our outstanding warrants;

    gives effect to the issuance of 15,504,296 shares of our Class B common stock in exchange for our outstanding preferred stock (including the accrued dividends thereon that are not paid in cash with a portion of the proceeds of this offering), of which 33,576 shares will automatically convert into 33,576 shares of Class A common stock at the closing of this offering;

    excludes an aggregate of 2,296,838 shares of our Class A common stock subject to restricted stock unit ("RSUs") awards to be granted under our 2013 Long-Term Incentive Plan in connection with this offering, 1,135,772 shares of Class A common stock issuable upon the exercise of options to be granted under our 2013 Long-Term Incentive Plan in connection with this offering, 2,039,526 shares of Class A common stock reserved for future grants under our 2013 Long-Term Incentive Plan and 1,930,822 shares of our Class A common stock reserved for issuance upon the exercise of outstanding warrants; and

    assumes (i) no exercise by the underwriters of their option to purchase up to 2,047,500 additional shares of Class A common stock from certain of our stockholders; and (ii) an initial public offering price of $11.00 per share, the midpoint of the initial public offering price range indicated on the cover page of this prospectus.

 

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Summary Historical Consolidated Financial and Other Data

        The following tables summarize our financial data as of the dates and for the periods indicated. We have derived the summary consolidated financial data for the fiscal years ended March 29, 2009, March 28, 2010, April 3, 2011 and April 1, 2012 from our audited consolidated financial statements for such years and for the thirty-nine weeks ended January 1, 2012 and December 30, 2012 from our unaudited consolidated financial statements for such periods. Our audited consolidated financial statements as of April 3, 2011 and April 1, 2012 and for the fiscal years ended March 28, 2010, April 3, 2011 and April 1, 2012 have been included in this prospectus. Our unaudited consolidated financial statements as of December 30, 2012 and for the thirty-nine weeks ended January 1, 2012 and December 30, 2012 have been included in this prospectus and, in the opinion of management, include all adjustments (inclusive only of normally recurring adjustments) necessary for a fair presentation. Results of operations for an interim period are not necessarily indicative of results for a full year. Each of our fiscal years ended March 29, 2009, March 28, 2010 and April 1, 2012 consists of 52 weeks; our fiscal year ended April 3, 2011 consists of 53 weeks. The differing length of certain fiscal years may affect the comparability of certain data and the temporary closure of our Red Hook, Brooklyn, New York store due to damage sustained during Hurricane Sandy may affect the comparability of certain data for the thirty-nine weeks ended January 1, 2012 and December 30, 2012.

        Since March 2009, we have opened eight food stores (two urban and six suburban) in the Greater New York City metropolitan area, three of which include Fairway Wines & Spirits locations, bringing our total stores open to 12. During fiscal 2013 we opened our Woodland Park, New Jersey store in June 2012, our Westbury, New York store in August 2012 and our Kips Bay, Manhattan, New York store in late December 2012. We had to temporarily close our Red Hook, Brooklyn, New York store from October 29, 2012 through February 28, 2013 due to damage from Hurricane Sandy. Our income (loss) from operations in each period shown has been affected by the number of stores open and the number of stores in the process of being opened in each period and, for the thirty-nine weeks ended December 30, 2012, the temporary closure of our Red Hook store.

        We believe our food stores are among the most productive in the industry in net sales per store and net sales per square foot as a result of our distinctive merchandising strategies, value proposition and efficient operating structure. As the Selected Operating Data table reflects, however, our average net sales per store and average net sales per gross square foot have declined as we have increased the number of suburban stores that we operate. Our suburban stores are larger in size (average of approximately 65,000 gross square feet (approximately 39,000 selling square feet)) than our urban stores that have greater real estate constraints (average of approximately 51,000 gross square feet (approximately 23,000 selling square feet)) and generate comparatively lower sales and contribution margin.

        While we have increased our net sales from $401.2 million in fiscal 2010 to $554.9 million in fiscal 2012, or 38.3%, and our Adjusted EBITDA from $23.9 million in fiscal 2010 to $35.8 million in fiscal 2012, or 49.8%, our comparable store sales have been impacted by sales transfer from our existing stores to our newly opened stores that are in closer proximity to some of our customers and by our price optimization initiative. As we open new stores in closer proximity to our customers who currently travel longer distances to shop at our stores, we expect some of these customers to take advantage of the convenience of our new locations. As a result, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to new, closer locations. However, we believe that by making shopping at our stores for those customers who travel longer distances more convenient, our overall sales to these customers will increase as they increase the frequency and amount of purchases from our stores. We launched our price optimization initiative across our store network late in fiscal 2011 to refine the pricing and balance of our promotional activities across our mix of higher-margin perishable items and

 

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everyday value-oriented conventional grocery items. Our price optimization initiative has resulted in an increase in our gross margins.

        The summary historical consolidated data presented below should be read in conjunction with the sections entitled "Risk Factors," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes and other financial data included elsewhere in this prospectus.

Statement of Income Data

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 29,
2009(1)
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
  (dollars in thousands, except for per share data)
 

Net sales(2)

  $ 343,106   $ 401,167   $ 485,712   $ 554,858   $ 404,527   $ 482,539  

Cost of sales and occupancy costs(3)

    230,912     271,599     326,207     368,728     269,641     326,808  
                           

Gross profit(4)

    112,194     129,568     159,505     186,130     134,886     155,731  

Direct store expenses

    70,371     85,840     109,867     132,446     97,659     111,362  

General and administrative expenses(5)

    28,998     34,676     40,038     44,331     30,598     39,746  

Store opening costs(6)

    3,066     3,949     10,006     12,688     11,181     19,349  
                           

Income (loss) from operations

    9,759     5,103     (406 )   (3,335 )   (4,552 )   (14,726 )

Business interruption insurance recoveries(7)

                        2,500  

Interest expense, net

    (10,279 )   (13,787 )   (19,111 )   (16,918 )   (12,370 )   (17,439 )

Loss on early extinguishment of debt(8)

        (2,837 )   (13,931 )            
                           

Loss before income taxes

    (520 )   (11,521 )   (33,448 )   (20,253 )   (16,922 )   (29,665 )

Income tax benefit (provision)(9)

    851     4,426     14,860     8,304     6,940     (26,514 )
                           

Net income (loss)

  $ 331   $ (7,095 ) $ (18,588 ) $ (11,949 ) $ (9,982 ) $ (56,179 )
                           

Net loss attributable to common stockholders(10)

  $ (10,836 ) $ (23,750 ) $ (39,021 ) $ (36,677 ) $ (28,518 ) $ (78,289 )
                           

Net (loss) per share attributable to common stockholders (basic and diluted)(10)

  $ (0.89 ) $ (1.95 ) $ (3.22 ) $ (3.01 ) $ (2.33 ) $ (6.35 )

Net income (loss) per share (pro forma) basic and diluted(10)

  $ 0.02   $ (0.34 ) $ (0.84 ) $ (0.51 ) $ (0.43 ) $ (2.19 )

Weighted average number of common shares outstanding (in 000s)(10)

                                     

Basic and diluted

    12,187     12,190     12,122     12,189     12,245     12,324  

Pro forma basic and diluted

    18,027     20,945     22,151     23,588     23,999     25,703  

Other Financial Data

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 29,
2009
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
  (dollars in thousands)
 

Adjusted EBITDA(11)

  $ 21,785   $ 23,874   $ 29,309   $ 35,775   $ 24,905   $ 33,842  

Depreciation and amortization

  $ 7,175   $ 10,233   $ 14,588   $ 19,202   $ 13,937   $ 15,900  

Capital expenditures

  $ 21,650   $ 21,658   $ 27,797   $ 44,528   $ 35,591   $ 45,199  

Gross margin(12)

    32.7 %   32.3 %   32.8 %   33.5 %   33.3 %   32.3 %

Adjusted EBITDA margin(13)

    6.3 %   6.0 %   6.0 %   6.4 %   6.2 %   7.0 %

Pro forma Adjusted EBITDA margin(13)(14)

    6.3 %   6.0 %   6.0 %   6.4 %   6.2 %   6.8 %

 

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Selected Operating Data

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended
 
  March 29,
2009
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012

Locations at end of period(15)

  5   5   7   9   9   12

Total gross square feet at end of period

  292,774   292,774   454,146   552,900   552,900   741,375

Change in square footage for period(16)

  20.7%     55.1%   21.7%   21.7%   34.1%

Average store size

                       

Gross square feet

  58,555   58,555   64,878   61,433   61,433   61,781

Selling square feet(17)

  31,157   31,157   36,348   34,976   34,976   35,417

Average net sales per square foot

                       

Gross square foot(18)

  $1,409   $1,370   $1,307   $1,029   $779   $836

Selling square foot(18)

  $2,774   $2,575   $2,457   $1,859   $1,407   $1,461

Average net sales per store per week ($000)(19)

  $1,642   $1,543   $1,472   $1,246   $1,257   $1,242

Comparable store sales growth (decrease) per period(20)

  10.1%   0.5%   (4.3)%   (7.9)%   (7.8)%   (3.5)%

New stores opened in period (location/date)  
 
 
    

  Paramus, NJ
(3/2009)  
  
    
  —  
  
  
    
  Pelham Manor, NY
(4/2010);
Stamford, CT
(11/2010)
  Upper East Side, NY
(7/2011);
Douglaston, NY
(11/2011)
  Upper East Side, NY
(7/2011);
Douglaston, NY
(11/2011)
  Woodland Park, NJ
(6/2012)
Westbury, NY
(8/2012)
Kips Bay, NY
(12/2012)

Balance Sheet Data

 
  As of December 30, 2012    
 
 
  Actual   Pro Forma(21)   Pro Forma
As Adjusted(22)
 
 
  (dollars in thousands)
   
 

Cash and cash equivalents(23)

  $ 29,172   $ 23,392   $ 75,339  

Total assets

    339,178     334,227     385,297  

Total debt(24)

    254,627     259,390     259,390  

Redeemable preferred stock

    226,533     226,533      

Total stockholders' (deficit) equity

    (219,570 )   (226,539 )   51,063  

(1)
Amounts have been reclassified to match presentation of subsequent years.

(2)
Our Red Hook store was temporarily closed beginning October 29, 2012 due to damage sustained in Hurricane Sandy. During the period in the prior fiscal year corresponding to the period in the current fiscal year that this store was closed, net sales at the Red Hook store were approximately $12.7 million.

(3)
Excludes depreciation and amortization.

(4)
Our Red Hook store was temporarily closed beginning October 29, 2012 due to damage sustained in Hurricane Sandy. Management estimates that during the period in the prior fiscal year corresponding to the period in the current fiscal year that this store was closed, the Red Hook store generated approximately $4 million of gross profit.

(5)
In the thirty-nine weeks ended December 30, 2012, we recognized approximately $3.0 million for reimbursable ongoing business expenses and remediation costs incurred in connection with Red Hook and recorded this amount as a reduction in general and administrative expense, a direct offset to the associated expenses.

(6)
Costs (principally payroll, rent expense and real estate taxes) incurred in opening new stores are expensed as incurred. During fiscal 2009, we incurred $3.1 million of store opening costs related to the store we opened during fiscal 2009. During fiscal 2010 and fiscal 2011, we incurred $3.9 million and $6.8 million, respectively, of store opening costs related to the two stores we opened during fiscal 2011. During fiscal 2011 and fiscal 2012, we incurred $3.2 million and $11.9 million, respectively, of store opening costs related to the two stores we opened during fiscal 2012. During fiscal 2012, we incurred $0.7 million of store opening costs related to the store we opened in the first quarter of fiscal 2013. During the thirty-nine weeks ended January 1, 2012, we incurred $11.2 million of store

 

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    opening costs related to the two stores we opened during fiscal 2012 and during the thirty-nine weeks ended December 30, 2012, we incurred $18.9 million and $400,000 of store opening costs related to the three stores we opened in that period and the reopening of our Red Hook, Brooklyn, New York store, respectively.

(7)
Represents non-refundable reimbursement from our insurance carriers for business interruption losses sustained due to the temporary closure of our Red Hook store as a result of damage sustained during Hurricane Sandy.

(8)
In fiscal 2010, we incurred a loss on early extinguishment of debt in connection with the refinancing of our then existing first and second lien credit agreements. In fiscal 2011, we incurred a loss on early extinguishment of debt in connection with the refinancing of our then existing credit agreement with our 2011 senior credit facility that we subsequently refinanced in August 2012.

(9)
During the thirteen weeks ended December 30, 2012, we recorded a partial valuation allowance against our December 30, 2012 deferred tax asset. See Note 13 to our financial statements appearing elsewhere in this prospectus.

(10)
Common stockholders do not share in net income unless earnings exceed the unpaid dividends on our preferred stock. Accordingly, prior to this offering, there were no earnings available for common stockholders because in fiscal 2010, fiscal 2011, fiscal 2012 and the thirty-nine weeks ended January 1, 2012 and December 30, 2012 we reported a net loss and in fiscal 2009 unpaid dividends exceeded our net income. During any period in which we had a net loss, the loss was attributed only to the common stockholders. Net income (loss) per share (pro forma basic and diluted) and the pro forma weighted average number of shares gives effect to the exchange of our then outstanding preferred stock (including accrued but unpaid dividends thereon that exceed the portion of the proceeds of this offering being utilized to pay accrued dividends) for shares of our Class B common stock based on a price of $11.00 per share, as if such exchange had occurred on the last day of each period. We will not have any preferred stock outstanding after the completion of this offering.

A reconciliation of the denominator used in the calculation of pro forma basic and diluted net income (loss) per common share is as follows:

 
  Fiscal Year Ended   Thirty-Nine Weeks
Ended
 
 
  March 29,
2009
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
  (in thousands)
 

Weighted average number of common shares outstanding, basic and diluted

    12,187     12,190     12,122     12,189     12,245     12,324  

Issuance of shares in the Exchange

    5,840     8,755     10,029     11,399     11,154     13,379  
                           

Weighted average number of common shares outstanding, pro forma basic and diluted

    18,027     20,945     22,151     23,588     23,399     25,703  
                           

    Our Class A common stock and Class B common stock will share equally on a per share basis in our net income or net loss.

(11)
We present Adjusted EBITDA, a non-GAAP measure, in this prospectus to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures can provide alone. Our board of directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives. In addition, the financial covenants in our senior credit facility are based on Adjusted EBITDA, subject to dollar limitations on certain adjustments.

We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, amortization of deferred financing costs, store opening costs, loss on early extinguishment of debt, non-recurring expenses and management fees. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors' ability to

 

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    make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of owned property, and because in our experience, whether a store is new or one that is fully or mostly depreciated does not necessarily correlate to the contribution that such store makes to operating performance. We will not be paying management fees following the consummation of this offering. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

    The use of Adjusted EBITDA has limitations as an analytical tool and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net income (loss). Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness; and (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

    To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this prospectus and the reconciliation to Adjusted EBITDA from net income (loss), the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.

 
  Fiscal Year Ended   Thirty-Nine Weeks
Ended
 
 
  March 29,
2009
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
  (dollars in thousands)
 

Net income (loss)(a)

  $ 331   $ (7,095 ) $ (18,588 ) $ (11,949 ) $ (9,982 ) $ (56,179 )

Interest expense, net(b)

    10,279     13,787     19,111     16,918     12,370     17,439  

Depreciation and amortization expense

    7,175     10,233     14,588     19,202     13,937     15,900  

Income tax (benefit) provision(c)

    (851 )   (4,426 )   (14,860 )   (8,304 )   (6,940 )   26,514  

Store opening costs(d)

    3,066     3,949     10,006     12,688     11,181     19,349  

Loss on early extinguishment of debt(e)

        2,837     13,931              

Non-recurring items(f)

    1,285     3,378     3,541     4,573     2,819     8,187  

Management fees(g)

    500     1,211     1,580     2,647     1,520     2,632  
                           

Adjusted EBITDA

  $ 21,785   $ 23,874   $ 29,309   $ 35,775   $ 24,905   $ 33,842  
                           

(a)
See notes 2, 4, 7 and 9 above.

(b)
Includes amortization of deferred financing costs.

(c)
See note 9 above.

(d)
See note 6 above.

(e)
See note 8 above.

(f)
Consists principally of recruiting costs relating to the strengthening of our management team, severance costs associated with the termination of employment of certain executives and, in fiscal 2011 and fiscal 2012, bringing

 

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    our systems and procedures into compliance with the Sarbanes-Oxley Act. The thirty-nine weeks ended December 30, 2012 also includes costs associated with our August 2012 re-financing and pre-offering related costs.

(g)
Represents management fees paid to an affiliate of Sterling Investment Partners pursuant to an agreement that will terminate upon the consummation of this offering in exchange for a payment of $9.2 million.
(12)
We calculate gross margin by subtracting cost of sales and occupancy costs from net sales and dividing by our net sales for each of the applicable periods. Gross margin does not give effect to lost net sales and gross profit attributable to the temporary closure of the Red Hook, Brooklyn location following Hurricane Sandy. See notes (2) and (4) above.

(13)
We calculated Adjusted EBITDA margin by dividing our Adjusted EBITDA by our net sales for each of the applicable periods. We present Adjusted EBITDA margin because it is used by management as a performance measure of Adjusted EBITDA generated from net sales. See note 11 above for further information regarding how we calculate Adjusted EBITDA, which is a non-GAAP measure. In calculating Adjusted EBITDA margin for the thirty-nine weeks ended December 30, 2012, Adjusted EBITDA includes the $2.5 million of business interruption insurance recoveries we received, approximating the lost EBITDA of the Red Hook, Brooklyn location during the period it was closed, but net sales does not include any net sales for the period the store was closed. See note 14 below. Sales at certain of our other stores may have benefitted from customers of our Red Hook store shopping at our other stores while the Red Hook store was temporarily closed. See note 2 above.

(14)
We calculated pro forma Adjusted EBITDA margin as described in note 13 above, except that for the thirty-nine weeks ended December 30, 2012, we added to net sales $12.7 million, representing our net sales at Red Hook during the period in fiscal 2012 corresponding to the same period in fiscal 2013 that the store was temporarily closed.

(15)
The food stores and adjacent Fairway Wines & Spirits locations in Pelham Manor and Stamford, respectively, are considered as one store location in the number of stores and square footage.

(16)
For the thirty-nine week periods, represents the percentage change since the end of the comparable period in the prior fiscal year.

(17)
Excludes the square footage of the kitchen, bakery, meat department, produce coolers and storage in our stores.

(18)
The amount for fiscal 2011 has been decreased (by subtracting one week of average weekly net sales) to reflect a 52-week year so as to be comparable to fiscal 2009, 2010 and 2012. Stores not open for the entire fiscal period have been excluded. Does not include net sales from our Fairway Wines & Spirits locations. For the thirty-nine week periods ended January 1, 2012 and December 30, 2012, excludes our Red Hook store due to its temporary closure as a result of damages suffered during Hurricane Sandy.

(19)
We calculated average net sales per store per week by dividing net sales by the number of stores open during the entire fiscal period and then dividing by the number of weeks in the fiscal period. Does not include net sales from our Fairway Wines & Spirits locations. For the thirty-nine week periods ended January 1, 2012 and December 30, 2012, excludes our Red Hook store due to its temporary closure as a result of damages suffered during Hurricane Sandy.

(20)
Represents the percentage change in our same-store sales as compared to the prior comparable period. Our practice is to include sales from a store in same-store sales beginning on the first day of the fourteenth full month following the store's opening. This practice may differ from the methods that other food retailers use to calculate comparable or "same-store" sales. As a result, data in this prospectus regarding our same-store sales may not be comparable to similar data made available by other food retailers. Comparable same store sales for fiscal 2011 has been adjusted (by subtracting one week of average weekly net sales) to reflect a 52-week year so as to be comparable to fiscal 2009, 2010 and 2012. Does not include net sales from our Fairway Wines & Spirits locations. For the thirty-nine week periods ended January 1, 2012 and December 30, 2012, excludes our Red Hook store due to its temporary closure as a result of damages suffered during Hurricane Sandy.

(21)
Gives effect to (i) our entry into a new senior credit facility on February 14, 2013, consisting of a $275 million term loan facility and a $40 million revolving credit facility, with the proceeds of the term loan facility being used to repay $264.5 million of outstanding borrowings (including accrued interest) under our prior senior credit facility, pay fees and expenses and provide us with $3.5 million to repay our outstanding subordinated note, (ii) our repayment of our outstanding subordinated note (including accrued interest) and (iii) our repurchase of 129,963 shares of Class A common stock for $1.5 million, as if such transactions had occurred on December 30, 2012.

(22)
Gives effect to: (i) the Exchange; (ii) the closing of our new senior credit facility, repayment of our outstanding subordinated note and repurchase of Class A common stock described in note 21 above; (iii) our receipt of estimated net proceeds from our issuance and sale of 13,363,564 shares of Class A common stock in this offering at an assumed initial public offering price of $11.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us (adjusted for approximately $1.0 million of offering expenses paid by us prior to December 30, 2012); and (iv) the use of

 

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    the net proceeds that we receive from this offering to pay accrued dividends on our preferred stock of $65.0 million, pay $9.2 million to an affiliate of Sterling Investment Partners in connection with the termination of our management agreement with such affiliate, and pay contractual initial public offering bonuses to certain members of our management totaling approximately $7.3 million, in each case as if such transactions had occurred on December 30, 2012.

(23)
The following table shows the pro forma and pro forma as adjusted adjustments to cash and cash equivalents as a result of the refinancing of our 2012 senior credit facility in February 2013, the repayment of our outstanding subordinated promissory note in March 2013, the repurchase of shares of our Class A common stock in March 2013 and the net proceeds of the offering to us after (a) deducting underwriting discounts and commissions and estimated offering expenses payable by us (adjusted for approximately $1.0 million of offering expenses paid by us prior to December 30, 2012), (b) paying accrued dividends on our preferred stock of $65.0 million, (c) paying $9.2 million to an affiliate of Sterling Investment Partners in connection with the termination of our management agreement with such affiliate and (d) paying contractual initial public offering bonuses to certain members of our management totaling approximately $7.3 million, as described under "Use of Proceeds":

As of December 30, 2012
  (dollars in thousands)  

Actual cash and cash equivalents

  $ 29,172  

Plus: proceeds to us from our 2013 senior credit facility after repaying outstanding loans under our 2012 senior credit facility and fees and expenses

    3,453  

Less: repayment of principal and accrued interest on subordinated promissory note

    (7,733 )

Less: repurchase of shares of Class A common stock

    (1,500 )
       

Pro forma cash and cash equivalents

    23,392  

Plus: net cash proceeds to us from this offering

    51,947  
       

Pro forma as adjusted cash and cash equivalents

  $ 75,339  
       
(24)
Net of unamortized original issue discount on our senior debt of $12.1 million actual and $15.6 million pro forma and pro forma as adjusted and accrued deferred interest on our subordinated note of $240,000 actual. The accrued deferred interest, the payment of which was deferred until maturity and classified as other long-term liabilities in our financial statements, was paid in full in connection with the repayment of our outstanding subordinated note. See Notes 8 and 17 to our financial statements included elsewhere in this prospectus for more information regarding our original issue discount.

 

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RISK FACTORS

        Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase shares of our Class A common stock. If any of the following risks actually occur, our business, financial condition, results of operations, cash flow and prospects could be materially and adversely affected. As a result, the trading price of our Class A common stock could decline and you could lose all or part of your investment in our Class A common stock. Before deciding whether to invest in our Class A common stock, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and related notes.

Risks Relating to Our Business

         Our continued growth depends on new store openings and on increasing same store sales, and our failure to achieve these goals could negatively impact our results of operations and financial condition.

        Our growth strategy depends, in large part, on opening new stores in existing and new areas and operating those stores successfully. Successful implementation of this strategy is dependent on finding suitable locations and negotiating acceptable lease terms for store sites, and we face competition from other retailers for such sites. There can be no assurance that we will continue to grow through new store openings. We may not be able to open new stores timely or within budget or operate them successfully, and there can be no assurance that store opening costs for, net sales of, contribution margin of and average payback period on initial investment for new stores will conform to our operating model for new urban and suburban stores discussed elsewhere in this prospectus. New stores, particularly those we open outside the Greater New York City metropolitan area, may not achieve sustained sales and operating levels consistent with our mature store base on a timely basis or at all. Lower contribution margins from new stores, along with the impact of related store opening and store management relocation costs, may have an adverse effect on our financial condition and operating results. In addition, if we acquire stores in the future, we may not be able to successfully integrate those stores into our existing store base and those stores may not be as profitable as our existing stores.

        Also, we may not be able to successfully hire, train and retain new store employees or integrate those employees into the programs, policies and culture of Fairway. We, or our third party vendors, may not be able to adapt our distribution, management information and other operating systems to adequately supply products to new stores at competitive prices so that we can operate the stores in a successful and profitable manner. We may not have the level of cash flow or financing necessary to support our growth strategy.

        Additionally, our opening of new stores will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our existing business less effectively, which in turn could cause a deterioration in the financial performance of our existing stores. If we experience a decline in performance, we may slow or discontinue store openings, or we may decide to close stores that we are unable to operate in a profitable manner.

        Additionally, some of our new stores may be located in areas where we have little experience or a lack of brand recognition. Those markets may have different competitive conditions, market conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause these new stores to be less successful than stores in our existing markets.

        Our operating results may be materially impacted by fluctuations in our same store sales, which have fluctuated in the past and will likely fluctuate in the future. A variety of factors affect our same-store sales, including:

    our openings of new stores that cannibalize store sales in existing stores;

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    our price optimization initiative;

    our competition, including competitor store openings or closings near our stores;

    the number and dollar amount of customer transactions in our stores;

    overall economic trends and conditions in our markets;

    consumer preferences, buying trends and spending levels;

    the pricing of our products, including the effects of inflation or deflation and promotions;

    our ability to provide product offerings that generate new and repeat visits to our stores;

    the level of customer service that we provide in our stores;

    our in-store merchandising-related activities;

    our ability to source products efficiently; and

    the number of stores we open in any period.

Adverse changes in these factors may cause our same-store sales results to be materially lower than in recent periods, which would harm our business and could result in a decline in the price of our Class A common stock. Further, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to new, closer locations.

        Our operating results and stock price will be adversely affected if we fail to implement our growth strategy or if we invest resources in a growth strategy that ultimately proves unsuccessful.

         Our newly opened stores may negatively impact our financial results in the short-term and may not achieve sales and operating levels consistent with our mature store base on a timely basis or at all.

        We have actively pursued new store growth and plan to continue doing so in the future. We cannot assure you that our new store openings will be successful or result in greater sales and profitability. New store openings may negatively impact our financial results in the short-term due to the effect of store opening costs and lower sales and contribution margin during the initial period following opening. New stores build their sales volume and their customer base over time and, as a result, generally have lower margins and higher operating expenses, as a percentage of net sales, than our more mature stores. A new store can take more than a year to achieve a level of operating performance comparable to our similarly existing stores. Stores that we have opened in higher density urban markets typically have generated higher sales volumes and margins than stores in suburban areas. Further, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to new, closer locations.

         All of our existing stores are located in the Greater New York City metropolitan area and, as a result, new store openings can cannibalize sales in our stores in close proximity to the new store and our financial results can be effected by economic and competitive conditions in this area.

        All of our existing stores are located in a concentrated market area in the Greater New York City metropolitan area, and we intend to grow our store base in this area in the near term at a rate of three to four stores annually. As we open new stores in closer proximity to our customers who currently travel longer distances to shop at our stores, we expect some of these customers to take advantage of the convenience of our new locations. As a result, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to these new, closer locations. Consequently, our new stores will adversely impact sales at our existing stores in close proximity.

