As filed with the Securities and Exchange Commission on August 9, 1999
Registration Statement No. 333-83149
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SFAC NEW HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 2022 52-2173534
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification
incorporation or Classification Number)
organization) Code Number)
520 Lake Cook Road
Suite 550
Deerfield, IL 60015
(847) 405-5300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
Larry S. Benjamin
President and Chief Executive Officer
SFAC New Holdings, Inc.
520 Lake Cook Road
Suite 550
Deerfield, Illinois 60015
(847) 405-5300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With A Copy To:
Mitchell S. Fishman, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
Approximate date of commencement of proposed sale to public:
As soon as practicable after the Registration Statement becomes effective.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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. |_|
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. |_|
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PROSPECTUS
SFAC New Holdings, Inc.
Exchange Offers for:
$587,025,332 of our 13% Senior Secured Discount Debentures due 2009
and
$55,000 of 13% Senior Secured Discount Debentures due 2005 of Specialty Foods
Acquisition Corporation
Terms of the exchange offers:
o They expire at 5:00 p.m., New York City time, on September 13, 1999,
unless extended.
o All notes that are validly tendered and not withdrawn will be exchanged.
o Tenders of notes may be withdrawn at any time before the expiration of the
exchange offer.
o The terms of the new 13% debentures we will issue in the exchange offer
are substantially identical to those of our private 13% debentures, except
that transfer restrictions and registration rights relating to our private
13% debentures will not apply to the new 13% debentures.
o The notes of Specialty Foods Acquisition Corporation which we are offering
to acquire in exchange for new 13% debentures are all structurally
subordinated to both our private 13% debentures and the new 13%
debentures.
o The new 13% debentures are new securities and there is currently no
established market for them.
Before participating in these exchange offers please refer to the section in
this prospectus entitled "Risk Factors" beginning on page 12.
Neither the Securities and Exchange Commission nor any state commission
has approved the notes to be distributed in the exchange offers, nor have any of
these organizations determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offence.
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The date of this prospectus is August 9, 1999.
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TABLE OF CONTENTS
Page No.
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Prospectus Summary ............................................................1
Risk Factors .................................................................12
Use of Proceeds ..............................................................22
Capitalization ...............................................................23
Selected Consolidated Financial Data .........................................24
Managment's Discussion and Analysis of Financial Condition and
Results of Operations ......................................................25
Business .....................................................................33
Management ...................................................................43
Security Ownership ...........................................................53
Relationships and Related Transactions .......................................56
The Exchange Offers ..........................................................58
Description of Our Other Indebtedness and Our Accounts Receivable
Transfer Program ...........................................................72
Description of the New 13% Debentures ........................................80
Description of the Old 13% Debentures .......................................122
Description of the SFAC 13% Debentures ......................................123
Plan of Distribution ........................................................145
United States Federal Income Tax Considerations .............................146
Legal Matters ...............................................................151
Experts .....................................................................151
Where You Can Obtain Additional Information .................................151
Index to Financial Information ..............................................F-1
Report of Independent Auditors ..............................................F-2
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. Because it
is a summary, it does not contain all of the information that you should
consider before participating in the exchange offers. You should read the entire
prospectus carefully, including the section entitled "Risk Factors" and the
financial statements and the related notes to those statements included in this
prospectus.
About Our Business
General
We are a holding corporation which, through SFC New Holdings, Inc., owns a
group of specialty food businesses. We are a leading producer, marketer and
distributor of retail bread, cookies and other baked goods throughout the United
States and we are now the nation's third largest cookie company. Our operations
include Metz Baking Company, Mother's Cake & Cookie Co., Archway Cookies, Inc.
and Andre-Boudin Bakeries, Inc.
Since 1996, we have increased our focus on our core baked goods businesses
while divesting non-core businesses including B&G Foods/Burns & Ricker, Inc.,
Gai's Seattle French Baking Co. and San Francisco French Bread. In addition, in
1997 we sold Stella Foods, Inc., a producer of specialty and Italian cheeses,
for $405 million, and, in April 1999, we sold H&M Foods Systems Company, Inc., a
manufacturer and distributor of specialty meats and meat-based prepared foods to
restaurants and food manufacturers, for $132 million. The net proceeds that we
received from the sales have been used to reduce our indebtedness, invest in our
businesses or acquire baked goods companies. In recent years, the baked goods
industry has undergone substantial consolidation, which is being driven by
opportunities to reduce costs by combining manufacturing, distribution and
administrative capabilities.