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        In addition, since substantially all of our revenues are derived from stores in the Greater New York City metropolitan area, any material change in economic and competitive conditions in this area or in legislation or regulation in the States of New York, New Jersey or Connecticut and in the local jurisdictions in which we operate within those states could adversely affect our business or financial performance.

        Part of our growth strategy is to expand our stores into new markets outside the Greater New York City metropolitan area. We do not have experience opening and operating stores in other areas and there can be no assurance we can successfully open Fairway stores in other markets or that Fairway stores will be successful in other markets.

         We operate in a highly competitive industry.

        The food retail industry as a whole, particularly in the Greater New York City metropolitan area, is highly competitive. Because we offer a full assortment of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries, we compete with various types of retailers, including alternative food retailers, such as natural foods stores, smaller specialty stores and farmers' markets, conventional supermarkets, supercenters and membership warehouse clubs. Our principal competitors include alternative food retailers such as Whole Foods and Trader Joe's, traditional supermarkets such as Stop & Shop, ShopRite, Food Emporium and A&P, retailers with "big box" formats such as Target and Wal-Mart and warehouse clubs such as Costco and BJ's Wholesale Club. These businesses compete with us for customers, products and locations. In addition, some are expanding aggressively in marketing a range of natural and organic foods, prepared foods and quality specialty grocery items. Some of these potential competitors have more experience operating multiple store locations or have greater financial or marketing resources than we do and are able to devote greater resources to sourcing, promoting and selling their products. Due to the competitive environment in which we operate, our operating results may be negatively impacted through a loss of sales, reduction in margin from competitive price changes and/or greater operating costs such as marketing. We also face limited competition from restaurants and fast-food chains. In addition, other established food retailers could enter our markets, increasing competition for market share.

         We rely on a combination of product offerings, customer service, store format, location and pricing to compete.

        We compete with other food retailers on a combination of factors, primarily product selection and quality, customer service, store format, location and price. Our success depends on our ability to offer products that appeal to our customers' preferences. Failure to offer such products, or to accurately forecast changing customer preferences, could lead to a decrease in the number of customer transactions at our stores and in the amount customers spend at our stores. We also attempt to create a convenient and appealing shopping experience for our customers in terms of customer service, store format and location.

        Pricing in particular is a significant driver of consumer choice in our industry and we expect competitors to continue to apply pricing and other competitive pressures. To the extent that our competitors lower prices, our ability to maintain gross profit margins and sales levels may be negatively impacted. Some of our competitors have greater resources than we do and do not have unionized work forces, which may result in lower labor and benefit costs. These competitors could use these advantages to take measures, including reducing prices, which could adversely affect our competitive position, financial condition and results of operations.

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        If we do not succeed in offering attractively priced products that consumers want to buy or are unable to provide a convenient and appealing shopping experience, our sales, operating margins and market share may decrease, resulting in reduced profitability.

         Economic conditions that impact consumer spending could materially affect our business.

        Ongoing economic uncertainty continues to negatively affect consumer confidence and discretionary spending. Our operating results may be materially affected by changes in economic conditions nationwide or in the regions in which we operate that impact consumer confidence and spending, including discretionary spending. This risk may be exacerbated if customers choose lower-cost alternatives to our product offerings in response to economic conditions. In particular, a decrease in discretionary spending could adversely impact sales of certain of our higher margin product offerings. Future economic conditions affecting disposable consumer income, such as employment levels, business conditions, changes in housing market conditions, the availability of consumer credit, interest rates, tax rates and fuel and energy costs, could reduce overall consumer spending or cause consumers to shift their spending to lower-priced competitors. In addition, inflation or deflation can impact our business. Food deflation could reduce sales growth and earnings, while food inflation, combined with reduced consumer spending, could reduce gross profit margins. As a result, our results of operations could be materially adversely affected.

        The geographic concentration of our stores creates an exposure to the Greater New York City metropolitan area economy and any downturn in this region could materially adversely affect our financial condition and results of operations.

         We reported net losses in fiscal 2010, fiscal 2011 and fiscal 2012 and the thirty-nine weeks ended January 1, 2012 and December 30, 2012, and we expect to incur net losses through at least fiscal 2014.

        We reported a net loss of $7.1 million in fiscal 2010, $18.6 million in fiscal 2011, $11.9 million in fiscal 2012, $10.0 million for the thirty-nine weeks ended January 1, 2012 and $56.2 million for the thirty-nine weeks ended December 30, 2012, and we expect to incur net losses through at least fiscal 2014. Our net losses are primarily attributable to the costs associated with new store openings, increased production and corporate overhead and associated costs of capital, in fiscal 2010 and fiscal 2011 losses on the early extinguishment of debt and in fiscal 2012 and the thirty-nine weeks ended December 30, 2012 re-financing and pre-offering related costs and a partial valuation allowance against our December 30, 2012 deferred tax asset. For example, we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs. Operating margins are also affected by promotional discounts and other marketing costs and strategies associated with new store openings, as well as higher shrink, primarily due to overstocking, and costs related to hiring and training new employees. Additionally, a new store builds its sales volume and its customer base over time and, as a result, generally has lower margins and higher operating expenses, as a percentage of sales, than our more mature stores. A new store can take more than a year to achieve a level of operating performance comparable to our similarly existing stores. Our growth strategy depends, in large part, on opening new stores in existing and new areas and, as a result, our results of operations will continue to be materially affected by the timing and number of new store openings and the amount of new store opening costs. Other factors that have affected and may in the future affect our results of operations include general economic conditions and changes in consumer behavior that can affect our sales, inflation and deflation trends, the extent of our infrastructure investments in the applicable period, the effectiveness of our price optimization and productivity initiatives, competitive developments and the extent of our debt service obligations. While we believe that we will generate future taxable income sufficient to utilize all prior years' net operating losses, we cannot assure you that we will not continue to incur net losses or if and when we will report net income. See Note 13 to

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our financial statements included elsewhere in this prospectus for information about our net operating losses.

         We will incur compensation related charges against our earnings in the quarter in which this offering is consummated and in subsequent periods.

        In connection with this offering, we anticipate granting to our directors and employees an aggregate of 2,296,838 restricted stock units in respect of Class A common stock, or RSUs, and options to purchase 1,135,722 shares of Class A common stock. These RSUs will vest on the third anniversary of the date of the closing of this offering in the case of our non-employee directors, and in the case of members of our senior management team, contingent upon the executive's continued employment, half on each of the third and fourth anniversary of the date of closing of this offering. The options will vest in four equal annual installments commencing on the first anniversary of the closing of this offering. We estimate that we will record compensation expense associated with these grants, resulting in a reduction in net earnings, of approximately $8.7 million for fiscal 2014, approximately $9.0 million for each of fiscal 2015 and fiscal 2016, approximately $2.7 million for fiscal 2017 and approximately $0.1 million for fiscal 2018, in each case net of tax, assuming an initial public offering price of $11.00, which is the midpoint of the price range set forth on the cover page of this prospectus. We will from time to time in the future make additional restricted stock unit awards, option grants and restricted stock awards under our 2013 Long-Term Incentive Plan, which will result in compensation expense in future periods. In addition, contractual arrangements with certain of our management require us to pay them bonuses upon consummation of the offering being made hereby which aggregate approximately $7.3 million, assuming an initial public offering price of $11.00, which is the midpoint of the price range set forth on the cover page of this prospectus. As a result, we will incur charges of approximately $7.3 million against earnings in the quarter in which we consummate this offering. In addition, we will incur a charge of approximately $1.1 million against earnings in the fourth fiscal quarter ending March 31, 2013 relating to severance due to a former senior executive and a former officer and director. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Charges Relating to Executive Compensation," "Management—Director Compensation," "Executive Compensation—Equity Compensation Plans—2013 Long-Term Incentive Plan—Initial Awards" "and "—IPO Bonuses" for more information.

         We may be unable to improve our operating margins, which could adversely affect our financial condition and ability to grow.

        We intend to improve our operating margins in an environment of increased competition through various initiatives, including increased sales of perishables and prepared foods and continued cost discipline focused on improving labor productivity and reducing shrink, and the development of a centralized production facility to serve our current and future stores in the Greater New York City metropolitan area. Some of our competitors do not have unionized work forces, which may result in lower labor and benefit costs. If competitive pressures cause us to lower our prices, our operating margins may decrease. If the percentage of our net sales represented by perishables decreases, our operating margins may be adversely affected. Any failure to achieve gains in labor productivity, particularly the reduction of overtime, or to reduce inventory shrink may adversely impact our operating margins. There can be no assurance that we can successfully develop a centralized production facility or that it will result in labor efficiencies or improve product quality and consistency. If we encounter operational problems at our centralized production facility, the delivery of products to, and sales at, our stores, could be adversely affected. If our operating margins stagnate or decline, our financial condition and ability to generate cash to fund our growth could be adversely affected.

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         Perishable products make up a significant portion of our sales, and ordering errors or product supply disruptions may have an adverse effect on our profitability and operating results.

        We have a significant focus on perishable products. Sales of perishable products accounted for approximately 65% of our net sales in fiscal 2012. We rely on various suppliers and vendors to provide and deliver our product inventory on a continuous basis. We could suffer significant perishable product inventory losses in the event of the loss of a major supplier or vendor, disruption of our supply chain, extended power outages, natural disasters or other catastrophic occurrences. While we have implemented certain systems to ensure our ordering is in line with demand, we cannot assure you that our ordering systems will always work efficiently, in particular in connection with the opening of new stores, which have no, or a limited, ordering history. If we were to over-order, we could suffer inventory losses, which would negatively impact our operating results.

         Disruption of significant supplier relationships could negatively affect our business.

        White Rose, Inc. is our single largest third-party supplier, accounting for approximately 13% of our total purchases in fiscal 2012. Under our agreement with White Rose, we are obligated to purchase all our requirements for specified products, principally warehouse conventional grocery, dairy, frozen food and ice cream products, for our existing stores. In addition, United Natural Foods, Inc. ("UNFI"), which is our primary supplier of specified natural and organic products, principally dry grocery, frozen food, vitamins/supplements and health, beauty and wellness, accounted for approximately 9% of our total purchases in fiscal 2012. Due to this concentration of purchases from White Rose and UNFI, the cancellation of our supply arrangement with either White Rose or UNFI or the disruption, delay or inability of White Rose or UNFI to deliver product to our stores may materially and adversely affect our operating results while we establish alternative distribution channels. We also depend on third-party suppliers for our private label products, and the cancellation of our supply arrangement with any of these suppliers or the disruption, delay or inability of these suppliers to provide our private label products, particularly private label organic products, could adversely affect our private label sales. If our suppliers fail to comply with food safety or other laws and regulations, or face allegations of non-compliance, their operations may be disrupted. We cannot assure you that we would be able to find replacement suppliers on commercially reasonable terms.

         Our success depends upon our ability to source and market new products that meet our high standards and customer preferences and our ability to offer our customers an aesthetically pleasing shopping environment.

        Our success depends on our ability to source and market new products that meet our standards for quality and appeal to our customers' preferences. Failure to source and market such products, or to accurately forecast changing customer preferences, could lead to a decrease in the number of customer transactions at our stores and in the amount customers spend at our stores. In addition, the sourcing of our products is dependent, in part, on our relationships with our vendors. We rely on a large number of small vendors in order to offer a broad array of products, and as we expand it may become more difficult to manage and maintain these relationships. If we are unable to maintain these relationships we may not be able to continue to source products at competitive prices that both meet our standards and appeal to our customers. We also attempt to create a pleasant and appealing shopping experience. If we are not successful in creating a pleasant and appealing shopping experience, we may lose customers to our competitors. If we do not succeed in maintaining good relationships with our vendors, introducing and sourcing new products that consumers want to buy or are unable to provide a pleasant and appealing shopping environment or maintain our level of customer service, our sales, operating margins and market share may decrease, resulting in reduced profitability.

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         We may experience negative effects to our brand and reputation from real or perceived quality or health issues with our food products, which could lead to product liability claims or have an adverse effect on our operating results.

        We believe that our reputation for providing our customers with fresh, high-quality food products is an important component of our customer value proposition and that maintaining our brand is critical to our success. Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents can erode trust and confidence, particularly if they result in adverse publicity, especially in social media outlets, governmental investigations or litigation, which can have an adverse impact on these perceptions and lead to adverse effects on our business. Concerns regarding the safety or quality of our food products or of our food supply chain could cause consumers to avoid purchasing certain products from us, or to seek alternative sources of food, even if the basis for the concern is unfounded, has been addressed or is outside of our control. Food products containing contaminants or allergens could be inadvertently manufactured, prepared or distributed by us and, if processing at the consumer level does not eliminate them, these contaminants could result in illness or death. Adverse publicity about these concerns, whether or not ultimately based on fact, and whether or not involving products sold at our stores, could discourage consumers from buying our products, which could have an adverse effect on our brand, reputation and operating results. In addition, our stores are subject to unscheduled inspections on a regular basis, which, if violations are found, could result in the assessment of fines, suspension of one or more needed licenses and, in the case of repeated "critical" violations, closure of the store until a re-inspection demonstrates that we have remediated the problem.

        In September 2012, several television news shows and websites posted pictures of rodents in our Broadway store. While we believe the incident was primarily due to construction in the area and have taken comprehensive remedial steps, there can be no assurance that this will not recur at this store or occur at any of our other stores. Similar future incidents could damage our reputation and cause consumers to avoid our stores, which could have an adverse effect on our business.

        Furthermore, the sale of food products entails an inherent risk of product liability claims, product recall and the resulting negative publicity. Any such claims, recalls or adverse publicity with respect to our private-label products may have an even greater negative effect on our sales and operating results, in addition to generating adverse publicity for our brand. Moreover, product liability claims of this sort may not be covered by insurance or any rights to indemnity or contribution we have against others.

        Any lost confidence in us on the part of our customers would be difficult and costly to re-establish. Any such adverse effect could significantly reduce our brand value. Issues regarding the safety of any food items sold by us, regardless of the cause, could have a substantial and adverse effect on our sales and operating results.

         We were forced to temporarily close our Red Hook, Brooklyn, New York store as a result of damages sustained during Hurricane Sandy, which has impacted our results of operations, and there can be no assurance that our sales or gross profit at the store will return to prior levels.

        Our Red Hook store suffered substantial damage, including the loss of all inventory and a substantial portion of our equipment, during Hurricane Sandy and, as a result, the store was closed from October 29, 2012 through February 28, 2013. We are insured for property, business interruption and other hurricane-related expenses, and have received $10.5 million to date. However, we cannot assure you that our insurance will cover all out-of-pocket and other costs incurred by us in connection with the storm. The closure of this store impacted our results of operations in our third fiscal quarter ended December 30, 2012 and we expect it to impact our results of operations in our fourth fiscal quarter due to lost revenue and the fact that we retained substantially all of the employees of that store, as well as the timing of insurance recoveries and the achievement of certain milestones in the rebuilding process. We cannot assure you that all of the former customers of the store will return to

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the store, that our sales or gross profit at the store will return to prior levels or that our sales or gross profit at other stores will not decrease as a result of former customers of the Red Hook store returning to the Red Hook store.

         We may be unable to protect or maintain our intellectual property, which could result in customer confusion, a negative perception of our brand and adversely affect our business.

        We believe that our intellectual property has substantial value and has contributed significantly to the success of our business. In particular, our trademarks and servicemarks, including our FAIRWAY®, FAIRWAY "Like No Other Market"®, LIKE NO OTHER MARKET® and FAIRWAY WINES & SPIRITS® trademarks, are valuable assets that reinforce our customers' favorable perception of our stores.

        From time to time, third parties have used names similar to ours, have applied to register trademarks similar to ours and, we believe, have infringed or misappropriated our intellectual property rights. We respond to these actions on a case-by-case basis, including, where appropriate, by sending cease and desist letters and commencing opposition actions and litigation. The outcomes of these actions have included both negotiated out-of-court settlements as well as litigation. We are currently party to a settlement with a midwestern grocery company, "Fareway," with respect to the use of the Fairway name and trademarks which prohibits us from using the Fairway name other than on the East Coast and in California and certain parts of Michigan and Ohio, and prohibits that company from using the Fareway name on the East Coast and in California and certain parts of Michigan and Ohio. Our inability to use the Fairway name in these prohibited areas could adversely affect our growth strategy. We are also party to a settlement agreement that prohibits us from opening any new stores under the Fairway name in certain parts of the New Jersey counties of Bergen, Essex, Hudson and Passaic. We believe this agreement will preclude us from opening one store that we otherwise might have opened in this territory.

        We cannot assure you that the steps we have taken to protect our intellectual property rights are adequate, that our intellectual property rights can be successfully defended and asserted in the future or that third parties will not infringe upon or misappropriate any such rights. In addition, our trademark rights and related registrations may be challenged in the future and could be canceled or narrowed. Failure to protect our trademark rights could prevent us in the future from challenging third parties who use names and logos similar to our trademarks, which may in turn cause consumer confusion or negatively affect consumers' perception of our brand and products, which could, in turn, adversely affect our sales and profitability. Moreover, intellectual property disputes and proceedings and infringement claims may result in a significant distraction for management and significant expense, which may not be recoverable regardless of whether we are successful. Such proceedings may be protracted with no certainty of success, and an adverse outcome could subject us to liabilities, force us to cease use of certain trademarks or other intellectual property or force us to enter into licenses with others. Any one of these occurrences may have a material adverse effect on our business, results of operations and financial condition.

         We rely on information technology and administrative systems and any inadequacy, failure, interruption or security breach of those systems may harm our ability to effectively operate our business.

        We rely extensively on our information technology and administrative systems to effectively manage our business data, communications, supply chain, order entry and fulfillment and other business processes. The failure of our information technology or administrative systems to perform as we anticipate could disrupt our business and result in transaction errors, processing inefficiencies and the loss of sales and customers, causing our business to suffer. In addition, our information technology and administrative systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, cyber-attacks, viruses and security breaches,

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including breaches of our transaction processing or other systems that could result in the compromise of confidential customer data. Any such damage or interruption could have a material adverse effect on our business, cause us to face significant fines, customer notice obligations or costly litigation, harm our reputation with our customers, require us to expend significant time and expense developing, maintaining or upgrading our information technology or administrative systems, or prevent us from paying our suppliers or employees, receiving payments from our customers or performing other information technology or administrative services on a timely basis. Any material interruption in our information systems may have a material adverse effect on our operating results.

         If we experience a data security breach and confidential customer information is disclosed, we may be subject to penalties and experience negative publicity, which could affect our customer relationships and have a material adverse effect on our business.

        We and our customers could suffer harm if customer information were accessed by third parties due to a security failure in our systems. The collection of data and processing of transactions require us to receive, transmit and store a large amount of personally identifiable and transaction related data. This type of data is subject to legislation and regulation in various jurisdictions. Recently, data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting state and federal legislative proposals addressing data privacy and security. If some of the current proposals are adopted, we may be subject to more extensive requirements to protect the customer information that we process in connection with the purchases of our products. We may become exposed to potential liabilities with respect to the data that we collect, manage and process, and may incur legal costs if our information security policies and procedures are not effective or if we are required to defend our methods of collection, processing and storage of personal data. Future investigations, lawsuits or adverse publicity relating to our methods of handling personal data could adversely affect our business, results of operations, financial condition and cash flows due to the costs and negative market reaction relating to such developments. Additionally, if we suffer data breaches one or more of the credit card processing companies that we rely on may refuse to allow us to continue to participate in their network, which would limit our ability to accept credit cards at our stores and could adversely affect our business, results of operations, financial condition and cash flows.

        Data theft, information espionage or other criminal activity directed at the retail industry or computer or communications systems may materially adversely affect our business by causing us to implement costly security measures in recognition of actual or potential threats, by requiring us to expend significant time and expense developing, maintaining or upgrading our information technology systems and by causing us to incur significant costs to reimburse third parties for damages. Such activities may also materially adversely affect our financial condition, results of operations and cash flows by reducing consumer confidence in the marketplace and by modifying consumer spending habits.

         The landlord for a portion of our Broadway store has the right to terminate the lease at any time after June 30, 2017, which could adversely affect our business.

        Our Broadway store is one of our most important stores. The store is located in two properties with two different landlords. The landlord for the building in which approximately half of this store is located has the right, at any time after June 30, 2017, to terminate the lease, upon at least 18 months' prior notice, in order to make substantial renovations to the existing building or construct a new building. If the landlord elects to terminate the lease, then we have the option to enter into a new lease for space on the lower level, ground floor and second level of the renovated or new building constructed on those premises with no less than the current square footage. However, during the renovation or construction, the portion of the Broadway store located in this building will be closed, and we expect that the remaining portion of the store will need to be closed for at least a portion of such period. If we are not able to find a suitable replacement location nearby for this store or if we are

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not able to operate at least a portion of the store during this period of renovation or construction, our business and results of operations would be adversely affected.

         We lease certain of our stores and related properties from a related party.

        Howard Glickberg, one of our directors and executive officers, owns a one-third interest in entities which lease to us the premises at which a portion of our Broadway store is located, the premises at which our Harlem store, Harlem bakery and Harlem warehouse are located and the premises at which the parking lot for our Harlem store is located. The remainder of these entities is owned by Mr. Glickberg's former business partners (the "Former Partners"). Mr. Glickberg also owns a 16.67% interest in the landlord for the premises where our Red Hook store is located. During fiscal 2010, fiscal 2011 and fiscal 2012 and the thirty-nine weeks ended December 30, 2012, rental payments (excluding maintenance and taxes that we are obligated to pay) under the leases for the Harlem properties and portion of the Broadway store aggregated $2,519,755, $2,525,583, $2,569,403 and $3,322,875, respectively, of which, based on his ownership and before giving effect to any expenses, Mr. Glickberg is entitled to $839,918, $841,861, $856,468 and $1,107,514, respectively. During fiscal 2010, fiscal 2011 and fiscal 2012 and the thirty-nine weeks ended December 30, 2012, rental payments (excluding maintenance and taxes that we are obligated to pay) under the lease for the Red Hook store aggregated $1,461,595, $1,421,151, $1,421,151 and $1,047,643, respectively, of which, based on his ownership and before giving effect to any expenses, Mr. Glickberg is entitled to $243,599, $236,859, $236,859 and $174,642, respectively. The leases for each of these properties provides for a periodic reset of base rent to fair market rent based upon the highest and best retail use of the premises (without reference to the lease). The leases provide that if we and these entities cannot agree on the fair market rent, the fair market rent will be determined by arbitration. In December 2012, we agreed with the landlords of the Harlem properties and a portion of the Broadway store to a reset of the annual base rent for these properties that increased our base rent for these properties by an aggregate of approximately $1.8 million for fiscal 2013. As a result of this increase, we have paid the landlords an aggregate of $1,647,505, representing the additional rent due for the period from February 1, 2012 through December 30, 2012, of which Mr. Glickberg's share, based on his ownership and before giving effect to any expenses, is $549,108. We and the landlord for the Red Hook store are currently in discussions regarding the reset of the base rent to fair market rent. We cannot predict the outcome of these discussions or any arbitration; however, if the arbitrator chooses the amount proposed by our landlord, it could have an adverse effect on our results of operations and gross margin. In addition, our Red Hook store is required to obtain its electricity, heated/chilled water, hot and cold potable water and sewer services from an entity owned by the owners of the premises where our Red Hook store is located. We believe that the owner of the co-generation plant has overcharged us for utilities since our initial occupancy of the premises in December 2005. Since November 2008, we have not fully paid the utility invoices, but instead remitted lesser amounts based on the methodology that we believe represents the parties' original intentions with respect to the utility charge calculations. There can be no assurance that we will not be required to pay the amounts we withheld. See "Certain Relationships and Related Party Transactions—Transactions with Howard Glickberg—Real Estate Leases."

         Failure to retain our senior management and other key personnel may adversely affect our operations.

        Our success is substantially dependent on the continued service of our senior management and other key personnel. These executives, and in particular Charles Santoro, our Executive Chairman, and Herb Ruetsch, our Chief Executive Officer, have been primarily responsible for determining the strategic direction of our business and for executing our growth strategy and are integral to our brand and culture, and the reputation we enjoy with suppliers and consumers. The loss of the services of any of these executives and other key personnel could have a material adverse effect on our business and prospects, as we may not be able to find suitable individuals to replace them on a timely basis, if at all. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause our stock price to decline. The loss of key employees could negatively affect our business.

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         If we are unable to attract, train and retain employees, we may not be able to grow or successfully operate our business.

        The food retail industry is labor intensive, and our success depends in part upon our ability to attract, train and retain a sufficient number of employees who understand and appreciate our culture and are able to represent our brand effectively and establish credibility with our business partners and consumers. Our ability to meet our labor needs, while controlling wage and labor-related costs, is subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force in the markets in which we are located, unemployment levels within those markets, unionization of the available work force, prevailing wage rates, changing demographics, health and other insurance costs and changes in employment legislation. In the event of increasing wage rates, if we fail to increase our wages competitively, the quality of our workforce could decline, causing our customer service to suffer, while increasing our wages could cause our earnings to decrease. If we are unable to hire and retain employees capable of meeting our business needs and expectations, our business and brand image may be impaired. Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business, results of operations and financial condition.

         Changes in and enforcement of immigration laws could increase our costs and adversely affect our ability to attract and retain qualified store-level employees.

        Federal and state governments from time to time implement laws, regulations or programs that regulate our ability to attract or retain qualified employees. Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potential employees. Although we have implemented, and are in the process of enhancing, procedures to ensure our compliance with the employment eligibility verification requirements, there can be no assurance that these procedures are adequate and some of our employees may, without our knowledge, be unauthorized workers. The employment of unauthorized workers may subject us to fines or civil or criminal penalties, and if any of our workers are found to be unauthorized we could experience adverse publicity that negatively impacts our brand and makes it more difficult to hire and keep qualified employees. We have from time to time been required to terminate the employment of certain of our employees who were determined to be unauthorized workers. For example, following an audit by the Department of Homeland Security of the work authorization documents of our employees in our Pelham Manor, NY store that began in February 2011, we were notified in May 2012 that approximately 55 employees may not have had valid employment authorization documents, and we then terminated the approximately 35 employees still working for us who could not then provide valid documentation, resulting in a temporary increase in labor costs and disruption of our operations as we hired and trained new employees. We may be subject to fines or other penalties as a result of this audit. There can be no assurance that any future audit will not require us to terminate employees and pay fines or other penalties. The termination of a significant number of employees may disrupt our operations, cause temporary increases in our labor costs as we train new employees and result in additional adverse publicity. Our financial performance could be materially harmed as a result of any of these factors.

         Prolonged labor disputes with unionized employees and increases in labor costs could adversely affect our business.

        Our largest operating costs are attributable to labor costs and, therefore, our financial performance is greatly influenced by increases in wage and benefit costs, including pension and health care costs. As a result, we are exposed to risks associated with a competitive labor market and, more specifically, to any disruption of our unionized work force. As of December 30, 2012, approximately 81% of our employees were represented by unions and covered by collective bargaining agreements that are subject

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to periodic renegotiation. Two of our current collective bargaining agreements expire in March 2014, one expires in April 2014 and one expires in February 2015.

        In the renegotiation of our current contracts and the negotiation of our new contracts, rising health care and pension costs and the nature and structure of work rules will be important issues. The terms of the renegotiated collective bargaining agreements could create either a financial advantage or disadvantage for us as compared to our major competitors and could have a material adverse effect on our results of operations and financial condition. Our labor negotiations may not conclude successfully or may result in a significant increase in labor costs, and work stoppages or labor disturbances could occur. A prolonged work stoppage could have a material adverse effect on our financial condition, results of operations and cash flows. We also expect that in the event of a work stoppage or labor disturbance, we could incur additional costs and face increased competition.

         The cost of providing employee benefits continues to increase and is subject to factors outside of our control.

        We provide health benefits to substantially all of our full-time employees and, under our collective bargaining agreements, contribute to the cost of health benefits provided by the unions. Even though employees generally pay a portion of the cost, our cost of providing these benefits has increased steadily over the last several years. We anticipate future increases in the cost of health benefits, partly, but not entirely, as a result of the implementation of federal health care reform legislation. We currently pay all of the healthcare insurance premiums for our unionized employees. However, the healthcare insurance coverage for our unionized employees currently does not meet the minimum coverage requirements of the Patient Protection and Affordable Care Act, or PPACA. If the union plans are amended to meet the minimum requirements of PPACA, such change will likely require a meaningful increase in the amount of such health insurance premiums that we pay. If the union plans are not amended to meet the minimum requirements of PPACA beginning January 1, 2014, we will either be required (subject to collective bargaining) to provide healthcare insurance meeting the minimum requirements or pay an annual penalty of $2,000 (or $3,000 in certain circumstances) for every full-time unionized employee and each of our part-time unionized employee that works an average of 30 hours or more per week. At December 30, 2012, we had approximately 3,300 unionized employees. We cannot at this time predict the financial impact of PPACA on our financial condition and results of operations, as it will depend in large part on whether the union amends its healthcare plans for employees who work an average of 30 hours or more per week to comply with PPACA and, if so, the cost of such plans, as well as the number of unionized employees we have who work at least 30 hours per week, although the financial impact could be material. If we are unable to control healthcare costs, we will experience increased operating costs, which may adversely affect our financial condition and results of operations.

        We participate in one underfunded multiemployer pension plan on behalf of most of our union-affiliated employees, and we are required to make contributions to this plan under our collective bargaining agreement. This multiemployer pension plan is currently underfunded in part due to increases in the costs of benefits provided or paid under the plan as well as lower returns on plan assets. The unfunded liabilities of this plan may require increased future payments by us and other participating employers. In 2012, this multiemployer plan was deemed by its plan actuary to be "endangered" because the plan is less than 80% funded. As a result, the plan has adopted a funding improvement plan to increase the plan's funding percentage. In the future, our required contributions to this multiemployer plan could increase as a result of many factors, including the outcome of collective bargaining with the union, actions taken by trustees who manage the plan, government regulations, the actual return on assets held in the plan and the payment of a withdrawal liability if we choose to exit the plan. Our risk of future increased payments may be greater if other participating employers withdraw from the plan and are not able to pay the total liability assessed as a result of such withdrawal, or if the pension plan adopts surcharges and/or increased pension contributions as part of a

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rehabilitation plan. Increased pension costs may adversely affect our financial condition and results of operations. See note 12 to our consolidated financial statements included elsewhere in this prospectus.

         Various aspects of our business are subject to federal, state and local laws and regulations. Our compliance with these regulations may require additional capital expenditures and could materially adversely affect our ability to conduct our business as planned.

        We are subject to federal, state and local laws and regulations relating to zoning, land use, environmental protection, workplace safety, food safety, public health, community right-to-know and alcoholic beverage and tobacco sales. In particular, the states in which we operate and several local jurisdictions regulate the licensing of supermarkets and the sale of alcoholic beverages. In addition, certain local regulations may limit our ability to sell alcoholic beverages at certain times. We are also subject to laws governing our relationship with employees, including minimum wage requirements, overtime, working conditions, immigration, disabled access and work permit requirements. Compliance with new laws in these areas, or with new or stricter interpretations of existing requirements, could reduce the revenue and profitability of our stores and could otherwise materially adversely affect our business, financial condition or results of operations. Our new store openings could be delayed or prevented or our existing stores could be impacted by difficulties or failures in our ability to obtain or maintain required approvals or licenses. Our stores are subject to unscheduled inspections on a regular basis, which, if violations are found, could result in the assessment of fines, suspension of one or more needed licenses and, in the case of repeated "critical" violations, closure of the store until a re-inspection demonstrates that we have remediated the problem. Certain of our parking lots and warehouses either have only temporary certificates of occupancy or are awaiting a certificate of occupancy which, if not granted, would require us to stop using such property. Our central bakery does not have a certificate of occupancy and, due to the age and structure of the building, we do not believe we would be able to obtain one without substantial modifications to the building. We are in the process of relocating the central bakery; however, until we do so, if we are not permitted to continue our central bakery operations at our current facility, our results of operations could be adversely affected. The buildings in which our Broadway and Harlem stores are located are old and therefore require greater maintenance expenditures by us in order to maintain them in compliance with applicable building codes. If we are unable to maintain these stores in compliance with applicable building codes, we could be required by the building department to close them. Additionally, a number of federal, state and local laws impose requirements or restrictions on business owners with respect to access by disabled persons. Our compliance with these laws may result in modifications to our properties, or prevent us from performing certain further renovations. We cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on our business in the future.

         The terms of our senior credit facility may restrict our current and future operations, which could adversely affect our ability to respond to changes in our business and to manage our operations.

        Our senior credit facility includes a number of customary restrictive covenants that could impair our financing and operational flexibility and make it difficult for us to react to market conditions and satisfy our ongoing capital needs and unanticipated cash requirements. Specifically, such covenants may restrict our ability and, if applicable, the ability of our subsidiaries to, among other things:

    incur additional debt;

    make certain investments;

    enter into certain types of transactions with affiliates;

    limit dividends or other payments by our restricted subsidiaries to us;

    use assets as security in other transactions;

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    pay dividends on our common stock or repurchase our equity interests;

    sell certain assets or merge with or into other companies;

    guarantee the debts of others;

    enter into new lines of business;

    make capital expenditures;

    prepay, redeem or exchange our other debt; and

    form any joint ventures or subsidiary investments.

In addition, our senior credit facility requires us to maintain specified financial ratios.

        Our ability to comply with the covenants and other terms of our senior credit facility will depend on our future operating performance and, in addition, may be affected by events beyond our control, and we cannot assure you that we will meet them. If we fail to comply with such covenants and terms, we would be required to obtain waivers from our lenders or agree with our lenders to an amendment of the facility's terms to maintain compliance under such facility. If we are unable to obtain any necessary waivers and the debt under our senior credit facility is accelerated, it would have a material adverse effect on our financial condition and future operating performance.

        Our senior credit facility requires us to use 50% of our annual adjusted excess cash flow (which percentage will decrease upon achievement and maintenance of specified leverage ratios) to prepay our outstanding term loans. This requirement will reduce the funds available to us for new store growth and working capital.

        Our senior credit facility limits the amount of capital expenditures that we can make in any fiscal year that are not financed with proceeds from the sale of our equity securities. This limitation may adversely affect our ability to open new stores or result in additional dilution if we issue additional equity securities.

        Our senior credit facility provides that if any person other than Sterling Investment Partners owns, directly or indirectly, beneficially or of record, shares representing more than 35% of the voting power of our outstanding common stock, the lenders can declare all borrowings under the senior credit facility to be immediately due and payable.

         We have significant debt service obligations and may incur additional indebtedness in the future which could adversely affect our financial health and our ability to react to changes to our business.

        As of March 31, 2013, we had total debt of approximately $274.3 million (including unamortized original issue discount of approximately $15.0 million on our senior debt). We will continue to have significant debt service obligations following the completion of this offering. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all. Our level of indebtedness has important consequences to you and your investment in our Class A common stock.

        For example, our level of indebtedness may:

    require us to use a substantial portion of our cash flow from operations to pay interest and principal on our debt, which would reduce the funds available to us for working capital, new store growth and other general corporate purposes;

    limit our ability to pay future dividends;

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    limit our ability to obtain additional financing for working capital, new store growth, capital expenditures and other investments, which may limit our ability to implement our business strategy;

    heighten our vulnerability to downturns in our business, the food retail industry or the general economy and limit our flexibility in planning for, or reacting to, changes in our business and the food retail industry;

    expose us to the risk of increased interest rates as our borrowings under our senior credit facility are at variable rates; or

    prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand our store base and product offerings.

        We and our subsidiaries may incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior credit facility. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.

        We cannot assure you that our business will generate sufficient cash flow from operations or that future financing will be available to us in amounts sufficient to enable us to make payments on our indebtedness or to fund our operations.

         Our plans to open new stores require us to spend capital, which must be allocated among various projects. Failure to use our capital efficiently could have an adverse effect on our profitability.

        Our growth strategy depends on our opening new stores, which will require us to use cash generated by our operations and a portion of the net proceeds of this offering, as well as borrowings under our senior credit facility. We cannot assure you that cash generated by our operations, the net proceeds of this offering and borrowings under our senior credit facility will be sufficient to allow us to implement our growth strategy. If this cash is not allocated efficiently among our various projects, or if any of these initiatives prove to be unsuccessful, we may experience reduced profitability and we could be required to delay, significantly curtail or eliminate planned store openings, which could have a material adverse effect on our financial condition and future operating performance and the price of our Class A common stock.

         Litigation may materially adversely affect our business, financial condition and results of operations.

        Our operations are characterized by a high volume of customer traffic and by transactions involving a wide variety of product selections. These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in many other industries. Consequently, we may be a party to individual personal injury, product liability and other legal actions in the ordinary course of our business, including litigation arising from food-related illness. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that may decrease consumer confidence in our businesses, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may materially adversely affect our businesses, financial condition, results of operations and cash flows.

         Increased commodity prices and availability may impact profitability.

        Many of our products include ingredients such as wheat, corn, oils, milk, sugar, cocoa and other commodities. Commodity prices worldwide have been increasing. While commodity price inputs do not typically represent the substantial majority of our product costs, any increase in commodity prices may cause our vendors to seek price increases from us. Although we typically are able to mitigate vendor efforts to increase our costs, we may be unable to continue to do so, either in whole or in part. In the

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event we are unable to continue mitigating potential vendor price increases, we may in turn consider raising our prices, and our customers may be deterred by any such price increases. Our profitability may be impacted through increased costs to us which may impact gross margins, or through reduced revenue as a result of a decline in the number and average size of customer transactions.

         Severe weather, natural disasters and adverse climate changes may materially adversely affect our financial condition and results of operations.

        Severe weather conditions and other natural disasters in areas where we have stores or from which we obtain the products we sell may materially adversely affect our retail operations or our product offerings and, therefore, our results of operations. Such conditions may result in physical damage to, or temporary or permanent closure of, one or more of our stores, an insufficient work force in our markets and/or temporary disruption in the supply of products, including delays in the delivery of goods to our stores or a reduction in the availability of products in our stores. In addition, adverse climate conditions and adverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops may materially adversely affect the availability or cost of certain products within our supply chain. Any of these factors may disrupt our businesses and materially adversely affect our financial condition, results of operations and cash flows.

        For example, we temporarily closed all of our stores as a result of Hurricane Sandy, which struck the Greater New York City metropolitan area on October 29, 2012. While all but one of our stores were able to reopen within a day or two following the storm, we experienced business disruptions due to inventory delays as a result of transportation issues, loss of electricity at certain of our locations and the inability of some of our employees to travel to work due to transportation issues. In addition, our Red Hook store suffered substantial damage, including the loss of all inventory and a substantial portion of its equipment, and it was not reopened until March 1, 2013. See "—We were forced to temporarily close our Red Hook, Brooklyn, New York store as a result of damages sustained during Hurricane Sandy, which has impacted our results of operations, and there can be no assurance that our sales or gross profit at the store will return to prior levels."

         The occurrence of a widespread health epidemic may materially adversely affect our financial condition and results of operations.

        Our business may be severely impacted by wartime activities, threats or acts of terror or a widespread regional, national or global health epidemic, such as pandemic flu. Such activities, threats or epidemics may materially adversely impact our business by disrupting production and delivery of products to our stores, by affecting our ability to appropriately staff our stores and by causing customers to avoid public gathering places or otherwise change their shopping behaviors.

         Proposed changes to financial accounting standards could require our store leases to be recognized on the balance sheet.

        In addition to our significant level of indebtedness, we have significant obligations relating to our current operating leases. Proposed changes to financial accounting standards could require such leases to be recognized on the balance sheet. All of our existing stores are subject to leases, which have remaining terms of up to 27 years, and as of December 30, 2012, we had undiscounted operating lease commitments of approximately $571.9 million, scheduled through 2039, related primarily to our stores, including one store that is not yet open. These commitments represent the minimum lease payments due under our operating leases, excluding common area maintenance, insurance and taxes related to our operating lease obligations, and do not reflect fair market value rent reset provisions in the leases. These leases are classified as operating leases and disclosed in Note 14 to our consolidated financial statements included elsewhere in this prospectus, but are not reflected as liabilities on our consolidated balance sheets. During fiscal 2012 and the thirty-nine weeks ended December 30, 2012, our cash operating lease expense was approximately $16.3 million and $17.9 million, respectively.

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        In August 2010, the Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB") issued a joint discussion paper highlighting proposed changes to financial accounting standards for leases. Currently, Accounting Standards Codification 840 ("ASC 840"), Leases (formerly Statement of Financial Accounting Standards 13, Accounting for Leases) requires that operating leases are classified as an off-balance sheet transaction and only the current year operating lease expense is accounted for in the income statement. In order to determine the proper classification of our stores as either operating leases or capital leases, we must make certain estimates at the inception of the lease relating to the economic useful life and the fair value of an asset as well as select an appropriate discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease. All of our store leases have been classified as operating leases, which results in rental payments being charged to expense over the terms of the related leases. Additionally, operating leases are not reflected in our consolidated balance sheets, which means that neither a leased asset nor an obligation for future lease payments is reflected in our consolidated balance sheets. The proposed changes to ASC 840 would require that substantially all operating leases be recognized as assets and liabilities on our balance sheet. The right to use the leased property would be capitalized as an asset and the present value of future lease payments would be accounted for as a liability. A revised exposure draft is planned for the first half of 2013. The effective date, which has not been determined, could be as early as 2016 and may require retrospective adoption. While we have not quantified the impact this proposed standard would have on our financial statements, if our current operating leases are instead recognized on the balance sheet, it will result in a significant increase in the liabilities reflected on our balance sheet and in the interest expense and depreciation and amortization expense reflected in our income statement, while reducing the amount of rent expense. This could potentially decrease our net income.

         Our high level of fixed lease obligations could adversely affect our financial performance.

        Our high level of fixed lease obligations will require us to use a significant portion of cash generated by our operations to satisfy these obligations, and could adversely impact our ability to obtain future financing to support our growth or other operational investments. We will require substantial cash flows from operations to make our payments under our operating leases, all of which provide for periodic increases in rent. If we are not able to make the required payments under the leases, the lenders or owners of the stores may, among other things, repossess those assets, which could adversely affect our ability to conduct our operations. In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under agreements governing our indebtedness, which could cause the counterparties under those agreements to accelerate the obligations due thereunder. Certain of our leases are with entities affiliated with our vice chairman of development and are currently the subject of negotiation to reset the annual base rent for these leases to fair market rent. See "—We lease certain of our stores and other properties from a related party" and "Certain Relationships and Related Party Transactions—Transactions with Howard Glickberg—Real Estate Leases."

         If our goodwill becomes impaired, we may be required to record a significant charge to earnings.

        We have a significant amount of goodwill. As of December 30, 2012, we had goodwill of approximately $95.4 million, which represented approximately 28.1% of our total assets as of such date. Goodwill is reviewed for impairment on an annual basis in the fourth fiscal quarter or whenever events occur or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount. Fair value is determined based on the discounted cash flows and comparable market values of our single reporting unit. If the fair value of the reporting unit is less than its carrying value, the fair value of the implied goodwill is calculated as the difference between the fair value of our reporting unit and the fair value of the underlying assets and liabilities, excluding goodwill. In the event an impairment to goodwill is identified, an immediate charge to earnings in an amount

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equal to the excess of the carrying value over the implied fair value would be recorded, which would adversely affect our operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Goodwill and Other Intangible Assets."

        Determining market values using a discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate market rates. Our judgments are based on historical experience, current market trends and other information. In estimating future cash flows, we rely on internally generated forecasts for operating profits and cash flows, including capital expenditures. Based on our annual impairment test during fiscal 2010, 2011 and 2012, no goodwill impairment charge was required to be recorded. Changes in estimates of future cash flows caused by items such as unforeseen events or changes in market conditions could negatively affect our reporting unit's fair value and result in an impairment charge. Factors that could cause us to change our estimates of future cash flows include a prolonged economic crisis, successful efforts by our competitors to gain market share in our core markets, our inability to compete effectively with other retailers or our inability to maintain price competitiveness. An impairment of a significant portion of our goodwill could materially adversely affect our financial condition and results of operations.

Risks Relating to this Offering and Ownership of Our Class A Common Stock

         Upon completion of this offering, we will be controlled by investment funds managed by affiliates of Sterling Investment Partners, whose interests in our business may be different from yours.

        Our Class B common stock has ten votes per share, and our Class A common stock, which is the stock we are offering in our initial public offering, has one vote per share. Upon completion of this offering, Sterling Investment Partners will own approximately 8,381,639 shares of Class A common stock and 13,080,655 shares of Class B common stock, or 52.0% of our outstanding common stock, representing approximately 77.1% of the voting power of our outstanding common stock (6,500,140 shares of Class A common stock and 13,080,655 shares of Class B common stock representing approximately 47.5% of our outstanding common stock and approximately 76.5% of the voting power of our outstanding common stock, if the underwriters exercise their over-allotment option in full). In addition, Sterling Investment Partners will own warrants to purchase 1,699,949 shares of Class A common stock which, if exercised, would result in them owning approximately 53.9% of our outstanding common stock, representing approximately 77.8% of the voting power of our outstanding common stock, and approximately 49.6% of our outstanding common stock, representing approximately 76.8% of the voting power of our outstanding common stock, if the underwriters exercise their over-allotment option in full. As such, Sterling Investment Partners will have significant influence over our reporting and corporate management and affairs, and, because of the ten-to-one voting ratio between our Class B and Class A common stock, Sterling Investment Partners will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval so long as the shares of Class B common stock owned by Sterling Investment Partners and its permitted transferees represent at least 5% of all outstanding shares of our Class A and Class B common stock. Sterling Investment Partners will, for so long as the shares of Class B common stock owned by it and its permitted transferees represent at least 5% of all outstanding shares of our Class A and Class B common stock, effectively control actions to be taken by us and our board of directors, including the election of directors, amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. These actions may be taken even if other stockholders oppose them. Sterling Investment Partners' control may have the effect of delaying or preventing a change in control of our company or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future.

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        Our amended and restated certificate of incorporation provides that the doctrine of "corporate opportunity" will not apply to Sterling Investment Partners, or any of our directors who are associates of, or affiliated with, Sterling Investment Partners, in a manner that would prohibit them from investing in competing businesses. It is possible that the interests of Sterling Investment Partners and their affiliates may in some circumstances conflict with our interests and the interests of our other stockholders, including you, and Sterling Investment Partners may act in a manner that advances its best interests and not necessarily those of our other stockholders.

        Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes and transfers to members of Sterling Investment Partners. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. All outstanding shares of Class A common stock and Class B common stock will automatically convert into a single class of common stock when Sterling Investment Partners and its permitted transferees no longer own any shares of Class B common stock. For a description of the dual class structure, see "Description of Capital Stock—Anti-Takeover Provisions."

        Sterling Investment Partners is not subject to any contractual obligation to retain its controlling interest, except that it has agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of our common stock or other securities exercisable or convertible into our common stock for a period of at least 180 days after the date of this prospectus without the prior written consent of Credit Suisse Securities (USA) LLC. There can be no assurance as to the period of time during which Sterling Investment Partners will in fact maintain its ownership of our common stock following the offering.

         We have elected to take advantage of the "controlled company" exemption to the corporate governance rules for publicly-listed companies, which could make our Class A common stock less attractive to some investors or otherwise harm our stock price.

        Because we qualify as a "controlled company" under the corporate governance rules for publicly-listed companies, we are not required to have a majority of our board of directors be independent, nor are we required to have a compensation committee or an independent nominating function. In light of our status as a controlled company, our board of directors has determined not to have a majority of our board of directors be independent, have a compensation committee composed solely of independent directors or have an independent nominating function and has chosen to have the full board of directors be directly responsible for nominating members of our board. Accordingly, should the interests of Sterling Investment Partners, as our controlling stockholder, differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for publicly-listed companies. Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price.

        Although we qualify as a "controlled company", we must have an independent audit committee consisting of three members. The rules of the NASDAQ Global Market, the exchange on which we have applied to list our Class A common stock, permit the composition of our audit committee to be phased-in as follows: (i) one independent committee member at the time of this offering; (ii) a majority of independent committee members within 90 days of this offering; and (iii) all independent committee members within one year of the effective date of the registration statement of which this prospectus is a part. We currently have two independent directors. If we cannot satisfy or continue to satisfy the phase-in requirement for our audit committee under the applicable listing rules, our Class A common stock will be delisted, which would negatively impact the price of, and your ability to sell, our Class A common stock.

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         Conflicts of interest may arise because some of our directors are representatives of our controlling stockholders.

        Messrs. Santoro, Selden and Barr, who are representatives of Sterling Investment Partners, serve on our board of directors, and Mr. Santoro serves as our Executive Chairman. Sterling Investment Partners and affiliated funds may hold equity interests in entities that directly or indirectly compete with us, and companies in which they currently invest may begin competing with us. As a result of these relationships, when conflicts between the interests of Sterling Investment Partners and its affiliates, on the one hand, and the interests of our other stockholders, on the other hand, arise, these directors may not be disinterested. Although our directors and officers have a duty of loyalty to us under Delaware law and our certificate of incorporation, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as (i) the material facts relating to the director's or officer's relationship or interest as to the transaction are disclosed to our board of directors and a majority of our disinterested directors, or a committee consisting solely of disinterested directors, approves the transaction, (ii) the material facts relating to the director's or officer's relationship or interest as to the transaction are disclosed to our stockholders and a majority of our disinterested stockholders approves the transaction or (iii) the transaction is otherwise fair to us. Under our amended and restated certificate of incorporation, representatives of Sterling Investment Partners are not required to offer to us any transaction opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is offered to them solely in their capacity as a director of ours.

         An active, liquid trading market for our Class A common stock may not develop following this offering, which could limit your ability to sell your shares of our Class A common stock at an attractive price, or at all.

        Prior to this offering, there has been no public market for our Class A common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market in our Class A common stock or how liquid that market might become. An active public market for our Class A common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of Class A common stock at a price that is attractive to you, or at all. The initial public offering price for the shares of our common stock will be determined by negotiations among us, Sterling Investment Partners and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. The market price for shares of our Class A common stock may decline below the initial public offering price, and you may not be able to resell your shares of Class A common stock at or above the initial public offering price.

         Our stock price may be volatile or may decline regardless of our operating performance, and you may lose part or all of your investment.

        Following the completion of this offering, the market price for our Class A common stock is likely to be volatile, in part because our shares have not been previously traded publicly. In addition, the market price of our Class A common stock may fluctuate significantly in response to a number of factors, most of which we cannot predict or control, including:

    announcements of new store openings or initiatives, commercial relationships, acquisitions or other events by us or our competitors;

    failure of any of our initiatives to achieve commercial success;

    fluctuations in stock market prices and trading volumes of securities of similar companies;

    general market conditions and overall fluctuations in U.S. equity markets;

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    variations in our operating results, or the operating results of our competitors;

    actual or anticipated growth rates relative to our competitors;

    changes in our financial guidance to investors and analysts or our failure to achieve such expectations;

    delays in, or our failure to provide, financial guidance;

    changes in securities analysts' estimates of our financial performance or our failure to achieve such estimates;

    sales of large blocks of our Class A common stock, including sales by Sterling Investment Partners or by our executive officers or directors;

    additions or departures of any of our key personnel;

    changes in accounting principles or methodologies;

    economic, legal and regulatory factors unrelated to our performance;

    changing legal or regulatory developments in the U.S.;

    discussion of us or our stock price by the financial press and in online investor forums; and

    negative publicity about us in the media and online.

        In addition, the stock market in general has experienced substantial price and volume volatility that is often seemingly unrelated to the operating performance of particular companies. These broad market fluctuations may cause the trading price of our Class A common stock to decline. In the past, securities class action litigation has often been brought against a company after a period of volatility in the market price of its common stock. We may become involved in this type of litigation in the future. Any securities litigation claims brought against us could result in substantial expenses and the diversion of our management's attention from our business.

         If you purchase shares of Class A common stock sold in this offering, you will incur immediate and substantial dilution.

        If you purchase shares of Class A common stock in this offering, you will incur immediate and substantial dilution in the amount of $12.70 per share, because the assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, is substantially higher than the pro forma net tangible book value per share of our outstanding common stock. This means that you will pay a higher price per share than the amount of our total tangible assets, less our total liabilities, divided by the number of shares of common stock outstanding. In addition, you may also experience additional dilution upon future equity issuances or the exercise of stock options to purchase common stock granted to our employees, executive officers, consultants and directors under our stock option and equity incentive plans. For additional information, see "Dilution."

         Because we have no current plans to pay cash dividends on our Class A common stock for the foreseeable future, you may not receive any return on investment unless you sell your Class A common stock for a price greater than you paid.

        We have never declared or paid cash dividends on our common stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A common stock if the market price of our Class A common stock increases. In addition, our senior credit facility contains restrictions on our ability to pay dividends.

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         Future sales of our Class A common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

        The price of our Class A common stock could decline if there are substantial sales of our Class A common stock, particularly sales by our directors, executive officers, employees and significant stockholders, or when there is a large number of shares of our Class A common stock available for sale. These sales, or the perception that these sales might occur, could depress the market price of our Class A common stock and might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

        Upon completion of this offering, there will be 41,238,260 shares of our common stock outstanding. Of these, the 13,650,000 shares of Class A common stock being sold in this offering (or 15,697,500 shares of Class A common stock if the underwriters exercise their option to purchase additional shares from certain of our selling stockholders in full) will be freely tradable immediately after this offering (except for any shares purchased by our affiliates and other than shares purchased by any of our existing stockholders pursuant to the reserved share program who are subject to lock-up agreements, if any) and 27,588,260 shares will be subject to lock-up agreements for 180 days after the date of this prospectus. A large portion of our shares are held by Sterling Investment Partners. Moreover, Sterling Investment Partners has rights, subject to some conditions, to require us to file registration statements covering the shares they and certain of our other existing stockholders currently hold, or to include these shares in registration statements that we may file for ourselves or other stockholders. See "Certain Relationships and Related-Party Transactions—Registration Rights Agreement."

        Credit Suisse Securities (USA) LLC may, in its sole discretion, permit our executive officers, our directors, Sterling Investment Partners and our other stockholders to sell shares prior to the expiration of the restrictive provisions contained in the lock-up agreements with the underwriters.

        We also intend to register all common stock that we may issue under our 2013 Long-Term Incentive Plan. Effective upon the completion of this offering, an aggregate of 5,472,136 shares of our Class A common stock will be reserved for issuance under the 2013 Long-Term Incentive Plan, including 2,296,838 shares subject to RSU awards and 1,135,772 shares subject to option grants to be granted in connection with this offering. Once we register these shares, which we plan to do shortly after the completion of this offering, they can be freely sold in the public market upon issuance, subject to the lock-up agreements referred to above. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our Class A common stock.