These exchange offers are being made to fulfill our obligations under the
registration rights agreement that we entered in connection with the
restructuring transaction and private exchange transactions that we completed on
June 11, 1999. The restructuring and private exchange transactions, which we
refer to as the "Restructuring Transactions," were designed to give us added
flexibility to pursue our strategic plan and to allow us to maximize value
through selective acquisitions.
Since May 1998, we have completed seven acquisitions of baking companies
that complement our existing business, expand our geographic scope and
strengthen our competitive position. In October 1998, we acquired Archway for
approximately $90 million and used an additional $26 million to repay some of
Archway's indebtedness. The Archway acquisition created, together with Mother's,
the nation's third largest cookie business and provides us with a strong,
established brand name, a more diversified product line and a nation-wide
presence. The Archway acquisition also provides us with opportunities to realize
significant operational and distribution synergies.
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In June 1999, we acquired Grocers Baking Company of Grand Rapids, Michigan
for $33.2 million plus an additional $5.8 million of indebtedness. Grocers,
which had 1998 sales of approximately $60 million, sells a variety of bread,
buns, sweet goods, cookie dough and other frozen products throughout Michigan.
Additionally, in July 1999, we completed a small add-on acquisition of a
Detroit-based baker, Blue-Bird Products, Inc. These acquisitions will provide
our Metz business unit with both cost savings and new revenue opportunities.
We also completed four smaller, strategic bread acquisitions in 1998 for a
total aggregate consideration of $19.6 million. We acquired Pane Corporation,
which does business as San Diego Bread Company and sells a variety of specialty
breads, including a sourdough product that complements Boudin's premium
sourdough bread brand in California. This acquisition provides our Boudin
operating unit with the opportunity to strengthen its position in Southern
California. Our Metz business also acquired three bakery companies in 1998:
Clear Lake Bakery, Inc., which bakes and distributes a variety of bread, buns,
rolls, doughnuts and sweet rolls throughout Iowa; Grandma Sycamore's, which
distributes its brand name bread throughout Utah and neighboring states; and
Eagle (Rock Island) Bakery, which produces private label bread and buns
distributed in Iowa and Illinois. These bread acquisitions provide us with
significant opportunities to reduce our manufacturing and distribution costs and
to strengthen Metz's competitive position in its core Midwestern territory.
Business Strategy
Our strategy is to build the enterprise value of our operating companies,
which we believe is best attained in the current baking industry environment by
realizing significant cost synergies from acquisitions. Since May 1998, we have
consummated seven bakery acquisitions and we intend to continue to acquire
bakery businesses to the extent our financial resources allow. We have
identified potential acquisition candidates that would provide us with a range
of synergy opportunities if they were combined with our existing bakery
business. When our financial capabilities preclude us from pursuing additional
acquisitions, we will explore available options to maximize the value of our
stakeholders' investments.
SFAC New Holdings, Inc. was formed in 1998 and is a Delaware corporation.
Our principal executive offices are located at 520 Lake Cook Road, Suite 550,
Deerfield, Illinois 60015. Our telephone number is (847) 405-5300.
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Summary of The Exchange Offers
We are offering to exchange $587,025,332 aggregate principal amount of our
new 13% Senior Secured Discount Debentures due 2009, which we refer to as our
"New 13% Debentures," for a like aggregate principal amount of substantially
identical debentures that we issued in a private exchange offer on June 11,
1999, which we refer to as our "initial 13% Debentures."
In addition, we are offering to exchange $101,142 aggregate principal
amount of our New 13% Debentures for $55,000 principal amount of 13% Senior
Secured Discount Debentures of Specialty Foods Acquisition Corporation plus
accrued interest as of the date of the exchange, which we refer to as "SFAC 13%
Debentures."