        Also, in the future, we may issue shares of our Class A common stock in connection with investments or acquisitions. The amount of shares of our Class A common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of common stock.

        The market price of the shares of our Class A common stock could decline as a result of the sale of a substantial number of our shares of Class A common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

         Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Fluctuations in our quarterly financial results could affect our stock price in the future.

        Our operating results have historically varied from period-to-period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control. If our quarterly financial results or our forecasts of future financial results fail to meet the expectations of securities analysts and investors, our Class A common stock price could be negatively affected. Any

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volatility in our quarterly financial results may make it more difficult for us to raise capital in the future or pursue acquisitions that involve issuances of our stock. Our operating results for prior periods may not be effective predictors of our future performance.

        Factors associated with our industry, the operation of our business and the markets for our products may cause our quarterly financial results to fluctuate, including:

    our ability to open new stores on a timely basis or at all;

    our ability to achieve sustained sales and profitable operating margins at new stores;

    the availability of financing to pursue our new store openings on satisfactory terms or at all;

    our ability to compete effectively with other retailers;

    our ability to maintain price competitiveness;

    the geographic concentration of our stores;

    ongoing economic uncertainty;

    our ability to maintain or improve our operating margins;

    ordering errors or product supply disruptions in the delivery of perishable products;

    negative effects to our reputation from real or perceived quality or health issues with our food products;

    our ability to protect or maintain our intellectual property;

    the failure of our information technology or administrative systems to perform as anticipated;

    data security breaches and the release of confidential customer information;

    our ability to retain and attract senior management, key employees and qualified store-level employees;

    rising costs of providing employee benefits, including increased healthcare costs and pension contributions due to unfunded pension liabilities;

    our ability to renegotiate expiring collective bargaining agreements and new collective bargaining agreements;

    changes in law;

    additional indebtedness incurred in the future;

    our ability to satisfy our ongoing capital needs and unanticipated cash requirements;

    claims made against us resulting in litigation;

    increases in commodity prices;

    severe weather and other natural disasters in areas in which we have stores;

    wartime activities, threats or acts of terror or a widespread regional, national or global health epidemic;

    changes to financial accounting standards regarding store leases;

    our high level of fixed lease obligations; and

    impairment of our goodwill.

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        Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly financial and other operating results, including fluctuations in our key metrics. This variability and unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits. In addition, a significant percentage of our operating expenses are fixed in nature and based on forecasted revenue trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins in the short term.

         The supervoting rights of our Class B common stock and other anti-takeover provisions in our organizational documents and Delaware law might discourage or delay attempts to acquire us that you might consider favorable.

        Our amended and restated certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult, including the following:

    any transaction that would result in a change in control of our company requires the approval of a majority of our outstanding Class B common stock voting as a separate class;

    we have a dual class common stock structure, which provides Sterling Investment Partners with the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A and Class B common stock;

    when we no longer have outstanding shares of our Class B common stock, certain amendments to our amended and restated certificate of incorporation or bylaws will require the approval of two-thirds of the combined vote of our then-outstanding shares of common stock;

    when we no longer have outstanding shares of our Class B common stock, vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;

    our board of directors is classified into three classes of directors with staggered three-year terms so that not all members of our board of directors are elected at one time and directors will only be able to be removed from office for cause;

    when we no longer have outstanding shares of our Class B common stock, our stockholders will only be able to take action at a meeting of stockholders and not by written consent;

    only our chairman or a majority of our board of directors is authorized to call a special meeting of stockholders;

    advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders;

    our board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws;

    our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established, and shares of which may be issued, without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of the holders of common stock; and

    certain litigation against us can only be brought in Delaware.

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        In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"), which limits the ability of certain stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

        These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

        For information regarding these and other provisions, see "Description of Capital Stock—Anti-Takeover Provisions."

         Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

        We are not currently required to comply with the rules of the Securities and Exchange Commission (the "SEC") implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC's rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. However, as an "emerging growth company," as defined in the JOBS Act, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

        To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management's attention from other matters that are important to the operation of our business. In addition, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be negatively affected, and we could

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become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

         We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.

        We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. Accordingly, we have included only four, rather than five, years of selected financial data due to a change in our fiscal year, included detailed compensation information for only our three most highly compensated executive officers and have not included a compensation discussion and analysis (CD&A) of our executive compensation programs in this prospectus. For so long as we are an emerging growth company, we will not be required to:

    have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

    comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

    submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay," "say-on-frequency" and "say-on-golden parachutes"; and

    disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation.

In addition, while we are an emerging growth company the JOBS Act will permit us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay the adoption of new or revised accounting pronouncements applicable to public and private companies until such pronouncements become mandatory for private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public and private companies.

        We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1 billion or more in annual gross revenues; (ii) the end of fiscal 2019; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter.

        We cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

         We will incur significant increased costs as a result of operating as a public company, and our management will be required to divert attention from operational and other business matters to devote substantial time to public company requirements.

        We have operated as a private company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be required to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the rules and regulations of the NASDAQ Global Market and the

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requirements of the Sarbanes-Oxley Act, as well as rules and regulations subsequently implemented by the SEC and the NASDAQ Global Market, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. In that regard, we currently have a limited internal audit function, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and provide significant management oversight. We may not be successful in implementing these requirements, and implementing them could materially adversely affect our business, results of operations and financial condition. If we do not implement or comply with such requirements in a timely manner, we might be subject to sanctions or investigation by regulatory authorities. Any such action could harm our reputation and the confidence of investors and customers in our company, and could materially adversely affect our business and cause our Class A common stock price to decline. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors and our board committees or as executive officers.

         Our business and stock price may suffer as a result of our lack of public company operating experience. In addition, if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

        We have been a privately-held company, and our lack of public company operating experience may make it difficult to forecast and evaluate our future prospects. If we are unable to execute our business strategy, either as a result of our inability to effectively manage our business in a public company environment or for any other reason, our business, prospects, financial condition and results of operations may be harmed.

        The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. As a new public company we do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "forecast," "continue," "plan," "intend," "believe," "may," "will," "should," "can have," "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected store openings, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

    our ability to open new stores on a timely basis or at all;

    our ability to achieve sustained sales and profitable operating margins at new stores;

    the availability of financing to pursue our new store openings on satisfactory terms or at all;

    our ability to compete effectively with other retailers;

    our ability to maintain price competitiveness;

    the geographic concentration of our stores;

    ongoing economic uncertainty;

    our ability to maintain or improve our operating margins;

    our history of net losses;

    ordering errors or product supply disruptions in the delivery of perishable products;

    negative effects to our reputation from real or perceived quality or health issues with our food products;

    restrictions on our use of the Fairway name other than on the East Coast and in California and certain parts of Michigan and Ohio;

    our ability to protect or maintain our intellectual property;

    the failure of our information technology or administrative systems to perform as anticipated;

    data security breaches and the release of confidential customer information;

    our ability to retain and attract senior management, key employees and qualified store-level employees;

    rising costs of providing employee benefits, including increased healthcare costs and pension contributions due to unfunded pension liabilities;

    our ability to renegotiate expiring collective bargaining agreements and new collective bargaining agreements;

    changes in law;

    additional indebtedness incurred in the future;

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    our ability to satisfy our ongoing capital needs and unanticipated cash requirements;

    claims made against us resulting in litigation;

    increases in commodity prices;

    severe weather and other natural disasters in areas in which we have stores;

    wartime activities, threats or acts of terror or a widespread regional, national or global health epidemic;

    changes to financial accounting standards regarding store leases;

    our high level of fixed lease obligations;

    impairment of our goodwill; and

    other factors discussed under "Risk Factors."

        We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties, and you should not rely upon forward-looking statements as predictions of future events.

        We caution you that the important factors described in the sections in this prospectus entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" may not be all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially and adversely from those contained in any forward-looking statements we may make. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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USE OF PROCEEDS

        We estimate that the net proceeds to us from our issuance and sale of 13,363,564 shares of Class A common stock in this offering will be approximately $133.4 million, assuming an initial public offering price of $11.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share would increase (decrease) our net proceeds from this offering by approximately $12.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

        We intend to use the net proceeds that we receive from this offering for new store growth and other general corporate purposes, after (i) paying accrued but unpaid dividends on our Series A preferred stock totaling approximately $16.2 million (averaging $376.16 per share of Series A preferred stock), (ii) paying accrued but unpaid dividends on our Series B preferred stock totaling approximately $48.8 million ($762.35 per share of Series B preferred stock), (iii) paying $9.2 million to an affiliate of Sterling Investment Partners in connection with the termination of our management agreement with such affiliate and (iv) paying contractual initial public offering bonuses to certain members of our management totaling approximately $7.3 million.

        If the price per share to the public is below $11.00, which is the midpoint of the price range set forth on the cover page of this prospectus, we intend to proportionately reduce the amount of the net proceeds we use to pay the accrued dividends on our preferred stock, and if the price per share to the public is above $11.00, we intend to proportionately increase the amount of the net proceeds we use to pay the accrued dividends on our preferred stock. Pursuant to an agreement between us and the preferred stockholders, the number of shares of Class B common stock that we issue in exchange for our preferred stock (including accrued dividends thereon that are not being paid in cash with a portion of the proceeds of this offering) will not change if we decrease or increase the amount of accrued dividends we pay in cash with the net proceeds of this offering. If the price per share to the public is greater than $11.00 per share, we will recognize a dividend in an amount equal to the additional cash used to pay dividends plus an amount equal to the number of shares of Class B common stock we issued multiplied by the difference between the price per share to the public and $11.00. The amount of this dividend will be subtracted from net income to arrive at income available to common stockholders in the calculation of net income (loss) per share. If the price per share to the public is less than $11.00, the amount of dividends we would otherwise recognize will be reduced by an amount equal to the reduction in the amount of cash used to pay dividends plus an amount equal to the number of shares of Class B common stock we issued multiplied by the difference between the price per share to the public and $11.00.

        The accrued dividends of $12,597,184 on the Series A preferred stock that are not paid in cash and the liquidation preference of the Series A preferred stock of $55,975,400 will be satisfied through the issuance of 6,233,871 shares of Class B common stock in connection with this offering (of which 33,576 shares will automatically convert into 33,576 shares of Class A common stock at the closing of this offering). We received $43,058,000 in the aggregate, or $1,000 per share, upon the issuance of the Series A preferred stock. The accrued dividends of $37,957,698 on the Series B preferred stock that are not paid in cash and the liquidation preference of the Series B preferred stock of $64,016,980 will be satisfied through the issuance of 9,270,425 shares of Class B common stock in connection with this offering. We received $51,278,000 in the aggregate, or $1,000 per share, upon the issuance of the Series B preferred stock. In addition, we issued Series B preferred stock having a value of $12,738,980 to the sellers in connection with our acquisition of the four then existing Fairway stores in January 2007.

        We will not receive any of the proceeds from the sale of the shares by the selling stockholders.

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DIVIDEND POLICY

        We have never declared or paid cash dividends on our common stock. We currently intend to retain any future earnings for use in the operation of our business and do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Any further determination to pay dividends on our capital stock will be at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors considers relevant. In addition, the terms of our senior credit facility contains restrictions on our ability to pay dividends.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our consolidated capitalization as of December 30, 2012 on:

    an actual basis;

    a pro forma basis to give effect to (i) our entry into a new senior credit facility on February 14, 2013, consisting of a $275 million term loan facility and a $40 million revolving credit facility, with the proceeds of the term loan facility being used to repay $264.5 million of outstanding borrowings (including accrued interest of approximately $5.3 million) under our prior senior credit facility, pay fees and expenses and provide us with $3.5 million to repay our outstanding subordinated note, (ii) repayment of our outstanding subordinated note (including accrued interest of $400,000) on March 6, 2013 ((i) and (ii) collectively, the "Refinancing") and (iii) our repurchase of shares of Class A common stock for $1.5 million in March 2013 (the "Stock Repurchase"), as if such transactions had occurred on December 30, 2012; and

    a pro forma as adjusted basis to give effect to (i) the Refinancing and the Stock Repurchase, as described above, (ii) our issuance and sale of 13,363,564 shares of Class A common stock in this offering at an assumed initial public offering price of $11.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the proceeds from the offering as described under "Use of Proceeds" and (iii) our issuance of 15,504,296 shares of Class B common stock (of which 33,576 shares will automatically convert into 33,576 shares of Class A common stock at the closing of this offering) in exchange for the shares of our outstanding preferred stock, based on an aggregate liquidation value of $68,572,584 for the Series A preferred stock (including accrued but unpaid dividends thereon not paid in cash with a portion of the proceeds of this offering) and $101,974,678 for the Series B preferred stock (including accrued but unpaid dividends thereon not paid in cash with a portion of the proceeds of this offering), as if such transactions had occurred on December 30, 2012.

        You should read the following table in conjunction with the sections entitled "Use of Proceeds," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis

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of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  As of December 30, 2012  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (unaudited)
 
 
  (dollars in thousands)
 

Cash and cash equivalents(1)

  $ 29,172   $ 23,392   $ 75,339  
               

Long-term debt (including current maturities):

                   

Senior credit facility(2)

  $ 247,294   $ 259,390   $ 259,390  

Subordinated note(3)

    7,333          
               

Total debt

    254,627     259,390     259,390  

Redeemable preferred stock

                   

Series A preferred stock, $0.001 par value, 52,982 shares authorized, 43,058 shares issued and outstanding actual, no shares issued and outstanding as adjusted (inclusive of cumulative deemed dividends of $25,752)

    81,727     81,727      

Series B preferred stock, $0.001 par value, 64,018 shares authorized, 64,016.98 shares issued and outstanding actual, no shares issued and outstanding as adjusted (inclusive of cumulative deemed dividends of $80,789)

    144,806     144,806      
               

Total redeemable preferred stock

    226,533     226,533      

Stockholders' equity

                   

Common stock, $0.001 par value, 150,000 shares authorized, 105,473 shares issued and outstanding actual, no shares authorized, issued or outstanding as adjusted

             

Class A common stock, $0.00001 par value per share; no shares authorized, issued or outstanding, actual; 150,000,000 shares authorized and 27,767,540 shares issued and outstanding as adjusted

             

Class B common stock, $0.001 par value per share; no shares authorized, issued or outstanding, actual; 31,000,000 shares authorized and 15,470,720 shares issued and outstanding as adjusted

            15  

Preferred stock, $0.001 par value per share; no shares authorized, issued or outstanding, actual and pro forma; 5,000,000 shares authorized, no shares issued and outstanding as adjusted

             

Additional paid-in capital(4)

        (1,500 )   302,459  

Accumulated deficit(5)

    (219,570 )   (225,039 )   (251,411 )
               

Total stockholders' (deficit) equity

    (219,570 )   (226,539 )   51,063  
               

Total capitalization

  $ 261,590   $ 259,384   $ 310,453  
               

(1)
The following table shows the pro forma and pro forma as adjusted adjustments to cash and cash equivalents as a result of the refinancing of our 2012 senior credit facility in February 2013, the repayment of our outstanding subordinated promissory note in March 2013, the repurchase of shares of our Class A common stock in March 2013 and the net proceeds of the offering to us after (a) deducting underwriting discounts and commissions and estimated offering expenses

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    payable by us (adjusted for approximately $1.0 million of offering expenses paid by us prior to December 30, 2012), (b) paying accrued dividends on our preferred stock of $65.0 million, (c) paying $9.2 million to an affiliate of Sterling Investment Partners in connection with the termination of our management agreement with such affiliate and (d) paying contractual initial public offering bonuses to certain members of our management totaling approximately $7.3 million, as described under "Use of Proceeds":

As of December 30, 2012
  (dollars in thousands)  

Actual cash and cash equivalents

  $ 29,172  

Plus: proceeds to us from our 2013 senior credit facility after repaying outstanding loans under our 2012 senior credit facility and fees and expenses

    3,453  

Less: repayment of principal and accrued interest through the date of payment on subordinated promissory note

    (7,733 )

Less: repurchase of 129,963 shares of Class A common stock

    (1,500 )
       

Pro forma cash and cash equivalents

    23,392  

Plus: net cash proceeds to us from this offering

    51,947  
       

Pro forma as adjusted cash and cash equivalents

  $ 75,339  
       
(2)
Net of unamortized original issue discount of approximately $12.1 million actual and $15.6 million pro forma and pro forma as adjusted. See Notes 8 and 17 to our financial statements included elsewhere in this prospectus for more information regarding our original issue discount.

(3)
Net of $240,000 of deferred interest, actual. The deferred interest, which is classified as other long-term liabilities in our financial statements, was paid in full in connection with the repayment of this note.

(4)
On a pro forma as adjusted basis, additional paid-in capital includes adjustments for our (i) issuance of 15,504,296 shares of Class B common stock (of which 33,576 shares will automatically convert into 33,576 shares of Class A common stock at the closing of this offering) in exchange for the shares of our outstanding preferred stock (including accrued but unpaid dividends thereon that are not being paid in cash with a portion of the proceeds of this offering), based on an aggregate liquidation value of $68,572,584 for the Series A preferred stock (including accrued but unpaid dividends not paid in cash with a portion of the proceeds of this offering) and $101,974,678 for the Series B preferred stock (including accrued but unpaid dividends not paid in cash with a portion of the proceeds of this offering), and (ii) issuance and sale by us of 13,363,564 shares of Class A common stock in this offering at an assumed initial public offering price of $11.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(5)
On a pro forma adjusted basis, total stockholders' (deficit) equity reflects (i) the write-off of deferred management fees of $877,000, (ii) the payment of cash dividends on the preferred stock of $65.0 million and (iii) a compensation charge for the contractual bonuses due to certain members of our management as a result of the offering being made hereby totaling approximately $7.3 million.

        The table above excludes:

    1,930,822 shares of Class A common stock issuable upon the exercise of outstanding warrants having an exercise price of $0.00008 per share;

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    2,296,838 shares of Class A common stock subject to RSUs to be granted under our 2013 Long-Term Incentive Plan in connection with this offering;

    649,360 shares of Class A common stock issuable upon the exercise of options to be granted under our 2013 Long-Term Incentive Plan in connection with this offering having an exercise price equal to the initial public offering price set forth on the cover page of this prospectus;

    486,412 shares of Class A common stock issuable upon the exercise of options to be granted under our 2013 Long-Term Incentive Plan in connection with this offering having an exercise price equal to 120% of the initial public offering price set forth on the cover page of this prospectus; and

    2,039,526 shares of Class A common stock reserved for future grants under our 2013 Long-Term Incentive Plan.

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DILUTION

        After giving effect to the Exchange and the Refinancing and Stock Repurchase described above under "Capitalization," our pro forma net tangible book value as of December 30, 2012 would have been approximately $(186.2) million, or approximately $(6.68) per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less the amount of our total liabilities, divided by the number of shares of common stock outstanding at December 30, 2012, prior to the sale by us of 13,363,564 shares of our Class A common stock offered in this offering, but giving effect to the Exchange, the Refinancing and the Stock Repurchase. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by investors in this offering and the net tangible book value per share of our common stock outstanding immediately after this offering.

        After giving effect to the completion of the Exchange, the Refinancing, the Stock Repurchase and the sale by us of 13,363,564 shares of our Class A common stock in this offering, based upon an assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated expenses payable by us in connection with this offering, our pro forma as adjusted net tangible book value as of December 30, 2012 would have been approximately $(70.1) million, or $(1.70) per share of common stock. This represents an immediate increase in pro forma net tangible book value of $4.98 per share to existing stockholders and immediate dilution of $12.70 per share to new investors purchasing shares of Class A common stock in this offering at the initial public offering price.

        The following table illustrates this per share dilution:

 
   
   
 

Assumed initial public offering price per share

        $ 11.00  

Pro forma net tangible book value (deficit) per share as of December 30, 2012 (which gives effect to the Exchange, the Refinancing and the Stock Repurchase)

   
(6.68

)
     

Increase in net tangible book value per share attributable to new investors

   
4.98
       
             

Pro forma as adjusted net tangible book value (deficit) per share as of December 30, 2012 (which gives effect to the Exchange, the Refinancing, the Stock Repurchase and this offering)

         
(1.70

)
             

Dilution per share to new investors

       
$

12.70
 
             

        The following table summarizes, as of December 30, 2012, on a pro forma as adjusted basis giving effect to the Exchange, the Refinancing, the Stock Repurchase and the sale by us of 13,363,564 shares of Class A common stock in this offering, the number of shares of our Class A common stock purchased from us, the aggregate cash consideration paid to us and the average price per share paid to us by existing stockholders and to be paid by new investors purchasing shares of our Class A common stock from us in this offering. The table assumes an initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated

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underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering.

 
  Shares Purchased   Total Consideration    
 
 
  Average Price
Per Share
 
 
  Number   Percentage   Amount   Percentage  

Existing stockholders(1)

    27,874,696     67.6 % $ 170,547,262     53.7 % $ 6.12  

New investors

    13,363,564     32.4     146,999,204     46.3 %   11.00  
                         

Total

    41,238,260     100 % $ 317,546,466     100 %      
                         

(1)
Gives effect to our issuance of 15,504,296 shares of our Class B common stock, based on a price of $11.00 per share, in exchange for our outstanding preferred stock (including accrued but unpaid dividends thereon that are not being paid in cash with a portion of the proceeds of this offering).

        A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by investors participating in this offering by $13.4 million, or increase (decrease) the percentage of total consideration paid by investors participating in this offering by 2.2% (2.4%), assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        Sales of shares of Class A common stock by the selling stockholders in this offering will reduce the number of shares held by our existing stockholders to 27,588,260, or approximately 66.9% of the total shares of our common stock outstanding after this offering, and will increase the number of shares held by new investors to 13,650,000, or approximately 33.1% of the total shares of our common stock outstanding after this offering.

        Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters' option to purchase additional shares. If the underwriters' option to purchase additional shares is exercised in full, our existing stockholders would own approximately 61.9% and our new investors would own approximately 38.1% of the total number of shares of our common stock outstanding after this offering.

        The tables and calculations above are based on shares of common stock outstanding as of December 30, 2012 (after giving effect to the Exchange and the Stock Repurchase) and exclude:

    1,930,822 shares of Class A common stock issuable upon the exercise of outstanding warrants having an exercise price of $0.00008 per share;

    2,296,838 shares of Class A common stock subject to RSUs to be granted under our 2013 Long-Term Incentive Plan in connection with this offering;

    649,360 shares of Class A common stock issuable upon the exercise of options to be granted under our 2013 Long-Term Incentive Plan in connection with this offering having an exercise price equal to the initial public offering price set forth on the cover page of this prospectus;

    486,412 shares of Class A common stock issuable upon the exercise of options to be granted under our 2013 Long-Term Incentive Plan in connection with this offering having an exercise price equal to 120% of the initial public offering price set forth on the cover page of this prospectus; and

    2,039,526 shares of Class A common stock reserved for future grants under our 2013 Long-Term Incentive Plan.

        To the extent that any options or other equity incentive grants are issued in the future with an exercise price or purchase price below the initial public offering price, new investors will experience further dilution.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

        The following tables summarize our financial data as of the dates and for the periods indicated. We have derived the selected consolidated financial data for the fiscal years ended March 29, 2009, March 28, 2010, April 3, 2011 and April 1, 2012 from our audited consolidated financial statements for such years and for the thirty-nine weeks ended January 1, 2012 and December 30, 2012 from our unaudited consolidated financial statements for such periods. Our audited consolidated financial statements as of April 3, 2011 and April 1, 2012 and for the fiscal years ended March 28, 2010, April 3, 2011 and April 1, 2012 have been included in this prospectus. Our unaudited consolidated financial statements as of December 30, 2012 and for the thirty-nine weeks ended January 1, 2012 and December 30, 2012 have been included in this prospectus and, in the opinion of management, include all adjustments (inclusive only of normally recurring adjustments) necessary for a fair presentation. Results of operations for an interim period are not necessarily indicative of results for a full year. Each of our fiscal years ended March 29, 2009, March 28, 2010 and April 1, 2012 consists of 52 weeks; our fiscal year ended April 3, 2011 consists of 53 weeks. The differing length of certain fiscal years may affect the comparability of certain data and the temporary closure of our Red Hook, Brooklyn, New York store due to damage sustained during Hurricane Sandy may affect the comparability of certain data for the thirty-nine weeks ended January 1, 2012 and December 30, 2012.

        Since March 2009, we have opened eight food stores (two urban and six suburban) in the Greater New York City metropolitan area, three of which include Fairway Wines & Spirits locations, bringing our total stores open to 12. We opened our Woodland Park, New Jersey store in June 2012, our Westbury, New York store in August 2012 and our Kips Bay, Manhattan, New York store in late December 2012, and had to temporarily close our Red Hook, Brooklyn, New York store from October 29, 2012 through February 28, 2013 due to damage from Hurricane Sandy. Our income (loss) from operations in each period shown has been affected by the number of stores open and the number of stores in the process of being opened in each period and, for the thirty-nine weeks ended December 30, 2012, the closure of our Red Hook store. We expect to open an additional food store in Manhattan's Chelsea neighborhood in summer 2013 and in Nanuet, New York in fall 2013.

        We believe our food stores are among the most productive in the industry in net sales per store and net sales per square foot as a result of our distinctive merchandising strategies, value proposition and efficient operating structure. As the Selected Operating Data table reflects, however, our average net sales per store and average net sales per gross square foot have declined as we have increased the number of suburban stores that we operate. Our suburban stores are larger in size (average of 65,000 gross square feet (39,000 selling square feet)) than our urban stores that have greater real estate constraints (average of 51,000 gross square feet (23,000 selling square feet)) and generate comparatively lower sales and contribution margin.

        While we have increased our net sales from $401.2 million in fiscal 2010 to $554.9 million in fiscal 2012, or 38.3%, and our Adjusted EBITDA from $23.9 million in fiscal 2010 to $35.8 million in fiscal 2012, or 49.8%, our comparable store sales have been impacted by sales transfer from our existing stores to our newly opened stores that are in closer proximity to some of our customers and by our price optimization initiative that we launched across our store network late in fiscal 2011 to refine the pricing and balance of our promotional activities across our mix of higher-margin perishable items and everyday value-oriented conventional grocery items. Our price optimization initiative has resulted in an increase in our gross margins. We had net losses of $7.1 million, $18.6 million and $11.9 million in fiscal 2010, fiscal 2011 and fiscal 2012, respectively. For a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net loss, see note 11 below.

        The selected historical consolidated data presented below should be read in conjunction with the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and

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Results of Operations" and the consolidated financial statements and the related notes thereto and other financial data included elsewhere in this prospectus.

Statement of Income Data

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 29,
2009(1)
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
   
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands, except for per share data)
 

Net sales(2)

  $ 343,106   $ 401,167   $ 485,712   $ 554,858   $ 404,527   $ 482,539  

Cost of sales and occupancy costs(3)

    230,912     271,599     326,207     368,728     269,641     326,808  
                           

Gross profit(4)

    112,194     129,568     159,505     186,130     134,886     155,731  

Direct store expenses

    70,371     85,840     109,867     132,446     97,659     111,362  

General and administrative expenses(5)

    28,998     34,676     40,038     44,331     30,598     39,746  

Store opening costs(6)

    3,066     3,949     10,006     12,688     11,181     19,349  
                           

Income (loss) from operations

    9,759     5,103     (406 )   (3,335 )   (4,552 )   (14,726 )

Business interruption insurance recoveries(7)

                        2,500  

Interest expense, net

    (10,279 )   (13,787 )   (19,111 )   (16,918 )   (12,370 )   (17,439 )

Loss on early extinguishment of debt(8)

        (2,837 )   (13,931 )            
                           

Loss before income taxes

    (520 )   (11,521 )   (33,448 )   (20,253 )   (16,922 )   (29,665 )

Income tax benefit (provision)(9)

    851     4,426     14,860     8,304     6,940     (26,514 )
                           

Net income (loss)

  $ 331   $ (7,095 ) $ (18,588 ) $ (11,949 ) $ (9,982 ) $ (56,179 )
                           

Net (loss) attributable to common stockholders(10)

  $ (10,836 ) $ (23,750 ) $ (39,021 ) $ (36,677 ) $ (28,518 ) $ (78,289 )
                           

Net (loss) per share attributable to common stockholders (basic and diluted)(10)

  $ (0.89 ) $ (1.95 ) $ (3.22 ) $ (3.01 ) $ (2.33 ) $ (6.35 )

Net income (loss) per share (pro forma basic and diluted)(10)

  $ 0.02   $ (0.34 ) $ (0.84 ) $ (0.51 ) $ (0.43 ) $ (2.19 )
                           

Weighted average number of common shares outstanding (in 000s)(10)

    12,187     12,190     12,122     12,189     12,245     12,324  

Basic and diluted

                                     

Pro forma basic and diluted

    18,027     20,945     22,151     23,588     23,399     25,703  
                           

Other Financial Data

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 29,
2009
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
  (dollars in thousands)
 

Adjusted EBITDA(11)

  $ 21,785   $ 23,874   $ 29,309   $ 35,775   $ 24,905   $ 33,842  

Depreciation and amortization

  $ 7,175   $ 10,233   $ 14,588   $ 19,202   $ 13,937   $ 15,900  

Capital expenditures

  $ 21,650   $ 21,658   $ 27,797   $ 44,528   $ 35,591   $ 45,199  

Gross margin(12)

    32.7 %   32.3 %   32.8 %   33.5 %   33.3 %   32.3 %

Adjusted EBITDA margin(13)

    6.3 %   6.0 %   6.0 %   6.4 %   6.2 %   7.0 %

Pro forma Adjusted EBITDA margin(13)(14)

    6.3 %   6.0 %   6.0 %   6.4 %   6.2 %   6.8 %

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Selected Operating Data

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended
 
  March 29,
2009
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012

Locations at end of period(15)

  5   5   7   9   9   12

Total gross square feet at end of period

  292,774   292,774   454,146   552,900   552,900   741,375

Change in square footage for period(16)

  20.7%     55.1%   21.7%   21.7%   34.1%

Average store size

                       

Gross square feet

  58,555   58,555   64,878   61,433   61,433   61,781

Selling square feet(17)

  31,157   31,157   36,348   34,976   34,976   35,417

Average net sales per square foot

                       

Gross square foot(18)

  $1,409   $1,370   $1,307   $1,029   $779   $836

Selling square foot(18)

  $2,774   $2,575   $2,457   $1,859   $1,407   $1,461

Average net sales per store per week ($000)(19)

  $1,642   $1,543   $1,472   $1,246   $1,257   $1,242

Comparable store sales growth (decrease) per period(20)

  10.1%   0.5%   (4.3)%   (7.9)%   (7.8)%   (3.5)%

New stores opened in period (location/date)  
 
 
    

  Paramus, NJ
(3/2009)  
  
    
  —  
  
  
    
  Pelham Manor, NY
(4/2010);
Stamford, CT
(11/2010)
  Upper East Side, NY
(7/2011);
Douglaston, NY
(11/2011)
  Upper East Side, NY
(7/2011);
Douglaston, NY
(11/2011)
  Woodland Park, NJ
(6/2012)
Westbury, NY
(8/2012)
Kips Bay, NY
(12/2012)

Balance Sheet Data

 
  March 29,
2009(1)
  March 28,
2010
  April 3,
2011
  April 1,
2012
  December 30,
2012
 
 
  (dollars in thousands)
 

Cash and cash equivalents

  $ 15,816   $ 22,594   $ 58,067   $ 30,172   $ 29,172  

Total assets

    209,293     242,206     313,665     321,590     339,178  

Total debt(21)

    93,747     122,544     194,297     203,552     254,627  

Redeemable preferred stock

    120,730     146,794     179,695     204,423     226,533  

Total stockholders' deficit

    (41,792 )   (65,542 )   (104,562 )   (141,364 )   (219,570 )

(1)
Amounts have been reclassified to match presentation of subsequent years.

(2)
Our Red Hook store was temporarily closed beginning October 29, 2012 due to damage sustained in Hurricane Sandy. During the period in the prior fiscal year corresponding to the period in the current fiscal year that this store was closed, net sales at the Red Hook store were approximately $12.7 million.

(3)
Excludes depreciation and amortization.

(4)
Our Red Hook store was temporarily closed beginning October 29, 2012 due to damage sustained in Hurricane Sandy. Management estimates that during the period in the prior fiscal year corresponding to the period in the current fiscal year that this store was closed, the Red Hook store generated approximately $4 million of gross profit.

(5)
In the thirty-nine weeks ended December 30, 2012, we recognized approximately $3.0 million for reimbursable ongoing business expenses and remediation costs incurred in connection with Red Hook and recorded this amount as a reduction in general and administrative expense, a direct offset to the associated expenses.

(6)
Costs (principally payroll, rent expense and real estate taxes) incurred in opening new stores are expensed as incurred. During fiscal 2009, we incurred $3.1 million of store opening costs related to the store we opened during fiscal 2009. During fiscal 2010 and fiscal 2011, we incurred $3.9 million and $6.8 million, respectively, of store opening costs related to the two stores we opened during fiscal 2011. During fiscal 2011 and fiscal 2012, we incurred $3.2 million and $11.9 million, respectively, of store opening costs related to the two stores we opened during fiscal 2012. During

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    fiscal 2012, we incurred $0.7 million of store opening costs related to the store we opened in the first quarter of fiscal 2013. During the thirty-nine weeks ended January 1, 2012 we incurred $11.2 million of store opening costs related to the two stores we opened during fiscal 2012 and during the thirty-nine weeks ended December 30, 2012 we incurred $18.9 million and $400,000 of store opening costs related to the three stores we opened in that period and the reopening of our Red Hook, Brooklyn, New York store, respectively.

(7)
Represents non-refundable reimbursement from our insurance carriers for business interruption losses sustained due to the temporary closure of our Red Hook store as a result of damage sustained during Hurricane Sandy.

(8)
In fiscal 2010, we incurred a loss on early extinguishment of debt in connection with the refinancing of our then existing first and second lien credit agreements. In fiscal 2011, we incurred a loss on early extinguishment of debt in connection with the refinancing of our then existing credit agreement with our 2011 senior credit facility that we subsequently refinanced in August 2012.

(9)
During the thirteen weeks ended December 30, 2012, we recorded a partial valuation allowance against our December 30, 2012 deferred tax asset. See Note 13 to our financial statements appearing elsewhere in this prospectus.

(10)
Common stockholders do not share in net income unless earnings exceed the unpaid dividends on our preferred stock. Accordingly, prior to this offering, there were no earnings available for common stockholders because in fiscal 2010, fiscal 2011, fiscal 2012 and the thirty-nine weeks ended January 1, 2012 and December 30, 2012 we reported a net loss and in fiscal 2009 unpaid dividends exceeded our net income. During any period in which we had a net loss, the loss was attributed only to the common stockholders. Net income (loss) per common share (pro forma basic and diluted) and the pro forma weighted average number of shares gives effect to the exchange of our then outstanding preferred stock (including accrued but unpaid dividends thereon that exceed the portion of the proceeds of this offering being utilized to pay accrued dividends) for shares of our Class B common stock, based on a price of $11.00 per share, as if such exchange had occurred on the last day of each period. We will not have any preferred stock outstanding after this offering.

    A reconciliation of the denominator used in the calculation of pro forma basic and diluted net income (loss) per common share is as follows:

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 29,
2009
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
  (in thousands)
 

Weighted average number of common shares outstanding, basic and diluted

    12,187     12,190     12,122     12,189     12,245     12,324  

Issuance of shares in the Exchange

    5,840     8,755     10,029     11,399     11,154     13,379  
                           

Weighted average number of common shares outstanding, pro forma basic and diluted

    18,027     20,945     22,157     23,588     23,399     25,703  
                           

Our Class A common stock and Class B common stock will share equally on a per share basis in our net income or net loss.

(11)
We present Adjusted EBITDA, a non-GAAP measure, in this prospectus to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete

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    understanding of factors and trends affecting our business than GAAP measures can provide alone. Our board of directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives. In addition, the financial covenants in our senior credit facility are based on Adjusted EBITDA, subject to dollar limitations on certain adjustments.

    We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, amortization of deferred financing costs, store opening costs, loss on early extinguishment of debt, non-recurring expenses and management fees. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors' ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of owned property, and because in our experience, whether a store is new or one that is fully or mostly depreciated does not necessarily correlate to the contribution that such store makes to operating performance. We will not be paying management fees following the consummation of this offering. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

    The use of Adjusted EBITDA has limitations as an analytical tool and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net income (loss). Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness; and (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

    To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this prospectus and the reconciliation to Adjusted EBITDA from net income (loss), the most directly comparable financial measure presented in accordance with GAAP, set forth in the table below. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are

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    presented without these items because their financial impact may not reflect on-going operating performance.

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 29,
2009
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
  (dollars in thousands)
 

Net income (loss)(a)

  $ 331   $ (7,095 ) $ (18,588 ) $ (11,949 ) $ (9,982 ) $ (56,179 )

Interest expense, net(b)

    10,279     13,787     19,111     16,918     12,370     17,439  

Depreciation and amortization expense

    7,175     10,233     14,588     19,202     13,937     15,900  

Income tax (benefit) provision(c)

    (851 )   (4,426 )   (14,860 )   (8,304 )   (6,940 )   26,514  

Store opening costs(d)

    3,066     3,949     10,006     12,688     11,181     19,349  

Loss on early extinguishment of debt(e)

        2,837     13,931              

Non-recurring items(f)

    1,285     3,378     3,541     4,573     2,819     8,187  

Management fees(g)

    500     1,211     1,580     2,647     1,520     2,632  
                           

Adjusted EBITDA

  $ 21,785   $ 23,874   $ 29,309   $ 35,775   $ 24,905   $ 33,842  
                           

(a)
See notes 2, 4, 7 and 9 above.

(b)
Includes amortization of deferred financing costs.

(c)
See note 9 above.

(d)
See note 6 above.

(e)
See note 8 above.

(f)
Consists principally of recruiting costs relating to the strengthening of our management team, severance costs associated with the termination of employment of certain executives and, in fiscal 2011 and fiscal 2012, bringing our systems and procedures into compliance with the Sarbanes-Oxley Act. The thirty-nine weeks ended December 30, 2012 also includes costs associated with our August 2012 re-financing and pre-offering related costs.

(g)
Represents management fees paid to an affiliate of Sterling Investment Partners pursuant to an agreement that will terminate upon the consummation of this offering in exchange for a payment of $9.2 million.
(12)
We calculate gross margin by subtracting cost of sales and occupancy costs from net sales and dividing by our net sales for each of the applicable periods.

(13)
We calculated Adjusted EBITDA margin by dividing our Adjusted EBITDA by our net sales for each of the applicable periods. We present Adjusted EBITDA margin because it is used by management as a performance measure of Adjusted EBITDA generated from net sales. See note 11 above for further information regarding how we calculate Adjusted EBITDA, which is a non-GAAP measure. In calculating Adjusted EBITDA margin for the thirty-nine weeks ended December 30, 2012, Adjusted EBITDA includes the $2.5 million of business interruption insurance recoveries we received, approximating the lost EBITDA of the Red Hook, Brooklyn location during the period it was closed, but net sales does not include any net sales for the period the store was closed. See note 14 below. Sales at certain of our stores may have benefitted from customers of our Red Hook store shopping at our other stores while the Red Hook store was temporarily closed. See note 2 above.

(14)
We calculated pro forma Adjusted EBITDA margin as described in note 13 above, except that for the thirty-nine weeks ended December 30, 2012, we added to net sales $12.7 million, representing

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    our net sales at Red Hook during the period in fiscal 2012 corresponding to the same period in fiscal 2013 that the store was temporarily closed.

(15)
The food stores and adjacent Fairway Wines & Spirits locations in Pelham Manor and Stamford, respectively, are considered as one store location in the number of stores and square footage.

(16)
For the thirty-nine week periods, represents the percentage change since the end of the comparable period in the prior fiscal year.

(17)
Excludes the square footage of the kitchen, bakery, meat department, produce coolers and storage in our stores.

(18)
The amount for fiscal 2011 has been decreased (by subtracting one week of average weekly net sales) to reflect a 52-week year so as to be comparable to fiscal 2009, 2010 and 2012. Stores not open for the entire fiscal period have been excluded. Does not include net sales from our Fairway Wines & Spirits locations. For the thirty-nine week periods ended January 1, 2012 and December 30, 2012, excludes our Red Hook store due to its temporary closure as a result of damages suffered during Hurricane Sandy.

(19)
We calculated average net sales per store per week by dividing net sales by the number of stores open during the entire fiscal period and then dividing by the number of weeks in the fiscal period. Does not include net sales from our Fairway Wines & Spirits locations. For the thirty-nine week periods ended January 1, 2012 and December 30, 2012, excludes our Red Hook store due to its temporary closure as a result of damages suffered during Hurricane Sandy.

(20)
Represents the percentage change in our same-store sales as compared to the prior comparable period. Our practice is to include sales from a store in same-store sales beginning on the first day of the fourteenth full month following the store's opening. This practice may differ from the methods that other food retailers use to calculate comparable or "same-store" sales. As a result, data in this prospectus regarding our same-store sales may not be comparable to similar data made available by other food retailers. Comparable same store sales for fiscal 2011 has been adjusted (by subtracting one week of average weekly net sales) to reflect a 52-week year so as to be comparable to fiscal 2009, 2010 and 2012. Does not include net sales from our Fairway Wines & Spirits locations. For the thirty-nine week periods ended January 1, 2012 and December 30, 2012, excludes our Red Hook store due to its temporary closure as a result of damages suffered during Hurricane Sandy.

(21)
Net of (i) unamortized original issue discount on our senior debt of $1.5 million, $4.2 million, $2.7 million, $1.9 million and $12.1 million at March 29, 2009, March 28, 2010, April 3, 2011, April 1, 2012 and December 30, 2012, respectively, and (ii) accrued deferred interest on our subordinated note of $0, $0, $443,617, $130,595 and $240,000 at March 29, 2009, March 28, 2010, April 3, 2011, April 1, 2012 and December 30, 2012, respectively. The accrued deferred interest is due at maturity and is classified as other long-term liabilities in our financial statements. See Note 8 to our financial statements included elsewhere in this prospectus for more information regarding our original issue discount.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis in conjunction with the information set forth under "Selected Historical Consolidated Financial and Other Data" and our consolidated financial statements and the notes to those statements included elsewhere in this prospectus. The statements in this discussion regarding our expectations of future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under "Risk Factors" and "Special Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

        Fairway Market is a high-growth food retailer offering customers a differentiated one-stop shopping experience "Like No Other Market". Since beginning as a small neighborhood market in the 1930s, Fairway has established itself as a leading food retailing destination in the Greater New York City metropolitan area, an approximately $30 billion food retail market that is the largest in the United States. Our stores emphasize an extensive selection of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries. Our prices typically are lower than natural / specialty stores and competitive with conventional supermarkets. We believe that the combination of our broad product selection, in-store experience and value pricing creates a premier food shopping experience that appeals to a broad demographic.

        We operate 12 locations in New York, New Jersey and Connecticut, three of which include Fairway Wines & Spirits stores. Four of our food stores, which we refer to as "urban stores," are located in Manhattan, and the remainder, which we refer to as "suburban stores," are located in New York (outside of Manhattan), New Jersey and Connecticut. We were forced to temporarily close our Red Hook, Brooklyn, New York location from October 29, 2012 through February 28, 2013 due to damage sustained during Hurricane Sandy. This store reopened March 1, 2013.

        We believe our stores are among the most productive in the industry in net sales per store and net sales per square foot as a result of our distinctive merchandising strategies, value positioning and efficient operating structure. Through our focused efforts on expanding our store base, enhancing our customers' shopping experience and improving the value proposition we offer our customers, we have increased our net sales from $401.2 million in fiscal 2010 to $554.9 million in fiscal 2012, or 38.3%, and our Adjusted EBITDA from $23.9 million in fiscal 2010 to $35.8 million in fiscal 2012, or 49.8%, while significantly investing in corporate infrastructure to support our growth, including new store expansion. We increased our net sales from $404.5 million in the thirty-nine weeks ended January 1, 2012 to $482.5 million in the thirty-nine weeks ended December 30, 2012, or 19.3%, and our Adjusted EBITDA from $24.9 million in the thirty-nine weeks ended January 1, 2012 to $33.8 million in the thirty-nine weeks ended December 30, 2012, or 35.9%, due principally to new store openings and leveraging our infrastructure. For a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net loss, see note 11 to the tables included in "Selected Historical Consolidated Financial and Other Data." While our net sales and Adjusted EBITDA have grown significantly over the last three fiscal years, our comparable store sales have been impacted by sales transfer from our existing stores to our newly opened stores that are in closer proximity to some of our customers and by our price optimization initiative that we launched across our store network late in fiscal 2011. Our price optimization initiative has resulted in an increase in our gross margins.

        Since Sterling Investment Partners acquired Fairway in January 2007, we have made significant additions to our company's personnel, including experienced industry executives and the next generation management and merchandising teams to support our long-term growth objectives. We have

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upgraded our systems and enhanced our new store development and training processes. We have also developed a robust, proprietary daily reporting portal that enables us to effectively manage our growing number of new stores and have implemented initiatives to reduce shrink and improve labor productivity throughout our operations. We believe we can leverage these investments to improve our operating margins as we grow our store base. Since March 2009, we have opened eight food stores, three of which include Fairway Wines & Spirits locations.

Outlook

        We intend to continue our strong growth by expanding our store base in our existing and new markets, capitalizing on consumer trends and improving our operating margins. We opened an additional food store and integrated Fairway Wines & Spirits location in Woodland Park, New Jersey in June 2012, an additional food store in Westbury, New York in August 2012, and an additional food store in Manhattan's Kips Bay neighborhood in late December 2012. We reopened our Red Hook, Brooklyn, New York store, which was temporarily closed due to damage sustained during Hurricane Sandy, on March 1, 2013, and we expect to open an additional food store in Manhattan's Chelsea neighborhood in summer 2013 and in Nanuet, New York in fall 2013. For the next several years beginning in fiscal 2015, we intend to grow our store base in the Greater New York City metropolitan area at a rate of three to four stores annually. Over time, we also plan to expand Fairway's presence into new, high-density metropolitan markets. Based on demographic research conducted for us by the Buxton Company, a customer analytics research firm, we believe, based on these demographics, we have the opportunity to more than triple the number of stores in our existing marketing region of the Greater New York City metropolitan area, the Northeast market (from New England to the District of Columbia) can support up to 90 stores and the U.S. market can support more than 300 additional stores (including stores in the Northeast) operating under our current format.

        We believe that we are well positioned to capitalize on evolving consumer preferences and other key trends currently shaping the food retail industry. These trends include an increasing consumer focus on the shopping experience and on healthy eating choices and fresh, quality offerings, including locally sourced products, as well as growing interest in high-quality, value-oriented private label product offerings.

        We intend to improve our operating margins through scale efficiencies, improved systems, continued cost discipline and enhancements to our merchandise offerings. We expect store growth will also permit us to benefit from economies of scale in sourcing products and will enable us to leverage our existing infrastructure.

Factors Affecting Our Operating Results

        Various factors affect our operating results during each period, including:

    Store Openings

        We expect the new stores we open to be the primary driver of our sales, operating profit and market share gains. Our results of operations have been and will continue to be materially affected by the timing and number of new store openings and the amount of new store opening costs. For example, we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs. Operating margins are also affected by promotional discounts and other marketing costs and strategies associated with new store openings, as well as higher shrink, primarily due to overstocking, and costs related to hiring and training new employees. Additionally, promotional activities may result in higher than normal net sales in the first several weeks following a new store opening. A new store builds its sales volume and its customer base over time and, as a result, generally has lower margins and higher operating expenses, as a percentage of sales, than our more mature stores. A new store can take more than a year to achieve a level of operating performance

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comparable to our similarly existing stores. Stores that we have opened in higher density urban markets typically have generated higher sales volumes and margins than stores in suburban areas.

        We believe our differentiated format and destination one-stop shopping appeal attracts customers from as far as 25 miles away. As we open new stores in closer proximity to our customers who currently travel longer distances to shop at our stores, we expect some of these customers to take advantage of the convenience of our new locations. As a result, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to these new, closer locations. Consequently, while we expect our new stores will impact sales at our existing stores in close proximity, we believe that by making shopping at our stores for those customers who travel longer distances more convenient, our overall sales to these customers will increase as they increase the frequency and amount of purchases from our stores.

    General Economic Conditions and Changes in Consumer Behavior

        The overall economic environment in the Greater New York City metropolitan area and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending in our stores, while economic weakness results in a reduction in customer spending. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of consumer credit, interest rates, tax rates and fuel and energy costs.

        Although continuing economic weakness has decreased overall consumer spending, we believe, based on information from the Food Marketing Institute, that many consumers are spending less of their overall food budget on meals away from home and more at food retailers. As a result, we believe that the impact of the current economic slowdown on our recent operating results has at least been partially mitigated by increased consumer preferences for meals at home.

    Inflation and Deflation Trends

        Inflation and deflation can impact our financial performance. During inflationary periods, our financial results can be positively impacted in the short term as we sell lower-priced inventory in a higher price environment. Over the longer term, the impact of inflation is largely dependent on our ability to pass through inventory price increases to our customers, which is subject to competitive market conditions. In recent inflationary periods, we have generally been able to pass through most cost increases. In fiscal 2010, the food retail sector began experiencing deflation, as input costs declined and price competition among retailers intensified, pressuring sales across the industry. While food deflation moderated in fiscal 2011, we began to experience inflation starting in early fiscal 2012, particularly in some commodity driven categories, although we were generally able to pass through the effect of these higher prices. Food inflation moderated in early fiscal 2013 and was essentially flat through the remainder of calendar 2012. The U.S. Department of Agriculture Economic Research Service currently expects food inflation of 3-4% in calendar 2013, primarily due to the severe drought in the midwest United States in calendar 2012.

    Infrastructure Investment

        Our historical operating results reflect the impact of our ongoing investments in infrastructure to support our growth. Since Sterling Investment Partners acquired Fairway in January 2007, we have made significant investments in management, information technology systems, infrastructure, compliance and marketing. These investments include significant additions to our company's personnel, including experienced industry executives and the next generation management and merchandising teams to support our long-term growth objectives.

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    Pricing Strategy

        Our strategy is to price our broad selection of fresh, natural and organic foods, hard-to-find specialty and gourmet items and prepared foods at prices typically lower than those of natural / specialty stores. We price our full assortment of conventional groceries at prices competitive with those of conventional supermarkets. Beginning late in fiscal 2011, we launched a comprehensive price optimization initiative across our store network to refine the pricing and balance of our promotional activities across our mix of higher-margin perishable items and everyday value-oriented traditional grocery items. Our price optimization initiative involves determining prices that will improve our operating margins based upon our analysis of how demand varies at different price levels, as well as our costs and inventory levels. This initiative has resulted in an increase in our gross margins.

    Productivity Initiatives

        In addition to our price optimization initiative, we have undertaken a number of other initiatives to improve our gross margin and operating costs. We are focused on a number of initiatives to control and reduce product shrink (e.g., spoiled, damaged, stolen or out-of-date inventory). We have also developed a robust, proprietary daily reporting portal that enables us to improve store labor productivity and effectively manage our growing number of new stores.

    Developments in Competitive Landscape

        The food retail industry as a whole, particularly in the Greater New York City metropolitan area, is highly competitive. Because we offer a full assortment of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries, we compete with various types of retailers, including alternative food retailers such as natural foods stores, smaller specialty stores and farmers' markets, conventional supermarkets, supercenters and membership warehouse clubs. Our principal competitors include alternative food retailers such as Whole Foods and Trader Joe's, traditional supermarkets such as Stop & Shop, ShopRite, Food Emporium and A&P, retailers with "big box" formats such as Target and Wal-Mart and warehouse clubs such as Costco and BJ's Wholesale Club. These businesses compete with us for customers, products and locations. In addition, some are expanding aggressively in marketing a range of natural and organic foods, prepared foods and quality specialty grocery items. Some of these potential competitors have more experience operating multiple store locations or have greater financial or marketing resources than we do and are able to devote greater resources to sourcing, promoting and selling their products. Due to the competitive environment in which we operate, our operating results may be negatively impacted through a loss of sales, reduction in margin from competitive price changes, and/or greater operating costs such as marketing. In addition, other established food retailers could enter our markets, increasing competition for market share.

    Changes in Interest Expense and Loss on Debt Extinguishment

        Our interest expense in any particular period is impacted by our overall level of indebtedness during that period and changes in the interest rates payable on such indebtedness. In connection with Sterling Investment Partners' acquisition of Fairway in 2007, we entered into first and second lien credit facilities consisting of $81 million of term debt and a $6 million revolving credit facility, and issued $22 million aggregate principal amount of subordinated debt to the sellers. In December 2009, we refinanced our existing first and second lien credit facilities with a new credit facility consisting of $105 million of term debt (which we subsequently increased to $115 million in November 2010) and a $9 million revolving credit facility, and in connection therewith we incurred a loss on early extinguishment of debt of $2.8 million in fiscal 2010. In March 2011, we refinanced our $124 million credit facility with a new senior credit facility, consisting of $175 million of term debt (which we subsequently increased to $200 million in December 2011) and a revolving credit facility of $25 million (which we subsequently increased to $35 million in July 2012), and in connection therewith we incurred

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a loss on early extinguishment of debt of $13.9 million. In fiscal 2012, we used a portion of the proceeds from the borrowings under this senior credit facility to repay $22.0 million aggregate principal amount of subordinated debt, together with all accrued interest. In May 2011, we issued $7.3 million of subordinated debt, which we repaid in March 2013. In August 2012, we refinanced our $235 million credit facility with a new senior credit facility, consisting of $260 million of term debt and a revolving credit facility of $40 million. In February 2013, we refinanced our $300 million credit facility with a new senior credit facility, consisting of $275 million of term debt and a revolving credit facility of $40 million, principally to lower the interest rate we pay.

    Effect of Hurricane Sandy

        We temporarily closed all of our stores as a result of Hurricane Sandy, which struck the Greater New York City metropolitan area on October 29, 2012. While all but one of our stores were able to reopen within a day or two following the storm, we experienced business disruptions due to inventory delays as a result of transportation issues, loss of electricity at certain of our locations and the inability of some of our employees to travel to work due to transportation issues. Our store located in Red Hook, Brooklyn, New York sustained substantial damage from the effects of Hurricane Sandy, and did not reopen until March 1, 2013. We also sustained property and equipment damage and losses on merchandise inventories at certain other stores resulting from this storm. As a result of these damages, we wrote-off approximately $2.1 million of unsalable merchandise inventories and approximately $3.4 million of impaired property and equipment in the thirty-nine weeks ended December 30, 2012. We have submitted claims to our insurance carriers of approximately $20 million for losses sustained from this storm, including estimated business interruption losses on Red Hook of approximately $2.0 million per month, which includes continuing operating expenses, primarily payroll. We continue to evaluate our estimates of storm-related losses and in the future may make adjustments to our claim.

        In November and December 2012, we received advances of $5.5 million in partial settlement of our insurance claims, and in February 2013 received an additional $5.0 million advance. The insurance carriers have designated $2.5 million of the November 2012 advance as non-refundable reimbursement for business interruption losses sustained at Red Hook, which amount has been recorded as business interruption insurance recoveries in our consolidated statement of operations for the thirty-nine weeks ended December 30, 2012. Additionally, we have recognized approximately $3.0 million for reimbursable ongoing business expenses and remediation costs incurred in connection with Red Hook and recorded this amount as a reduction in general and administrative expenses, a direct offset to the associated expenses, in our consolidated statement of operations for the thirty-nine weeks ended December 30, 2012 as the realization of the claim for loss recovery has been deemed to be probable.

        We do not believe these events will materially impact our annual results but they may impact our quarterly results depending on the timing of certain milestones in the rebuilding and insurance claim process.

How We Assess the Performance of Our Business

        In assessing performance, we consider a variety of performance and financial measures, principally growth in net sales, gross profit and Adjusted EBITDA. The key measures that we use to evaluate the performance of our business are set forth below:

    Net Sales

        We evaluate sales because it helps us measure the impact of economic trends and inflation or deflation, the effectiveness of our merchandising, marketing and promotional activities, the impact of new store openings and the effect of competition over a given period. Our net sales comprise gross sales net of coupons and discounts. We do not record sales taxes as a component of retail revenues as we consider ourselves a pass-through conduit for collecting and remitting sales taxes.

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        We do not consider same store sales, which controls for the effects of new store openings, to be as meaningful a measure for us as it may be for other retailers because as a destination food retailer in a concentrated market area we have in the past experienced, and in the future expect to experience, sales transfer from our existing stores to our newly opened stores that are in closer proximity to some of our customers. Our practice is to include sales from a store in same-store sales beginning on the first day of the fourteenth full month following the store's opening. This practice may differ from the methods that our competitors use to calculate same-store or "comparable" sales. As a result, data in this prospectus regarding our same-store sales may not be comparable to similar data made available by our competitors.

        Various factors may affect our same-store sales, including:

    our opening of new stores in the vicinity of our existing stores;

    our price optimization initiative;

    our competition, including competitor store openings or closings near our stores;

    the number and dollar amount of customer transactions in our stores;

    overall economic trends and conditions in our markets;

    consumer preferences, buying trends and spending levels;

    the pricing of our products, including the effects of inflation or deflation and promotions;

    our ability to provide product offerings that generate new and repeat visits to our stores;

    the level of customer service that we provide in our stores;

    our in-store merchandising-related activities; and

    our ability to source products efficiently.

As we continue to pursue our growth strategy, we expect that a significant percentage of our increase in net sales will continue to come from new stores not included in comparable store sales.

        The food retail industry and our sales are affected by general economic conditions and seasonality, as well as the other factors discussed below, that affect store sales performance. Consumer purchases of high-quality perishables and specialty food products are particularly sensitive to a number of factors that influence the levels of consumer spending, including economic conditions, the level of disposable consumer income, consumer debt, interest rates and consumer confidence. In addition, our business is seasonal and, as a result, our average weekly sales fluctuate during the year and are usually highest in our third fiscal quarter, from October through December, when customers make holiday purchases, and typically lower during the summer months in our second fiscal quarter.

        Although adverse economic conditions affected our sales beginning in fiscal 2009 and continuing in fiscal 2010 and fiscal 2011 due to decreased levels of consumer spending, disposable income and confidence, this adverse effect was more than offset in fiscal 2010 and fiscal 2011 by growth in sales attributable to the new store we opened in fiscal 2009 and the two stores and adjacent Fairway Wines & Spirits locations we opened in fiscal 2011. In addition, growth in sales attributable to the new stores we opened in fiscal 2012 contributed significantly to increased net sales.

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    Gross Profit

        We use gross profit to measure the effectiveness of our pricing and procurement strategies as well as initiatives to increase sales of higher margin items and to reduce shrink. We calculate gross profit as net sales less cost of sales and occupancy costs. Gross margin measures gross profit as a percentage of our net sales. Cost of sales includes the cost of merchandise inventory sold during the year (net of discounts and allowances), distribution costs, food preparation costs (primarily labor) and shipping and handling costs. Occupancy costs include store rental costs and property taxes. The components of our cost of sales and occupancy costs may not be identical to those of our competitors. As a result, data in this prospectus regarding our gross profit and gross margin may not be comparable to similar data made available by our competitors.

        Changes in the mix of products sold may impact our gross margin. Unlike natural / specialty stores, we also carry a full assortment of conventional groceries, which generally have lower margins than fresh, natural and organic foods, prepared foods and specialty and gourmet items. We expect to enhance our gross margins through:

    economies of scale resulting from expanding the store base;

    our price optimization initiative;

    productivity gains through process and program improvements;

    reduced shrinkage as a percentage of net sales; and

    leveraging our purchasing power and that of our suppliers to obtain volume discounts from vendors.

        Stores that we operate in higher density urban markets typically have generated higher sales volumes and margins than stores that we operate in suburban areas. As the percentage of our sales volumes provided by our suburban stores increases, our overall gross margins may decline.

    Direct Store Expenses

        Direct store expenses consist of store-level expenses such as salaries and benefits for our store work force, supplies, store depreciation and store-specific marketing costs. Store-level labor costs are generally the largest component of our direct store expenses. The components of our direct store expenses may not be identical to those of our competitors. As a result, data in this prospectus regarding our direct store expenses may not be comparable to similar data made available by our competitors.

    General and Administrative Expenses

        General and administrative expenses consist primarily of personnel costs that are not store specific, corporate sales and marketing expenses, depreciation and amortization expense as well as other expenses associated with our corporate headquarters, management expenses and expenses for accounting, information systems, legal, business development, human resources, purchasing and other administrative departments. Since Sterling Investment Partners acquired Fairway in January 2007, we have made significant investments in management, information technology systems, infrastructure, compliance and marketing to support our growth strategy. Our general and administrative expenses include management fees paid to Sterling Investment Partners, which we will cease paying upon consummation of the offering being made hereby. See "Certain Relationships and Related Party Transactions—Management Agreement with Sterling Advisers."

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        The components of our general and administrative expenses may not be identical to those of our competitors. As a result, data in this prospectus regarding our general and administrative expenses may not be comparable to similar data made available by our competitors. We expect that our general and administrative expenses will increase in future periods due to additional legal, accounting, insurance and other expenses we expect to incur as a result of being a public company.

    Store Opening Costs

        Store opening costs include rent expense incurred during construction of new stores and costs related to new location openings, including costs associated with hiring and training personnel, supplies, the costs associated with our dedicated store opening team and other miscellaneous costs. Rent expense is recognized upon receiving possession of a store site, which generally ranges from three to six months before the opening of a store, although in some situations, the possession period can exceed twelve months. Store opening costs vary among locations due to several key factors, including the length of time between possession date and the date on which the location opens for business along with the time designated as the training period for new staff for the store. Accordingly, we expect store opening costs to vary from period to period depending on the number of new stores opened in the period, whether such stores opened early or late in the period and whether new stores will open early in the following period. Store opening costs are expensed as incurred.

    Income from Operations

        Income from operations consists of gross profit minus direct store expenses, general and administrative expenses and store opening costs. Income from operations will vary from period to period based on a number of factors, including the number of stores open and the number of stores in the process of being opened in each period.

    Adjusted EBITDA

        We believe that Adjusted EBITDA is a useful performance measure and we use it to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone can provide. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives. In addition, the financial covenants in our senior credit facility are based on Adjusted EBITDA, subject to dollar limitations on certain adjustments. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

        We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, amortization of deferred financing costs, store opening costs, loss on early extinguishment of debt, non-recurring expenses and management fees. All of the omitted items are either (i) non-cash items or (ii) items that we do not consider in assessing our on-going operating performance. Because it omits non-cash items, we believe that Adjusted EBITDA is less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect our operating performance. Because it omits the other items, we believe Adjusted EBITDA is also more reflective of our on-going operating performance.

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Basis of Presentation

        Our fiscal year is the 52- or 53-week period ending on the Sunday closest to March 31. The three completed fiscal years discussed in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" ended on March 28, 2010, April 3, 2011 and April 1, 2012. For ease of reference, we identify our fiscal years in this prospectus by reference to the calendar year in which the fiscal year ends. For example, "fiscal 2012" refers to our fiscal year ended April 1, 2012. Fiscal 2010 and fiscal 2012 consist of 52 weeks and fiscal 2011 consists of 53 weeks. The differing length of certain fiscal years may affect the comparability of certain data.

Results of Operations

        The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of net sales and have been derived from our consolidated financial statements.

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
   
   
   
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
 

Net sales

  $ 401,167   $ 485,712   $ 554,858   $ 404,527   $ 482,539  

Cost of sales and occupancy costs(1)

    271,599     326,207     368,728     269,641     326,808  
                       

Gross profit

    129,568     159,505     186,130     134,886     155,731  

Direct store expenses

    85,840     109,867     132,446     97,659     111,362  

General and administrative expenses

    34,676     40,038     44,331     30,598     39,746  

Store opening costs

    3,949     10,006     12,688     11,181     19,349  
                       

Income (loss) from operations

    5,103     (406 )   (3,335 )   (4,552 )   (14,726 )

Business interruption insurance recoveries

                    2,500  

Interest expense, net

    (13,787 )   (19,111 )   (16,918 )   (12,370 )   (17,439 )

Loss on early extinguishment of debt

    (2,837 )   (13,931 )            
                       

Loss before income taxes

    (11,521 )   (33,448 )   (20,253 )   (16,922 )   (29,665 )

Income tax benefit (provision)

    4,426     14,860     8,304     6,940     (26,514 )
                       

Net loss

  $ (7,095 ) $ (18,588 ) $ (11,949 ) $ (9,982 ) $ (56,179 )
                       

Net sales

   
100.0

%
 
100.0

%
 
100.0

%
 
100.0

%
 
100.0

%

Cost of sales and occupancy costs(1)

    67.7     67.2     66.5     66.7     67.7  
                       

Gross profit

    32.3     32.8     33.5     33.3     32.3  

Direct store expenses

    21.4     22.6     23.9     24.1     23.1  

General and administrative expenses

    8.6     8.2     8.0     7.6     8.2  

Store opening costs

    1.0     2.1     2.3     2.8     4.0  
                       

Income (loss) from operations

    1.3     (0.1 )   (0.6 )   (1.1 )   (3.1 )

Business interruption insurance recoveries

                    0.5  

Interest expense, net

    (3.4 )   (3.9 )   (3.0 )   (3.1 )   (3.6 )

Loss on early extinguishment of debt

    (0.7 )   (2.9 )            
                       

Loss before income taxes

    (2.9 )   (6.9 )   (3.7 )   (4.2 )   (6.1 )

Income tax benefit (provision)

    1.1     3.1     1.5     1.7     (5.5 )
                       

Net loss

    (1.8 )%   (3.8 )%   (2.2 )%   (2.5 )%   (11.6 )%
                       

Figures may not sum due to rounding

                               

(1)
Excludes depreciation and amortization

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Thirty-nine weeks ended December 30, 2012 compared to thirty-nine weeks ended January 1, 2012

        The effects of Hurricane Sandy, the temporary closure of all of our stores for one or two days and our Red Hook store for two months and the receipt of insurance proceeds may affect the comparability of the financial data for the thirty-nine week periods ended January 1, 2012 and December 30, 2012.

    Net Sales

        We had net sales of $482.5 million in the thirty-nine weeks ended December 30, 2012, an increase of $78.0 million, or 19.3%, from $404.5 million in the thirty-nine weeks ended January 1, 2012. This increase was attributable to the $43.0 million of net sales from the three new stores (including one integrated Fairway Wines & Spirits location) that we opened subsequent to January 1, 2012 and $35.0 million in increased net sales at stores open during both periods. One of the new stores was open for 208 days, one for 131 days and the other for 10 days in the thirty-nine weeks ended December 30, 2012. Excluding net sales of the Red Hook store in both periods as a result of its temporary closure, net sales increased 26.0%, due to the $43.0 million of net sales from the three new stores (including one integrated Fairway Wines & Spirits location) that we opened subsequent to January 1, 2012 and $48.5 million in increased net sales at stores, excluding Red Hook, open during both periods.

        Comparable store sales, excluding Red Hook, decreased 3.5% in the thirty-nine weeks ended December 30, 2012 compared to the thirty-nine weeks ended January 1, 2012, primarily as a result of sales transferred to our newly opened stores and the implementation of our price optimization initiative. This initiative involves refinement in the pricing and balance of our promotional activities across our mix of higher-margin perishable items and everyday conventional grocery items. Customer transactions in our comparable stores decreased by 2.2% and average transaction size at our comparable stores decreased by 1.3%.

    Gross Profit

        Gross profit was $155.7 million for the thirty-nine weeks ended December 30, 2012, an increase of $20.8 million, or 15.5%, from $134.9 million for the thirty-nine weeks ended January 1, 2012. Excluding gross profit of the Red Hook store in both periods as a result of its temporary closure, gross profit increased $26.2 million, or 22.4%. Gross margin (both including and excluding the Red Hook store) was 32.3% for the thirty-nine weeks ended December 30, 2012, compared to 33.3% for the thirty-nine weeks ended January 1, 2012. This decrease in gross margin was primarily attributable to increased occupancy costs as a result of fair market rent increases in three of our older stores and, to a lesser extent, lower merchandise gross margins, partially offset by our price optimization initiative. In addition, we had lower gross margins in our new suburban stores. We continue to refine our price optimization initiative, which involves increases and decreases to prices on certain items, lower prices from certain vendors and the continuing benefit of our shrink management initiative launched in fiscal 2009. We calculate gross profit as net sales less cost of sales and occupancy costs, which includes the cost of merchandise inventory sold during the year (net of discounts and allowances), distribution costs, food preparation costs (primarily labor), shipping and handling costs and store occupancy costs.

    Direct Store Expenses

        Direct store expenses were $111.4 million in the thirty-nine weeks ended December 30, 2012, an increase of $13.7 million, or 14.0%, from $97.7 million in the thirty-nine weeks ended January 1, 2012. Excluding Red Hook's direct store expenses in both periods as a result of its temporary closure, direct store expenses increased $17.4 million, or 20.2%, for the thirty-nine weeks ended December 30, 2012. The increase in direct store expenses was primarily attributable to the three new stores (including one integrated Fairway Wines & Spirits location) that we opened subsequent to January 1, 2012. With more

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stores in operation during the thirty-nine weeks ended December 30, 2012, our store labor expenses increased $6.7 million and our other store operating expenses increased $4.1 million compared to the thirty-nine weeks ended January 1, 2012. The portion of our depreciation expense included in direct store expenses, which includes amortization of prepaid rent, increased $2.9 million, or 30.2%, to $12.6 million for the thirty-nine weeks ended December 30, 2012, compared to direct store depreciation expense for the thirty-nine weeks ended January 1, 2012 of $9.7 million. The increase in direct store depreciation expense for the thirty-nine weeks ended December 30, 2012 compared with the thirty-nine weeks ended January 1, 2012 is primarily attributable to the increase in the number of stores.

        Direct store expenses as a percentage of net sales decreased to 23.1% in the thirty-nine weeks ended December 30, 2012 from 24.1% for the thirty-nine weeks ended January 1, 2012, due to the success of our continued cost controls, including labor management. Excluding Red Hook's direct store expenses in both periods as a result of its temporary closure, direct store expenses as a percentage of net sales decreased to 23.3% for the thirty-nine weeks ended December 30, 2012 from 24.4% for the thirty-nine weeks ended January 1, 2012.

    General and Administrative Expenses

        General and administrative expenses were $39.7 million for the thirty-nine weeks ended December 30, 2012, an increase of $9.1 million, or 29.9%, from $30.6 million for the thirty-nine weeks ended January 1, 2012. The increase in our general and administrative expenses was attributable to our continued investments in management, information technology systems, infrastructure, compliance and marketing to support continued execution of our growth plans of approximately $3.6 million, an increase in our non-recurring costs of approximately $2.6 million, of which approximately $1.4 million relates to this offering and $1.0 million consists of management bonuses in connection with our 2012 senior credit facility, fees associated with our new senior credit facility entered into in August 2012 of approximately $2.8 million, including $1.7 million paid to an affiliate of Sterling Investment Partners, and increased management fees of approximately $1.1 million. Excluding the fees and expenses related to our new senior credit facility, general and administrative expenses were $36.9 million, an increase of 20.7%. In the thirty-nine weeks ended December 30, 2012, we recognized approximately $3.0 million for reimbursable ongoing business expenses and remediation costs incurred in connection with Red Hook and recorded this amount as a reduction in general and administrative expenses, a direct offset to the associated expenses. The realization of the claim for loss recovery has been deemed to be probable. The portion of our depreciation and amortization expense included in general and administrative expenses decreased by $0.9 million, or 22.0%, to $3.3 million for the thirty-nine weeks ended December 30, 2012 from $4.3 million in the thirty-nine weeks ended January 1, 2012. Our general and administrative expenses include management fees of $2.6 million and $1.5 million paid to an affiliate of Sterling Investment Partners in the thirty-nine weeks ended December 30, 2012 and January 1, 2012, respectively. We will cease paying these management fees upon consummation of the offering being made hereby. See "Certain Relationships and Related Party Transactions—Management Agreement with Sterling Advisers."

        As a percentage of net sales, general and administrative expenses increased to 8.2% for the thirty-nine weeks ended December 30, 2012 from 7.6% for the thirty-nine weeks ended January 1, 2012. Excluding the one-time debt re-financing fees and expenses incurred in connection with our new senior credit facility, general and administrative expenses, as a percentage of net sales, was 7.7%.

    Store Opening Costs

        Store opening costs were $19.3 million for the thirty-nine weeks ended December 30, 2012, an increase of $8.2 million from $11.2 million for the thirty-nine weeks ended January 1, 2012. Store opening costs for the thirty-nine weeks ended December 30, 2012 include approximately $4.8 million related to the Woodland Park, New Jersey store and integrated Fairway Wines & Spirits location that

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opened in June 2012, $5.9 million for our new Westbury, Long Island store that opened in August 2012, $8.2 million for the Fairway Market opened in Manhattan's Kips Bay neighborhood in December 2012 and $0.4 million of deferred rent for the period the Red Hook, Brooklyn, New York store was temporarily closed due to damage sustained during Hurricane Sandy. Store opening costs for the thirty-nine weeks ended December 30, 2012 were adversely affected by an approximately two month delay in opening our Kips Bay store due to construction delays resulting from bedrock issues and the impact of Hurricane Sandy. Store opening costs for the thirty-nine weeks ended January 1, 2012 primarily consist of $4.7 million for the store we opened on the Upper East Side of Manhattan in July 2011 and $6.5 million for the Douglaston, N.Y. store we opened in November 2011. Approximately $2.2 million and $1.8 million of store opening costs in the thirty-nine weeks ended December 30, 2012 and January 1, 2012, respectively, did not require the expenditure of cash in the period, primarily due to deferred rent and other landlord allowances.

    Income (loss) from Operations

        For the thirty-nine weeks ended December 30, 2012, our operating loss was $14.7 million, an increase of $10.2 million from $4.6 million for the thirty-nine weeks ended January 1, 2012. The increase in the loss from operations in the thirty-nine weeks ended December 30, 2012 over the same period in the prior year was primarily due to increased direct store, store opening, and general and administrative expenses, and expenses and fees related to our new senior credit facility, partially offset by increased gross profit. Excluding the income (loss) from operations of the Red Hook store in both periods as a result of its temporary closure as well as the fees related to our new senior credit facility, the increase in our loss from operations was $5.6 million.

    Business Interruption Insurance Recoveries

        Business interruption insurance recoveries for the thirty-nine weeks ended December 30, 2012 represents non-refundable reimbursement from our insurance carriers for business interruption losses sustained due to the temporary closure of our Red Hook store due to damage sustained during Hurricane Sandy.

    Interest Expense

        Interest expense increased 41.0%, or $5.1 million, to $17.4 million for the thirty-nine weeks ended December 30, 2012, from $12.4 million for the thirty-nine weeks ended January 1, 2012, due to higher average borrowings related to the new senior credit facility entered into in August 2012 and higher interest rates.

    Net Loss

        Our net loss was $56.2 million for the thirty-nine weeks ended December 30, 2012, an increase of $46.2 million from $10.0 million for the thirty-nine weeks ended January 1, 2012. The increase in net loss was primarily attributable to the recognition of a partial deferred tax valuation allowance of $39.0 million, expenses and fees related to the senior credit facility entered into in August 2012 and increased store opening, direct store, general and administrative and interest expenses, partially offset by increased gross profit. Excluding the operations of the Red Hook store in both periods as a result of its temporary closure and the related insurance recovery, the partial deferred tax valuation allowance and fees related to our August 2012 senior credit facility, the increase in our net loss was $5.2 million. See Note 13 to our financial statements appearing elsewhere in this prospectus for additional information about our partial deferred tax valuation allowance.

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Fiscal year ended April 1, 2012 compared to fiscal year ended April 3, 2011

        Fiscal 2012 consists of 52 weeks while fiscal 2011 consists of 53 weeks; accordingly, the differing lengths of the fiscal years may affect the comparability of certain data.

    Net Sales

        We had net sales of $554.9 million in fiscal 2012, an increase of $69.2 million, or 14.2%, from $485.7 million in fiscal 2011. The increase was attributable to the $103.3 million of net sales from the two stores and adjacent Fairway Wines & Spirits locations that we opened during fiscal 2011 and the two stores that we opened during fiscal 2012. The increase was partially offset by a $34.1 million decrease in sales at stores open during both periods. We estimate that the extra week in fiscal 2011 compared to fiscal 2012 increased our fiscal 2011 net sales by approximately $9.2 million, representing our average weekly net sales in fiscal 2011. If fiscal 2011 had been a 52 week year, we estimate our net sales would have been approximately $476.5 million.

        Comparable store sales decreased 7.9% in fiscal 2012 compared to fiscal 2011, primarily as a result of sales transferred from our existing stores to our newly opened stores and the launch in late fiscal 2011 of our price optimization initiative to refine the pricing and balance of our promotional activities across our mix of higher-margin perishable items and everyday conventional grocery items. Customer transactions in our comparable stores decreased by 9.1% and average transaction size at our comparable stores increased 1.3%. Amounts for fiscal 2011 have been adjusted to reflect a 52-week year.

    Gross Profit

        Gross profit was $186.1 million for fiscal 2012, an increase of $26.6 million, or 16.7%, from $159.5 million for fiscal 2011. Gross margin increased 70 basis points to 33.5% for fiscal 2012 from 32.8% for fiscal 2011. The increase in our gross margin was primarily attributable to our price optimization initiative, which involved increases and decreases to prices on various items, lower prices from certain vendors and the continuing benefit from our shrink management initiative launched in fiscal 2009, partially offset by increased occupancy costs resulting from the two stores and adjacent Fairway Wines & Spirits locations we opened in fiscal 2011 and the two stores we opened in fiscal 2012. We estimate that the extra week in fiscal 2011 compared to fiscal 2012 increased our fiscal 2011 gross profit by approximately $3.0 million, representing our average weekly gross profit in fiscal 2011. If fiscal 2011 had been a 52 week year, we estimate our gross profit would have been approximately $156.5 million. We calculate gross profit as net sales less cost of sales and occupancy costs, which includes the cost of merchandise inventory sold during the year (net of discounts and allowances), distribution costs, food preparation costs (primarily labor), shipping and handling costs and store occupancy costs.

    Direct Store Expenses

        Direct store expenses were $132.4 million in fiscal 2012, an increase of $22.6 million, or 20.6%, from $109.9 million in fiscal 2011. The increase in direct store expenses was primarily attributable to the two new stores we opened in fiscal 2012 and the two stores and adjacent Fairway Wines & Spirits locations opened in fiscal 2011 that were open for a full year in fiscal 2012. With more stores in operation during fiscal 2012, our store labor expenses increased $12.5 million and our other store operating expenses increased $10.1 million compared to fiscal 2011. The portion of our depreciation expense included in direct store expenses, which includes amortization of prepaid rent, increased $3.2 million, or 30.8%, to $13.5 million for fiscal 2012, compared to direct store depreciation expense for fiscal 2011 of $10.3 million. The increase in direct store depreciation expense for fiscal year 2012 compared with fiscal 2011 is directly attributable to the increase in the number of stores. We estimate

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that the extra week in fiscal 2011 compared to fiscal 2012 increased our fiscal 2011 direct store expenses by approximately $2.1 million, representing our average weekly direct store expenses in fiscal 2011. If fiscal 2011 had been a 52 week year, we estimate our direct store expenses would have been approximately $107.8 million.

        Direct store expenses as a percentage of net sales increased to 23.9% in fiscal 2012 from 22.6% in fiscal 2011. This increase was primarily attributable to higher expenses as a percentage of net sales at our newly opened stores as we built sales at these stores.

    General and Administrative Expenses

        General and administrative expenses were $44.3 million for fiscal 2012, an increase of $4.3 million, or 10.7%, from $40.0 million in fiscal 2011. The increase in our general and administrative expenses was primarily attributable to our continued investments in management, information technology systems, infrastructure, compliance and marketing to enable us to pursue our growth plans. The portion of our depreciation and amortization expense included in general and administrative expenses increased $1.4 million, or 32.6%, to $5.7 million for fiscal 2012 from $4.3 million in fiscal 2011. Our general and administrative expenses include management fees of $2.6 million and $1.6 million paid to an affiliate of Sterling Investment Partners in fiscal 2012 and fiscal 2011, respectively. We will cease paying these management fees upon consummation of the offering being made hereby. See "Certain Relationships and Related Party Transactions—Management Agreement with Sterling Advisers." Our general and administrative expenses in fiscal 2012 also includes $0.4 million in non-stock compensation expense relating to shares of restricted stock that we issued at below fair market value. We estimate that the extra week in fiscal 2011 compared to fiscal 2012 increased our fiscal 2011 general and administrative expenses by approximately $755,000, representing our average weekly general and administrative expenses in fiscal 2011. If fiscal 2011 had been a 52 week year, we estimate our general and administrative expenses would have been approximately $39.3 million.

        As a percentage of net sales, general and administrative expenses for fiscal 2012 were 8.0%, or 20 basis points lower, than the 8.2% we recorded in fiscal 2011. This improvement was primarily a result of our revenue growth and leveraging of our infrastructure investment made during the last several years.

    Store Opening Costs

        Store opening costs were $12.7 million in fiscal 2012, an increase of $2.7 million from $10.0 million in fiscal 2011. We opened two new stores in fiscal 2012 and two new stores and adjacent Fairway Wines & Spirits locations in fiscal 2011. Store opening costs for fiscal 2011 includes $3.2 million related to the two stores we opened in fiscal 2012, and we incurred $3.9 million of store opening costs related to the stores we opened in fiscal 2011 in fiscal 2010. Approximately $2.0 million of store opening costs in fiscal 2012 are attributable to our decision to delay the opening of our store in Douglaston, New York in order to focus on opening our new store in Manhattan, which opened in July 2011. Approximately $0.7 million of our fiscal 2012 store opening costs relate to the store and integrated Fairway Wines & Spirits location we opened in the first quarter of fiscal 2013. Approximately $3.4 million and $4.2 million of store opening costs in fiscal 2012 and fiscal 2011, respectively, did not require the expenditure of cash in the period, primarily due to deferred rent and other landlord allowances.

    Income (Loss) from Operations

        For fiscal 2012 our operating loss was $3.3 million, an increase of $2.9 million from $0.4 million for fiscal 2011. The increase in operating loss was primarily due to the $22.5 million increase in direct store expenses, $4.3 million increase in general and administrative expenses and $2.7 million increase in

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store opening costs in fiscal 2012 compared to fiscal 2011, partially offset by the $26.6 million increase in gross profit.

    Interest Expense

        Interest expense decreased 11.5%, or $2.2 million, to $16.9 million for fiscal 2012, as compared to $19.1 million for fiscal 2011, due to lower interest rates, partially offset by higher average borrowings.

    Loss on Early Extinguishment of Debt

        In fiscal 2011, we refinanced our $124 million credit facility with our $200 million senior credit facility, which we subsequently increased to $225 million in December 2011 and $235 million in July 2012, and in connection therewith we incurred a loss on early extinguishment of debt of $13.9 million. The loss consisted of the write off of unamortized deferred financing fees of $6.1 million and unamortized discount of $2.6 million, as well as the expensing of $5.2 million of placement fees.

    Net Loss

        Our net loss was $11.9 million in fiscal 2012, a decrease of $6.7 million from $18.6 million for fiscal 2011. The decrease in net loss was primarily attributable to an increased gross margin, no loss on early extinguishment of debt and lower interest expense, partially offset by increased direct store and store opening costs.

Fiscal year ended April 3, 2011 compared to the fiscal year ended March 28, 2010

        Fiscal 2011 consists of 53 weeks while fiscal 2010 consists of 52 weeks; accordingly, the differing lengths of the fiscal years may affect the comparability of certain data.

    Net Sales

        We had net sales of $485.7 million in fiscal 2011, an increase of $84.5 million, or 21.1%, from $401.2 million in fiscal 2010. The increase was attributable to the $95.6 million of net sales from the two stores and adjacent Fairway Wines & Spirits locations that we opened during fiscal 2011. The increase was partially offset by an $11.1 million decrease in net sales at stores open during both periods. We estimate that the extra week in fiscal 2011 compared to fiscal 2010 increased our fiscal 2011 net sales by approximately $9.2 million, representing our average weekly net sales in fiscal 2011. If fiscal 2011 had been a 52 week year, we estimate our net sales would have been approximately $476.5 million.

        Comparable store sales decreased 4.3% in fiscal 2011 compared to fiscal 2010, primarily as a result of sales transferred from our existing stores to our newly opened stores. Customer transactions in our comparable stores decreased by 4.4% and average transaction size at our comparable stores increased by 0.1%. Amounts for fiscal 2011 have been adjusted to reflect a 52-week year.

    Gross Profit

        Gross profit was $159.5 million for fiscal 2011, an increase of $29.9 million, or 23.1%, from $129.6 million for fiscal 2010. Our gross margin increased 50 basis points to 32.8% for fiscal 2011 from 32.3% for fiscal 2010. The increase in our gross margin was primarily attributable to the launch of our price optimization initiative, which involved increases and decreases to prices on various items, lower prices from certain vendors, the discontinuation of certain promotional activities in our suburban stores and reduced inventory shrinkage as a result of the shrink management initiative we launched in fiscal 2009, partially offset by increased occupancy costs resulting from the two stores and adjacent Fairway Wines & Spirits locations we opened in fiscal 2011 and supplies expense. We estimate that the

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extra week in fiscal 2011 compared to fiscal 2010 increased our fiscal 2011 gross profit by approximately $3.0 million, representing our average weekly gross profit in fiscal 2011. If fiscal 2011 had been a 52 week year, we estimate our gross profit would have been approximately $156.5 million.

    Direct Store Expenses

        Direct store expenses were $109.9 million in fiscal 2011, an increase of $24.0 million, or 28.0%, from $85.8 million in fiscal 2010. The increase in direct store expenses was primarily attributable to the two new stores and adjacent Fairway Wines & Spirits locations we opened in fiscal 2011. With more stores in operation during fiscal 2011, our store labor expenses increased $11.6 million and our other store operating expenses increased $12.5 million compared to fiscal 2010. The portion of our depreciation expense included in direct store expenses, which includes amortization of prepaid rent, increased $3.3 million, or 47.6%, to $10.3 million for fiscal 2011, compared to direct store depreciation expense for fiscal 2010 of $7.0 million. The increase in direct store depreciation expense for fiscal 2011 compared with fiscal 2010 is directly attributable to the increase in the number of stores. We estimate that the extra week in fiscal 2011 compared to fiscal 2010 increased our fiscal 2011 direct store expenses by approximately $2.1 million, representing our average weekly direct store expenses in fiscal 2011. If fiscal 2011 had been a 52 week year, we estimate our direct store expenses would have been approximately $107.8 million.

        Direct store expenses as a percentage of net sales increased to 22.6% in fiscal 2011 from 21.4% in fiscal 2010. This increase was primarily attributable to higher expenses as a percentage of net sales at our newly opened stores as we built sales at these stores.

    General and Administrative Expenses

        General and administrative expenses were $40.0 million for fiscal 2011, an increase of $5.3 million, or 15.5%, from $34.7 million in fiscal 2010. The increase in our general and administrative expenses was primarily attributable to our continued investments in management, information technology systems, infrastructure, compliance and marketing to enable us to pursue our growth plans. The portion of our depreciation and amortization expense included in general and administrative expenses increased $1.1 million, or 34.4%, to $4.3 million for fiscal 2011, from $3.2 million in fiscal 2010. Our general and administrative expenses include management fees of $1.6 million and $1.2 million paid to an affiliate of Sterling Investment Partners in fiscal 2011 and fiscal 2010, respectively. We will cease paying these management fees upon consummation of the offering being made hereby. See "Certain Relationships and Related Party Transactions—Management Agreement with Sterling Advisers." We estimate that the extra week in fiscal 2011 compared to fiscal 2010 increased our fiscal 2011 general and administrative expenses by approximately $755,000, representing our average weekly general and administrative expenses in fiscal 2011. If fiscal 2011 had been a 52 week year, we estimate our general and administrative expenses would have been approximately $39.3 million.

        As a percentage of net sales, general and administrative expenses for fiscal 2011 were 8.2%, or 40 basis points lower than the 8.6% we recorded in fiscal 2010. This improvement was primarily a result of our revenue growth and leveraging of our infrastructure investment made during the last several years.

    Store Opening Costs

        Store opening costs were $10.0 million in fiscal 2011, an increase of $6.1 million from $3.9 million in fiscal 2010. We opened two new stores and adjacent Fairway Wines & Spirits locations in fiscal 2011. Store opening costs for fiscal 2011 includes $3.2 million related to the two stores we opened in fiscal 2012, and store opening costs for fiscal 2010 includes $3.9 million related to the two stores and adjacent Fairway Wines & Spirits locations we opened in fiscal 2011. Approximately $4.2 million and

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$0.9 million of store opening costs in fiscal 2011 and fiscal 2010, respectively, did not require the expenditure of cash in the period, primarily due to deferred rent and other landlord allowances.

    Income (Loss) from Operations

        For fiscal 2011, our operating loss was $0.4 million, a decrease of $5.5 million from operating income of $5.1 million in fiscal 2010. The decrease in operating income was due to the $24.0 million increase in direct store expenses, $5.3 million increase in general and administrative expenses and $6.1 million increase in store opening costs in fiscal 2011 compared to fiscal 2010, partially offset by the $29.9 million increase in gross profit.

    Interest Expense

        Interest expense increased 38.6%, or $5.3 million, to $19.1 million for fiscal 2011, compared to $13.8 million for fiscal 2010, due primarily to increased weighted average borrowings, partially offset by lower interest rates.

    Loss on Early Extinguishment of Debt

        In fiscal 2011, we refinanced our $124 million credit facility with our $200 million senior credit facility, which we subsequently increased to $225 million in December 2011 and to $235 million in July 2012, and in connection therewith we incurred a loss on early extinguishment of debt of $13.9 million. The loss consisted of the write off of unamortized deferred financing fees of $6.1 million and unamortized discount of $2.6 million, as well as the expensing of $5.2 million of placement fees. In fiscal 2010, we refinanced our existing first and second lien credit facilities with a new $114 million credit facility, which we subsequently increased to $124 million in November 2010, and in connection therewith we incurred a loss on early extinguishment of debt of $2.8 million. The loss consisted of the write off of unamortized deferred financing fees and unamortized discount.

    Net Loss

        Our net loss was $18.6 million in fiscal 2011, an increase of $11.5 million from $7.1 million for fiscal 2010. The increase in net loss was primarily due to an $11.1 million increase in loss on early extinguishment of debt, a $6.1 million increase in store opening costs and a $5.3 million increase in interest expense, partially offset by increased sales and gross profit and a $10.4 million increase in income tax benefit.

Quarterly Results of Operations

        The following tables set forth unaudited quarterly consolidated statement of income data for all quarters of fiscal 2011 and fiscal 2012 and the first three quarters of fiscal 2013. We have prepared the statement of income data for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere in this prospectus and, in the opinion of our management, each statement of income includes all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for any future period. Each fiscal quarter consists of a 13-week period except for the fiscal quarter ended April 3, 2011, which consists of 14 weeks; accordingly, the differing lengths of the fiscal quarters may affect the comparability of certain data. The effects of Hurricane Sandy, the temporary closure of all of our stores for one or two days and our Red Hook store for two months and

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the receipt of insurance proceeds may affect the comparability of the financial data for the thirteen weeks ended December 30, 2012.

 
  Fiscal 2011 Quarter Ended   Fiscal 2012 Quarter Ended   Fiscal 2013
Quarter Ended
 
 
  June 27,
2010
  September 26,
2010
  December 26,
2010
  April 3,
2011
  July 3,
2011
  October 2,
2011
  January 1,
2012
  April 1,
2012
  July 1,
2012
  September 30,
2012
  December 30,
2012
 
 
  (unaudited)
  (unaudited)
  (unaudited)
 
 
  (dollars in thousands)
   
   
 

Statement of income data

                                                                   

Net sales

  $ 118,019   $ 111,462   $ 124,145   $ 132,086   $ 122,484   $ 129,914   $ 152,129   $ 150,331   $ 154,683   $ 160,510   $ 167,346  

Cost of sales and occupancy costs(1)

    79,736     78,452     84,008     84,011     81,838     86,662     101,141     99,087     103,996     108,631     114,181  
                                               

Gross profit

    38,283     33,010     40,137     48,075     40,646     43,252     50,988     51,244     50,687     51,879     53,165  

Direct store expenses

    26,721     24,057     27,913     31,176     29,356     32,588     35,715     34,787     34,484     38,504     38,374  

General and administrative expenses

    8,470     7,695     9,165     14,708     9,348     10,077     11,173     13,733     11,717     14,650     13,379  

Store opening costs

    2,320     1,816     3,996     1,874     3,263     3,123     4,795     1,507     6,478     6,653     6,218  
                                               

Income (loss) from operations

    772     (558 )   (937 )   317     (1,321 )   (2,536 )   (695 )   1,217     (1,992 )   (7,928 )   (4,806 )

Business interruption insurance recoveries

                                            2,500  

Interest expense, net

    (4,311 )   (4,557 )   (5,082 )   (5,161 )   (4,174 )   (4,037 )   (4,159 )   (4,548 )   (4,584 )   (5,785 )   (7,070 )

Loss on early extinguishment of debt

                (13,931 )                            
                                               

Loss before income taxes

    (3,539 )   (5,115 )   (6,019 )   (18,775 )   (5,495 )   (6,573 )   (4,854 )   (3,331 )   (6,576 )   (13,713 )   (9,376 )

Income tax benefit (provision)

    1,488     2,150     3,332     7,890     2,249     2,690     2,001     1,364     2,695     5,886     (35,095 )
                                               

Net loss

  $ (2,051 ) $ (2,965 ) $ (2,687 ) $ (10,885 ) $ (3,246 ) $ (3,883 ) $ (2,853 ) $ (1,967 ) $ (3,881 ) $ (7,827 ) $ (44,471 )
                                               

(1)
Excluding depreciation and amortization.

 
  Fiscal 2011 Quarter Ended   Fiscal 2012 Quarter Ended   Fiscal 2013
Quarter Ended
 
 
  June 27,
2010
  September 26,
2010
  December 26,
2010
  April 3,
2011
  July 3,
2011
  October 2,
2011
  January 1,
2012
  April 1,
2012
  July 1,
2012
  September 30,
2012
  December 30,
2012
 
 
  (unaudited)
  (unaudited)
  (unaudited)
 
 
  (as a percentage of net sales)
   
   
 

Statement of income data

                                                                   

Net sales

    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %

Cost of sales and occupancy costs(1)

    67.6     70.4     67.7     63.6     66.8     66.7     66.5     65.9     67.2     67.7     68.2  
                                               

Gross profit

    32.4     29.6     32.3     36.4     33.2     33.3     33.5     34.1     32.8     32.3     31.8  

Direct store expenses

    22.6     21.6     22.5     23.6     24.0     25.1     23.5     23.1     22.3     24.0     22.9  

General and administrative expenses

    7.2     6.9     7.4     11.1     7.6     7.8     7.3     9.1     7.6     9.1     8.0  

Store opening costs

    2.0     1.6     3.2     1.4     2.7     2.4     3.2     1.0     4.2     4.1     3.7  
                                               

Income (loss) from operations

    0.7     (0.5 )   (0.8 )   0.2     (1.1 )   (2.0 )   (0.5 )   0.8     (1.3 )   (4.9 )   (2.9 )

Business interruption insurance recoveries

                                            1.5  

Interest expense, net

    (3.7 )   (4.1 )   (4.1 )   (3.9 )   (3.4 )   (3.1 )   (2.7 )   (3.0 )   (3.0 )   (3.6 )   (4.2 )

Loss on early extinguishment of debt

                (10.5 )                            
                                               

Loss before income taxes

    (3.0 )   (4.6 )   (4.8 )   (14.2 )   (4.5 )   (5.1 )   (3.2 )   (2.2 )   (4.3 )   (8.5 )   (5.6 )

Income tax benefit (provision)

    1.3     1.9     2.7     6.0     1.8     2.1     1.3     0.9     1.7     3.7     (21.0 )
                                               

Net loss

    (1.7 )%   (2.7 )%   (2.2 )%   (8.2 )%   (2.7 )%   (3.0 )%   (1.9 )%   (1.3 )%   (2.5 )%   (4.9 )%   (26.6 )%
                                               

(1)
Excluding depreciation and amortization.

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Liquidity and Capital Resources

    Overview

        Our primary sources of liquidity are cash generated from operations and borrowings under our senior credit facility. Our primary uses of cash are purchases of merchandise inventories, operating expenses, capital expenditures, primarily for opening new stores and infrastructure, and debt service. We believe that the cash generated from operations, together with the borrowing availability under our senior credit facility, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made, and expenses incurred, in connection with opening new stores. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to reduce or delay our expected new store openings, sell assets, obtain additional debt or equity capital or refinance all or a portion of our debt. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within a few business days of the related sale.

        At December 30, 2012, we had $29.2 million in cash and cash equivalents and $24.1 million in borrowing availability pursuant to our prior senior credit facility. We were in compliance with all debt covenants under our prior senior credit facility as of December 30, 2012. Our current senior credit facility is discussed under "—Senior Credit Facility" below.

        While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may elect to pursue additional expansion opportunities within the next year that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional expansion opportunities, our ability to pursue such opportunities could be materially adversely affected.

        A summary of our operating, investing and financing activities are shown in the following table:

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 28, 2010   April 3, 2011   April 1, 2012   January 1, 2011   December 30, 2012  
 
  (Amounts in thousands)
 

Net cash (used in) provided by operating activities

  $ (101 ) $ (6,997 ) $ 8,817   $ 8,960   $ (3,252 )

Net cash (used in) investing activities

    (21,658 )   (27,797 )   (44,528 )   (35,591 )   (45,199 )

Net cash provided by (used in) financing activities

    28,538     70,266     7,816     8,314     47,451  
                       

Net increase (decrease) in cash and cash equivalents

  $ 6,779   $ 35,472   $ (27,895 ) $ (18,317 ) $ (1,000 )
                       

    Operating Activities

        Net cash (used in) provided by operating activities consists primarily of net income (loss) adjusted for non-cash items, including depreciation, changes in deferred income taxes and loss on early extinguishment of debt, and the effect of working capital changes.

        We used cash in operating activities of $3.3 million during the thirty-nine weeks ended December 30, 2012, and our operating activities provided cash of $9.0 million during the thirty-nine weeks ended January 1, 2012. The increase in net cash used in operating activities in the thirty-nine weeks ended December 30, 2012 compared to the thirty-nine weeks ended January 1, 2012 was

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primarily due to the increase in our net loss and increased working capital needs, primarily related to new store openings.

        We used cash in operating activities of $0.1 million and $7.0 million during fiscal 2010 and fiscal 2011, respectively, and our operating activities provided cash of $8.8 million in fiscal 2012. The increase in net cash used in operating activities in fiscal 2011 compared to fiscal 2010 was primarily due to the increase in our net loss, and increased working capital needs, primarily due to an increase in accounts receivable, merchandise inventories and prepaid expenses, in fiscal 2011, partially offset by the increase in loss on early extinguishment of debt and deferred income taxes. Net cash was provided by operations in fiscal 2012 compared to net cash used in operations in fiscal 2011 primarily due to decreases in net loss, inventories, prepaid expenses, an increase in depreciation and amortization and reduced working capital needs, primarily due to an increase in accrued expenses and other and a decrease in merchandise inventories, in fiscal 2012, partially offset by a reduction in deferred income taxes and no loss on early extinguishment of debt.

    Investing Activities

        Cash used in investing activities consists primarily of capital expenditures for opening new stores and infrastructure, as well as investments in information technology and merchandising enhancements.

        We made capital expenditures of $45.2 million in the thirty-nine weeks ended December 30, 2012, of which $39.3 million was in connection with the three stores (one of which included an integrated Fairway Wines & Spirits location) we opened in the period and $2.0 million was in connection with the store we expect to open in fall 2013. The remaining approximately $3.9 million of capital expenditures in this period was for merchandising initiatives and equipment upgrades and enhancements to existing stores. We made capital expenditures of $35.6 million in the thirty-nine weeks ended January 1, 2012, of which $31.6 million was in connection with the two stores we opened in July and November 2011 and approximately $4.0 million was for merchandising initiatives and equipment upgrades and enhancements to existing stores.

        We made capital expenditures of $44.5 million in fiscal 2012, of which $31.7 million was in connection with the two stores we opened in fiscal 2012, $4.1 million was in connection with the store and integrated Fairway Wines & Spirits location we opened in the first quarter of fiscal 2013 and $1.8 million was in connection with the stores we opened in August 2012 and December 2012. The remaining approximately $6.9 million of capital expenditures in fiscal 2012 was for merchandising initiatives and equipment upgrades and enhancements to existing stores. We made capital expenditures of $27.8 million in fiscal 2011, of which $17.3 million was in connection with the two stores and adjacent Fairway Wines & Spirits locations we opened in fiscal 2011 and $4.8 million was in connection with the two stores we opened in fiscal 2012, and approximately $5.7 million was for merchandising initiatives and equipment upgrades and enhancements to existing stores. We made capital expenditures of $21.7 million in fiscal 2010, of which $13.7 million was in connection with the two stores and adjacent Fairway Wines & Spirits locations we opened in fiscal 2011, with the remaining approximately $8.0 million for merchandising initiatives and equipment upgrades and enhancements to existing stores.

        We plan to spend approximately $50 million to $60 million on capital expenditures during the fiscal year ending March 31, 2013, primarily related to the new store and Fairway Wines & Spirits location we opened in June 2012, the new stores we opened in August 2012 and December 2012 and stores we plan to open in calendar 2013.

    Financing Activities

        Cash flows from financing activities consists principally of borrowings and payments under our senior credit facility, and proceeds from the issuance of capital stock, net of equity issuance costs. We

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currently do not intend to pay cash dividends on our common stock. See "Dividend Policy" for a discussion of our dividend policy.

 
  Fiscal Year Ended   Thirty-Nine Weeks Ended  
 
  March 28,
2010
  April 3,
2011
  April 1,
2012
  January 1,
2012
  December 30,
2012
 
 
  (Amounts in thousands)
 

Proceeds from long-term debt, net of issuance costs

  $ 95,224   $ 173,535   $ 31,688   $ 31,688   $ 48,601  

Payments on long-term debt

    (76,095 )   (115,738 )   (23,875 )   (23,374 )   (1,150 )

Proceeds from issuance of preferred and common stock, net of issuance costs

    9,409     12,469     3          
                       

Net cash provided by (used in) financing activities

  $ 28,538   $ 70,266   $ 7,816   $ 8,314   $ 47,451  
                       

        Net cash provided by financing activities during fiscal 2010, fiscal 2011 and fiscal 2012 was $28.5 million, $70.3 million and $7.8 million, respectively. Net cash provided by financing activities during the thirty-nine weeks ended January 1, 2012 and December 30, 2012 was $8.3 million and $47.5 million, respectively. In the thirty-nine weeks ended January 1, 2012, we repaid $22.0 million aggregate principal amount of subordinated debt, together with accrued interest, and issued $7.3 million of subordinated debt. In August 2012, we entered into a new senior credit facility, which was treated as a debt modification for accounting purposes, that, after repaying the loans outstanding under our 2011 senior credit facility, provided additional net proceeds of approximately $48.6 million, which was used to finance growth.

        In December 2009, we refinanced our existing first and second lien credit facilities with a new $114 million credit facility, which we subsequently increased to $124 million in November 2010. In March 2011, we refinanced our $124 million credit facility with a new $200 million senior credit facility, which we subsequently increased to $225 million in December 2011 and $235 million in July 2012. In fiscal 2012, we used a portion of the proceeds from the borrowing under the 2011 senior credit facility to repay $22.0 million aggregate principal amount of subordinated debt, together with accrued interest, and issued $7.3 million of subordinated debt. In August 2012, we refinanced the 2011 senior credit facility.

        In October 2009, we issued 9,650 shares of Series A preferred stock and received proceeds of approximately $9.4 million net of issuance costs of approximately $241,000. In October 2010, we issued 12,788 shares of Series A preferred stock and received net proceeds of approximately $12.5 million net of issuance costs of approximately $321,000.

    Senior Credit Facility

        In February 2013, we and our wholly-owned subsidiary Fairway Group Acquisition Company, as the borrower, entered into a senior secured credit facility consisting of a $275 million term loan (the "Term Facility") and a $40 million revolving credit facility, which includes a $40 million letter of credit subfacility (the "Revolving Facility" and together with the Term Facility, the "Credit Facility") with the Term Facility maturing in August 2018 and the Revolving Facility maturing in August 2017. We used the proceeds from the Term Facility to repay the $264.5 million of outstanding borrowings (including accrued interest) under our prior senior credit facility, pay fees and expenses and provide us with $3.5 million to repay our outstanding subordinated note. Affiliates of certain of the underwriters participate as lenders under the Credit Facility, and Credit Suisse AG, an affiliate of Credit Suisse Securities (USA) LLC, acts as administrative agent and collateral agent. Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Jefferies Finance LLC, an affiliate of Jefferies LLC, acted as joint bookrunners and joint lead arrangers of the Credit Facility,

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Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, acted as syndication agent and Jefferies Finance LLC acted as documentation agent.

        Borrowings under the Credit Facility bear interest, at our option, at (i) adjusted LIBOR (subject to a 1.25% floor) plus 5.50% or (ii) an alternate base rate plus 4.50%. The 5.50% and 4.50% margins will each be reduced by 50 basis points at any time following completion of the offering being made hereby when our public corporate family rating from Moody's Investor Services Inc. is B2 or higher and our public corporate rating from Standard & Poors rating service is B or higher, in each case with a stable outlook, and as long as certain events of default have not occurred. In addition, there is a fee payable quarterly in an amount equal to 1% per annum of the undrawn portion of the Revolving Facility, calculated based on a 360-day year. Interest is payable quarterly in the case of base rate loans and on maturity dates or every three months, whichever is shorter, in the case of adjusted LIBOR loans. In addition, we would have been required to repay $7.7 million of the outstanding term loan on May 15, 2013 if we had not repaid in full our outstanding subordinated note by that date.

        All of the borrower's obligations under the Credit Facility are unconditionally guaranteed (the "Guarantees") by us and each of our direct and indirect subsidiaries (other than the borrower and any future unrestricted subsidiaries as we may designate, at our discretion, from time to time) (the "Guarantors"). Additionally, the Credit Facility and the Guarantees are secured by a first-priority perfected security interest in substantially all present and future assets of the borrower and each Guarantor, including accounts receivable, equipment, inventory, general intangibles, leases, intellectual property, investment property and intercompany notes among Guarantors.

        Mandatory prepayments under the Credit Facility are required with (i) 50% of adjusted excess cash flow (which percentage will decrease to 25% upon achievement and maintenance of a leverage ratio of less than 5.0:1.0, and to 0% upon achievement and maintenance of a leverage ratio of less than 4.0:1.0); (ii) 100% of the net cash proceeds of assets sales or other dispositions of property by us and our restricted subsidiaries (subject to certain exceptions and reinvestment provisions); and (iii) 100% of the net cash proceeds of issuances, offerings or placements of debt obligations (subject to certain exceptions).

        The Credit Facility contains customary affirmative covenants, including (i) maintenance of legal existence and compliance with laws and regulations; (ii) delivery of consolidated financial statements and other information; (iii) maintenance of properties in good working order; (iv) payment of taxes; (v) delivery of notices of defaults, litigation, ERISA events and material adverse changes; (vi) maintenance of adequate insurance; and (vii) inspection of books and records.

        The Credit Facility also contains customary negative covenants, including restrictions on (i) the incurrence of additional debt; (ii) liens and sale-leaseback transactions; (iii) loans and investments; (iv) guarantees and hedging agreements; (v) the sale, transfer or disposition of assets and businesses; (vi) dividends on, and redemptions of, equity interests and other restricted payments (although the Credit Facility permits us to use the proceeds of this offering to pay accrued but unpaid dividends on our outstanding preferred stock), including dividends and distributions to the issuer by its subsidiaries; (vii) transactions with affiliates; (viii) changes in the business conducted by us; (ix) payment or amendment of subordinated debt and organizational documents; and (x) maximum capital expenditures. We are also required to comply with the following financial covenants: (i) a maximum total leverage ratio and (ii) a minimum cash interest coverage ratio.

        Events of default under the Credit Facility include:

    failure to pay principal, interest, fees or other amounts under the Credit Facility when due, taking into account any applicable grace period;

    any representation or warranty proving to have been incorrect in any material respect when made;

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    failure to perform or observe covenants or other terms of the Credit Facility subject to certain grace periods;

    a cross-default and cross-acceleration with certain other debt;

    bankruptcy events;

    a change in control, which includes any person other than Sterling Investment Partners owning, directly or indirectly, beneficially or of record, shares representing more than 35% of the voting power of our outstanding common stock or a majority of our directors being persons who were not nominated by the board or appointed by directors so nominated;

    certain defaults under ERISA; and

    the invalidity or impairment of any security interest.

        The foregoing is a brief summary of the material terms of the Credit Facility, and is qualified in its entirety by reference to the Credit Facility filed as an exhibit to the registration statement relating to this prospectus. See "Where You Can Find More Information."

        See Note 8 to our financial statements found elsewhere in this prospectus for information regarding our prior senior credit facilities.

    Subordinated Notes

        In connection with Sterling Investment Partners' acquisition of Fairway in January 2007, we issued to certain of the selling entities subordinated promissory notes in an aggregate principal amount of $22.0 million, together with accrued interest. The notes bore interest at the rate of 10% per annum, which rate was increased to 12% in April 2010, with the additional two percent deferred until maturity, and were due in January 2015. Mr. Howard Glickberg, our Vice Chairman of Development and a director, owned one-third of each of the entities that received a promissory note. In May 2011, we used a portion of the proceeds from our 2011 senior credit facility to repay these notes. In May 2011, we sold to Mr. Glickberg a subordinated promissory note in the aggregate principal amount of $7.3 million. This note bore interest at a rate of 12% per annum, of which 10% was paid in cash quarterly and 2% was deferred until maturity. The maturity date of the note was March 3, 2018. In March 2013, we repaid this note, including all accrued deferred interest, in full. See "Certain Relationships and Related Party Transactions—Transactions with Howard Glickberg—Subordinated Notes."

Contractual Obligations

        The following table summarizes our contractual obligations as of April 1, 2012.

 
  Payment by period  
(amounts in thousands)
  Total   Less than 1 year   1 - 3 years   3 - 5 years   More than 5 years  

Long-term debt obligations(1)

  $ 205,458   $ 2,000   $ 4,000   $ 192,125   $ 7,333  

Estimated interest on long-term debt obligations(2)

    81,413     17,021     32,505     30,211     1,676  

Operating lease obligations(3)

    455,898     19,745     41,219     42,004     352,930  
                       

Total

  $ 742,769   $ 38,766   $ 77,724   $ 264,340   $ 361,939  
                       

(1)
Reflects the outstanding balance on our $225.0 million 2011 senior credit facility at April 1, 2012, including unamortized discount of $1.9 million, and our subordinated promissory note. Does not include $9.9 million of outstanding letters of credit under our 2011 senior credit facility. For a more detailed description of our 2011 senior credit facility, see Note 8 to our financial statements

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    found elsewhere in this prospectus. See the table below for information regarding our long-term debt obligations on a pro forma basis giving effect to our new senior credit facility that we entered into in February 2013 and the repayment of our outstanding subordinated note.

(2)
Borrowings under our 2011 senior credit facility bore interest, at our option, at (i) adjusted LIBOR (subject to a 1.5% floor) plus 6% or (ii) an alternate base rate plus 5%. At April 1, 2012, the interest rate on our outstanding borrowings was 7.5%. For the purposes of this table, we have estimated interest expense to be paid during the remaining term of our revolving credit facility using the outstanding balance and interest rate as of April 1, 2012. Our actual cash payments for interest on the senior credit facility will fluctuate as the outstanding balance changes with our cash needs and the LIBOR rate fluctuates. For a more detailed description of the interest requirement for our long-term debt under our 2011 senior credit facility, see Note 8 to our financial statements found elsewhere in this prospectus. A one percentage point increase in LIBOR above the 1.5% floor would have caused an increase to interest expense of $2.1 million for the "less than 1 year" period, $3.9 million for "1 - 3 years" and $3.7 million for "3 - 5 years." The debt in the "more than 5 years" period has a fixed rate of interest and an increase in interest rates will not affect the amount of interest payable. See the table below for information regarding our estimated interest on long-term debt obligations on a pro forma basis giving effect to our new senior credit facility that we entered into in February 2013 and the repayment of our outstanding subordinated note.

(3)
Represents the minimum lease payments due under our operating leases, excluding maintenance, insurance and taxes related to our operating lease obligations, which combined represented approximately 19.5% of our minimum lease obligations for the fiscal year ended April 1, 2012, and does not reflect fair market value rent reset provisions in the leases. For a more detailed description of our operating leases, see Note 14 to our financial statements found elsewhere in this prospectus. See the table below for information regarding our operating lease obligations on a pro forma basis giving effect to the amendment of our related party leases in December 2012.

        The following summarizes our contractual obligations as of April 1, 2012 on a pro forma basis after giving effect to (i) our entry into a new senior credit facility on February 14, 2013, consisting of a $275 million term loan facility and a $40 million revolving credit facility, (ii) the repayment of our outstanding subordinated note in March 2013, and (iii) the amendment of our related party leases in December 2012, as if these transactions had occurred on April 1, 2012:

 
  Payment by period  
(amounts in thousands)
  Total   Less than 1 year   1 - 3 years   3 - 5 years   More than 5 years  

Long-term debt obligations(1)

  $ 275,000   $ 2,750   $ 5,500   $ 5,500   $ 261,250  

Estimated interest on long-term debt obligations(2)

    114,912     19,604     38,964     38,633     17,711  

Operating lease obligations(3)

    505,676     23,526     48,859     48,851     384,440  
                       

Total

  $ 895,588   $ 45,880   $ 93,323   $ 92,984   $ 663,401  
                       

(1)
Reflects the outstanding balance on our $315.0 million 2013 senior credit facility as if we had entered into that facility at April 1, 2012, including unamortized discount of $15.6 million. Does not include $9.9 million of outstanding letters of credit at April 1, 2012 under our new senior credit facility. For a more detailed description of our senior credit facility, see "—Senior Credit Facility", "Description of Certain Indebtedness—Senior Credit Facility" and Note 17 to our financial statements found elsewhere in this prospectus.

(2)
Borrowings under our senior credit facility bear interest, at our option, at (i) adjusted LIBOR (subject to a 1.25% floor) plus 5.50% or (ii) an alternate base rate plus 4.50%, subject to reduction if we achieve certain specified ratings following completion of the offering being made hereby. At April 1, 2012, the interest rate on our outstanding borrowings under our new senior

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    credit facility would have been 6.75%. For the purposes of this table, we have estimated interest expense to be paid during the remaining term of our revolving credit facility using the outstanding balance and interest rate as of April 1, 2012 as if we had entered into our new credit facility on that date. Our actual cash payments for interest on the senior credit facility will fluctuate as the outstanding balance changes with our cash needs and the LIBOR rate fluctuates. For a more detailed description of the interest requirement for our long-term debt, see "—Senior Credit Facility", "Description of Certain Indebtedness—Senior Credit Facility" and Note 17 to our financial statements found elsewhere in this prospectus. A one percentage point increase in LIBOR above the 1.25% floor would cause an increase to interest expense of $2.7 million for the "less than 1 year" period, $5.5 million for the "1 - 3 years" period, $5.4 million for the "3 - 5 years" period and $2.6 million for "more than 5 years" period.

(3)
Represents the minimum lease payments due under our operating leases, excluding common area maintenance, insurance and taxes related to our operating lease obligations, which combined represented approximately 19.5% of our minimum lease obligations for the year ended April 1, 2012, and does not reflect fair market value rent reset provisions in the leases. For a more detailed description of our operating leases, see Note 14 to our financial statements found elsewhere in this prospectus.

        We periodically make other commitments and become subject to other contractual obligations that we believe to be routine in nature and incidental to the operation of our business. We believe that such routine commitments and contractual obligations do not have a material impact on our business, financial condition or results of operations.

Off-Balance Sheet Arrangements

        We are not party to any off-balance sheet arrangements.

Multiemployer Plans

        We are a party to one underfunded multiemployer pension plan on behalf of our union-affiliated employees. This underfunding has increased in part due to increases in the costs of benefits provided or paid under these plans as well as lower returns on plan assets. The unfunded liabilities of these plans may result in increased future payments by us and other participating employers. Going forward, our required contributions to these multiemployer plans could increase as a result of many factors, including the outcome of collective bargaining with the unions, actions taken by trustees who manage the plans, government regulations, the actual return on assets held in the plans and the payment of a withdrawal liability if we choose to exit a plan. Our risk of future increased payments may be greater if other participating employers withdraw from the plan and are not able to pay the total liability assessed as a result of such withdrawal, or if the pension plan adopts surcharges and/or increased pension contributions as part of a rehabilitation plan. For a more detailed description of this underfunded plan, see note 12 to our financial statements found elsewhere in this prospectus.

Quantitative and Qualitative Disclosure About Market Risk

        Our market risks relate primarily to changes in interest rates. Borrowings under our existing senior credit facility bear floating interest rates that are tied to LIBOR or alternate base rates and, therefore, our statements of income and our cash flows will be exposed to changes in interest rates. A one percentage point increase in LIBOR above the 1.25% minimum floor would cause an annual increase to the interest expense on our borrowings under our senior credit facilities of approximately $2.7 million. Pursuant to the requirements of our 2011 senior credit facility, in fiscal 2012 we entered into an interest rate cap agreement with Credit Suisse AG to cap the LIBOR interest rate at 4% on $70 million notional amount of the term loan for the period July 19, 2011 through June 14, 2012 and

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$120 million notional amount of the term loan from June 14, 2012 through July 19, 2013. We paid Credit Suisse AG $98,000 for this interest rate cap. Pursuant to the requirements of our prior 2009 senior credit facility, in fiscal 2011 we entered into an interest rate cap agreement with Credit Suisse AG to cap the LIBOR interest on $50.1 million of the outstanding term loan at 5% for the period June 4, 2010 through June 14, 2011 and 4% from June 14, 2011 through June 14, 2012. We paid Credit Suisse AG a fee of $118,000 for this agreement.

        At December 30, 2012, we had cash and cash equivalents of $29.2 million. These amounts are held primarily in cash and money market funds. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

        We do not have any foreign currency or any other material derivative financial instruments.

Critical Accounting Policies and Estimates

        The preparation of our financial statements in conformity with GAAP requires us to make estimates, assumptions and judgments that affect amounts of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the year. We believe our estimates and assumptions are reasonable; however, future results could differ from those estimates.

        Critical accounting policies reflect material judgment and uncertainty and may result in materially different results using different assumptions or conditions. We identified the following critical accounting policies and estimates: merchandise inventories, goodwill and other intangible assets, impairment of long-lived assets and income taxes. For a detailed discussion of accounting policies, please refer to the notes to our consolidated financial statements included elsewhere in this prospectus.

    Merchandise Inventories

        Perishable inventories are stated at the lower of cost (first in, first out) or market. Non-perishable inventories are stated principally at the lower of cost or market, with cost determined under the retail method, which approximates average cost. We value inventories at the lower of cost or market. Under the retail method, the valuation of inventories at cost and the resulting gross margins are determined by applying a cost-to-retail ratio for various groupings of similar items to the retail value of inventories. Inherent in the retail inventory method calculations are certain management judgments and estimates which could impact the ending inventory valuation at cost as well as the resulting gross margins.

    Goodwill and Other Intangible Assets

        We account for goodwill and other intangible assets in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic No. 350—Intangibles—Goodwill and Other. Accordingly, goodwill and identifiable intangible assets with indefinite lives are not amortized, but instead are subject to annual testing for impairment.

        Goodwill is tested for impairment on an annual basis at the end of each fiscal year or between annual tests if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, we are required to perform a second step, as this is an indication that the reporting unit goodwill may be impaired. In this step, we compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase

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price allocation The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Based on this annual impairment analysis, there was no impairment of non-amortizable intangible assets, including goodwill, as of April 1, 2012, April 3, 2011 and March 28, 2010.

        We test for intangibles that are not subject to amortization whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We test indefinite-lived assets using a two-step approach. The first step screens for potential impairment while the second step measures the amount of impairment. We use a discounted cash flow analysis to complete the first step in the process. The amount of the impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. As of April 1, 2012, April 3, 2011 and March 28, 2010 no impairment charges have been recorded.

    Impairment of Long-Lived Assets

        ASC 360, "Impairment of Long-Lived- Assets" requires that long-lived assets other than goodwill and other non-amortizable intangibles be reviewed for impairment whenever events such as adjustments to lease terms or other adverse changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In reviewing for impairment, we compare the carrying value of such assets with finite lives to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. When the estimated undiscounted future cash flows are less than their carrying amount, an impairment loss is recognized equal to the difference between the assets' fair value and their carrying value. We have concluded that the carrying amount of the long-lived assets is recoverable as of April 1, 2012, April 3, 2011 and March 28, 2010.

    Income Taxes

        Income taxes are accounted for under the asset and liability method. 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 bases. 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 for a change in tax rates is recognized in income in the period that includes the enactment date.

    Stock Based Compensation

        We measure and recognize stock-based compensation expense for all equity-based payment awards made to employees using estimated fair values. The fair value of the award that is ultimately expected to vest is recognized as compensation expense over the requisite service period. For awards with a change of control condition, an evaluation is made at the grant date and future periods as to the likelihood of the condition being met. Compensation expense is adjusted in future periods for subsequent changes in the expected outcome of the change of control conditions until the vesting date. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

        In fiscal 2010, fiscal 2011, fiscal 2012 and the thirty-nine weeks ended December 30, 2011, we issued restricted shares of Class A common stock at a price per share of $0.01. We estimated the fair value of a share of Class A common stock to be $0.70, $1.33, $3.44 and $1.61 in fiscal 2010, fiscal 2011, fiscal 2012 and the thirty-nine weeks ended January 1, 2012, respectively, compared to an initial public offering price of $11.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. As part of our responsibility in determining an estimate of the fair value of common stock at April 1, 2012, we considered the analysis of an unrelated valuation specialist, using probability-weighted expected returns considering three discrete scenarios: consummate an initial public offering

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within six months, sell the company or remain a private company. During fiscal 2012 and the thirty-nine weeks ended January 1, 2012 and December 30, 2012, we charged to operations approximately $437,000, $329,000 and $83,000, respectively, for non-cash stock based compensation expense. We issued no stock in the thirty-nine week period ended December 30, 2012.

        In connection with this offering, we anticipate granting to our directors and employees an aggregate of 2,296,838 RSUs in respect of Class A common stock and options to purchase 1,135,722 shares of Class A common stock. These RSUs will vest on the third anniversary of the date of the closing of this offering in the case of our non-employee directors, and in the case of members of our senior management team, contingent upon the executive's continued employment, half on each of the third and fourth anniversary of the date of closing of this offering. The options will vest in four equal annual installments commencing on the first anniversary of the closing of this offering. We estimate that we will record compensation expense associated with these grants, resulting in a reduction in net earnings, of approximately $8.7 million for fiscal 2014, approximately $9.0 million for each of fiscal 2015 and fiscal 2016, approximately $2.7 million for fiscal 2017 and approximately $0.1 million for fiscal 2018, in each case net of tax, assuming an initial public offering price of $11.00, which is the midpoint of the price range set forth on the cover page of this prospectus. We will from time to time in the future make additional restricted stock unit awards, option grants and restricted stock awards under our 2013 Long-Term Incentive Plan, which will result in compensation expense in future periods. In addition, contractual arrangements with certain of our management require us to pay them bonuses upon consummation of the offering being made hereby which aggregate approximately $7.3 million, assuming an initial public offering price of $11.00, which is the midpoint of the price range set forth on the cover page of this prospectus. As a result, we will incur charges of approximately $7.3 million against earnings in the quarter in which we consummate this offering. In addition, we will incur a charge of approximately $1.1 million against earnings in the fourth fiscal quarter ending March 31, 2013 relating to severance due to a former senior executive and a former officer and director. See "Risk Factors—Risks Relating to Our Business—We will incur compensation related charges in the quarter in which this offering is consummated and in subsequent periods," "Management—Director Compensation," "Executive Compensation—Equity Compensation Plans—2013 Long-Term Incentive Plan—Initial Awards" and "—IPO Bonuses" for more information.

Recent Accounting Pronouncements

        In September 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-08—Intangibles—Goodwill and Other (ASC Topic No. 350)—Testing Goodwill for Impairment. The ASU simplifies how entities test for goodwill impairment. The ASU permits an entity to first assess the qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining if performing the two-step goodwill impairment test, as defined, is necessary. The ASU is effective for annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We do not believe that the adoption of this ASU will have a material impact on our consolidated financial statements.

        In September 2011, the FASB issued an amendment related to multiemployer pension plans. This amendment increases the quantitative and qualitative disclosures about an employer's participation in individually significant multiemployer plans that offer pension and other postretirement benefits. The guidance is effective for fiscal years ended after December 15, 2011. We have adopted the guidance and modified the disclosures surrounding our participation in multiemployer plans in note 12 to our financial statements appearing elsewhere in this prospectus.

        We do not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.

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JOBS Act

        The JOBS Act provides that an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay the adoption of new or revised accounting pronouncements applicable to public and private companies until such pronouncements become mandatory for private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public and private companies.

        Additionally, as an "emerging growth company", we are not required to, among other things, (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404 or (ii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis).

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BUSINESS

Our Company

        Fairway Market is a high-growth food retailer offering customers a differentiated one-stop shopping experience "Like No Other Market". Since beginning as a small neighborhood market in the 1930s, Fairway has established itself as a leading food retailing destination in the Greater New York City metropolitan area, an approximately $30 billion food retail market that is the largest in the United States. Our stores emphasize an extensive selection of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries. Our prices typically are lower than natural / specialty stores and competitive with conventional supermarkets. We believe that the combination of our broad product selection, in-store experience and value pricing creates a premier food shopping experience that appeals to a broad demographic.

        We operate 12 locations in the Greater New York City metropolitan area, three of which include Fairway Wines & Spirits stores. Four of our food stores, which we refer to as our "urban stores," are located in Manhattan, and the remainder, which we refer to as our "suburban stores," are located in New York (outside of Manhattan), New Jersey and Connecticut. Our Red Hook location was temporarily closed from October 29, 2012 through February 28, 2013 due to substantial damage sustained during Hurricane Sandy and reopened March 1, 2013. We expect to open an additional food store in Manhattan's Chelsea neighborhood in summer 2013 and in Nanuet, New York in fall 2013. Since Sterling Investment Partners' acquisition of Fairway in 2007, we have made significant investments in infrastructure required to accelerate our future growth, and, since March 2009, have opened seven food stores, including the three Fairway Wines & Spirits stores.

        We have a proven track record of growth led by a seasoned management team. We believe our stores are among the most productive in the industry in net sales per store and net sales per square foot as a result of our distinctive merchandising strategies, value positioning and efficient operating structure. Through our focused efforts on expanding our store base, enhancing our customers' shopping experience and improving the value proposition we offer our customers, we have increased our net sales from $401.2 million in fiscal 2010 to $554.9 million in fiscal 2012, or 38.3%, and our Adjusted EBITDA from $23.9 million in fiscal 2010 to $35.8 million in fiscal 2012, or 49.8%, while significantly investing in corporate infrastructure to support our growth, including new store expansion. We increased our net sales from $404.5 million in the thirty-nine weeks ended January 1, 2012 to $482.5 million in the thirty-nine weeks ended December 30, 2012, or 19.3%, and our Adjusted EBITDA from $24.9 million in the thirty-nine weeks ended January 1, 2012 to $33.8 million in the thirty-nine weeks ended December 30, 2012, or 35.9%, due principally to new store openings and leveraging our infrastructure. We had net losses of $7.1 million, $18.6 million, $11.9 million, $10.0 million and $56.2 million in fiscal 2010, fiscal 2011, fiscal 2012 and the thirty-nine weeks ended January 1, 2012 and December 30, 2012, respectively. For a discussion of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net loss, see note 11 to the tables included in "Selected Historical Consolidated Financial and Other Data."

Our History

        Fairway began in the 1930s as a fruit and vegetable stand located at our Broadway store's current location on Broadway and 74th Street in Manhattan under the name "74th Street Market." In 1954, we expanded the 74th Street location, adding groceries, meat, cheese, dairy products and frozen foods, and renamed the store "FAIRWAY" to convey the concept of "fair prices."

        In the mid-1970s, Fairway began expanding into gourmet and specialty categories, transforming its retail grocery operations into a full service food superstore known for high quality and value pricing. During this transformation, we also began hiring the team of ambitious, hardworking "foodies" who

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would eventually become our category experts and senior merchants. In the late 1970s, we adopted the slogan "Like No Other Market" in recognition of our distinctive format.

        In January 2007, Sterling Investment Partners acquired 80.1% of Fairway. With Sterling Investment Partners' support, we made significant investments in infrastructure required to accelerate our future growth and, in early 2009, began to execute our successful new store expansion program.

        The issuer was incorporated as a Delaware corporation on September 29, 2006. Each of our stores is owned by a separate Delaware subsidiary.

Our Competitive Strengths

        We believe the following strengths contribute to our success as a premier destination food retailer and position us for sustainable growth:

        Iconic brand.    We believe our Fairway brand has a well established reputation for delivering high-quality, value-priced fresh, specialty and conventional groceries. Fairway has served millions of passionate customers in the Greater New York City metropolitan area for more than 75 years. We recorded approximately 12.7 million customer transactions in fiscal 2012, and believe the Fairway brand is widely recognized throughout the Greater New York City metropolitan area. Our food experts regularly appear on nationally syndicated food and cooking programs. We believe the strength of the Fairway brand enhances our ability to: (i) attract a broad demographic of customers from a wider geographic radius than a conventional supermarket; (ii) source hard-to-find, unique gourmet and specialty foods; (iii) build a trusted connection with our customers that results in a high degree of loyalty; (iv) attract and retain highly talented employees; (v) secure attractive real estate locations; and (vi) successfully open new stores.

        Destination food shopping experience "Like No Other Market".    We provide our customers a differentiated one-stop shopping experience by offering a unique mix of product breadth, quality and value in a visually appealing in-store environment. Fairway creates a fun and engaging atmosphere in which customers select from an abundance of fresh foods and other high-quality products while interacting with our attentive and knowledgeable employees throughout the store. When customers enter a Fairway, they are immediately greeted by our signature towering displays of fresh produce. As they continue through the store, customers will find a "specialty shop" orientation designed to recreate the best features of local specialty markets, such as a gourmet cheese purveyor, full service butcher shop, seafood market and bakery, all in one location. Our stores provide a sensory experience, including aromas of fresh coffee roasts and freshly baked bread, an array of vibrant colors across our produce displays, cheese experts describing selections of our over 600 artisanal cheeses, samples of our approximately 135 varieties of olive oil and free tastings of our delicious prepared foods. Our stores feature whimsical and informative signs designed to educate customers about the quality, origin and characteristics of our products, and offer tips and suggestions on food preparation and pairings. We encourage a high level of interaction among our employees and customers, which results in a more informed, engaged and satisfied customer. We believe the distinctive Fairway food shopping experience drives loyalty, referrals and repeat business.

        Distinctive merchandising strategy.    Our merchandising strategy is the foundation of our highly differentiated, one-stop shopping experience. We offer a unique product assortment generally not found in either conventional grocery stores or natural / specialty stores, consisting of a large variety of high-quality produce, meats and seafood, as well as gourmet, specialty and prepared foods and a full selection of everyday conventional groceries. High-quality perishables and prepared foods account for approximately 65% of our sales, compared to the more typical one-quarter to one-third of a conventional grocer's sales. Fairway stores also showcase hard-to-find specialty and gourmet items that expand our customers' culinary interests, and we believe we are often one of the first retailers to carry or import a new product. Our Fairway-branded products represent a high-quality, value-oriented

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specialty alternative unlike the more typical generic, low-cost option presented by conventional food retailers. In product lines where we offer a Fairway-branded alternative, it is typically among the store's top sellers in the category. Fairway's prices typically are lower than natural / specialty food stores and competitive with conventional grocery stores. Our dedicated merchandising team focuses on continuously enhancing the Fairway experience for our loyal customers. We believe that our distinctive merchandising strategy has enabled us to build a trusted connection with our customers, who value the quality and fair prices of our food, our merchandising teams' expertise and our one-stop shopping convenience.

        Powerful store format with industry leading productivity.    We believe our stores are among the most productive in the industry in net sales per store, net sales per square foot and store contribution margin. During fiscal 2012, for food stores open more than 13 full months, our net sales per store and net sales per selling square foot averaged $64.8 million and $1,859, respectively. In addition, during fiscal 2012, the contribution margin of our food stores open more than 13 full months was 12.3%. Our highly productive store format delivers attractive returns on investment due to the following key characteristics:

    High-volume one-stop shopping destination.  Our distinctive merchandising strategy, locations in high density markets and iconic brand drive strong customer traffic to our stores. Our high volumes result in operating efficiencies that provide us with a greater ability to offer competitive prices while maintaining or improving our operating margins. In addition, our strong per store volumes generate high inventory turnover, which enables us to maintain a fresher selection of quality perishables than most of our competitors, in turn helping to drive customer traffic and sales.

    Attractive product mix.  Our broad assortment of high-quality fresh, natural and organic products and prepared foods, which account for approximately 65% of our sales, and specialty items, which account for approximately 7% of our sales, enhance gross margins and store productivity.

    Direct-store delivery.  We believe that our "farm-to-shelf" time is shorter than that of many of our competitors. The majority of our perishables are delivered directly to our stores and not stored in a warehouse during the transport period. Given our large store volumes, our ability to utilize direct-store delivery for a greater portion of our perishables than other food retailers helps us to ensure the highest quality and fastest delivery from our suppliers. Direct-store distribution eliminates multiple logistical layers, reducing supply chain costs while enhancing product freshness.

    Strong vendor relationships.  We have built valued, long-standing relationships with both large and small vendors that enable us to achieve attractive pricing on our broad merchandise offering. Fairway is viewed as an important strategic partner by many of our smaller suppliers, helping them to build scale. We source our perishable products locally whenever possible to ensure freshness. As we grow our sales, we expect that we and our vendors will benefit from increasing economies of scale.

    Maximum merchandising flexibility.  We generally enable our merchandising teams to control our on-shelf product selection and positioning, rather than permitting vendors to do so through slotting fees. This permits us to offer the products customers want most and provides us with the flexibility to expand or contract our product offerings as demand warrants.

        Proven ability to replicate store model.    Since March 2009, we have successfully opened eight new food stores, three of which include Fairway Wines & Spirits locations, more than doubling our store base. In aggregate, the two food stores we opened in July and November 2011 added $88.4 million of net sales and increased our store contribution by $11.4 million in fiscal 2012. We leverage our well-developed corporate infrastructure, including our dedicated store opening team and flexible supply chain, to open in desirable locations using a disciplined approach to new store site selection. We

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benefit from economies of scale and expect to enhance our operating efficiency as we expand our store footprint, further reinforcing our competitive position and ability to grow our sales profitably. As a result of our iconic brand and customer traffic, many landlords seek us out as a tenant.

        Our urban food store operating model for new stores is based primarily on a store size of approximately 40,000 gross square feet (approximately 25,000 selling square feet), a net cash investment, including store opening costs, of approximately $16 million, not all of which requires an immediate cash outlay, net sales after two years of approximately $75 million to $85 million, a contribution margin at maturity of approximately 17% to 20%, and an average payback period on our initial investment of less than two years.

        Our suburban food store operating model for new stores is based primarily on a store size of approximately 60,000 gross square feet (approximately 40,000 selling square feet), a net cash investment, including store opening costs, of approximately $15 million, not all of which requires an immediate cash outlay, net sales after two years of approximately $45 million to $55 million, a contribution margin at maturity of approximately 10% to 13%, and an average payback period on our initial investment of approximately 3 to 3.5 years.

        We may elect to opportunistically open stores in desirable locations that differ from our prototypical new store model in square footage and/or net sales but that we believe will provide similar contribution margins and returns on invested capital.

        Passionate and experienced management team.    We are led by a management team with a proven track record, complemented by hands-on senior merchants and store operations managers who have broad responsibility for merchandising and store operations. Our senior merchants have an average of 32 years in the food retailing industry and an average of 14 years at Fairway. We believe that our senior merchants for each broad merchandising category (e.g., produce, meat, deli, cheese) are widely recognized as authorities in their area and are more invested in the success of their product categories than employees of most conventional food retailers because they provide significant merchandising input. We also believe our management and senior merchants' depth of experience and continuity as a team have significantly cont