We refer to our initial 13% Debentures and the SFAC 13% Debentures
collectively as "Old 13% Debentures." In order to exchange your Old 13%
Debentures, you must properly tender them and we must accept your tender. We
will exchange all outstanding Old 13% Debentures that are validly tendered and
not validly withdrawn. We refer to the exchange offer for our initial 13%
Debentures and the exchange offer for the SFAC 13% Debentures collectively as
the "exchange offers."
On June 11, 1999, in a private transaction, we exchanged $587,025,332
aggregate principal amount of our initial 13% Debentures (CUSIP No. 78411N) and
31,925 shares of our common stock, for $319,195,000 aggregate principal amount
of SFAC 13% Debentures (CUSIP No. 847498-AC-9).
Expiration Date
The exchange offers will expire at 5:00 p.m., New York City time, on
September 13, 1999, unless we decide to extend them.
Conditions to the Exchange Offers
The exchange offers are subject to the following customary conditions:
o there is no change in the laws and regulations which would impair
our ability to proceed with the exchange offer,
o there is no change in the current interpretation of the staff of the
Securities and Exchange Commission which permits resales of the New
13% Debentures,
o there is no stop order issued by the staff of the Securities and
Exchange Commission which would suspend the effectiveness of the
registration statement of which this prospectus is a part,
o there is no litigation which would impair our ability to proceed
with the exchange offers,
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o we obtain all the governmental approvals we deem necessary for the
exchange offers, and
o there is no change or development involving a prospective change in
our business or financial affairs which might materially impair our
ability to proceed with the exchange offers.
Please refer to the section in this prospectus entitled "The Exchange
Offers--Terms of the Exchange Offers--Conditions."
Procedures for Tendering Old 13% Debentures
To participate in the exchange offers, you must complete, sign and date
the letter of transmittal, or a facsimile of the letter of transmittal, and
transmit it together with all other documents required by the letter of
transmittal, including the Old 13% Debentures to be exchanged, to United States
Trust Company of New York, as exchange agent, at the address indicated on the
cover page of the letter of transmittal. In the alternative, you can tender your
Old 13% Debentures by following the procedure for book-entry transfer described
in this prospectus. If your Old 13% Debentures are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, we urge you to
contact that person promptly to tender your Old 13% Debentures in the exchange
offers. For more information on tendering your Old 13% Debentures, please refer
to the sections in this prospectus entitled "The Exchange Offers--Terms of the
Exchange Offers--Procedures for Tendering" and "--Book Entry Transfer."
Guaranteed Delivery Procedures
If you wish to tender your Old 13% Debentures and you cannot get your
required documents to the exchange agent on time, you may tender your Old 13%
Debentures according to the guaranteed delivery procedures described under the
section of this prospectus entitled "The Exchange Offers--Terms of the Exchange
Offers--Guaranteed Delivery Procedure."
Withdrawal Rights
You may withdraw the tender of your Old 13% Debentures at any time before
5:00 p.m., New York City time, on the expiration date of the exchange offers. To
withdraw, you must send a written or facsimile transmission notice of withdrawal
to the exchange agent at its address indicated under the "The Exchange
Offers--Terms of the Exchange Offers--Exchange Agent" before 5:00 pm., New York
City time, on the expiration date of the exchange offers.
Acceptance of Old 13% Debentures and Delivery of New 13% Debentures
If all conditions required for proper acceptance of Old 13% Debentures are
fulfilled, we will accept any and all Old 13% Debentures that are properly
tendered in the exchange offers on or before 5:00 p.m., New York City time, on
the expiration date. We will return
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any Old 13% Debenture that we do not accept for exchange to you without expense
as promptly as practicable after the expiration date. We will deliver the New
13% Debentures as promptly as practicable after the expiration date and
acceptance of the Old 13% Debentures for exchange. Please refer to the section
in this prospectus entitled "The Exchange Offers--Terms of the Exchange Offers."
Federal Income Tax Considerations Relating to the Exchange Offers
Exchanging your initial 13% Debentures for New 13% Debentures will not be
a taxable event to you for United States Federal income tax purposes. If you are
a holder of SFAC 13% Debentures, exchanging your SFAC 13% Debentures for New 13%
Debentures should be a taxable event to you for United States Federal income tax
purposes, and you should recognize gain or loss equal to the difference between
the issue price of any New 13% Debentures received in the exchange and your
adjusted tax basis in your SFAC 13% Debentures exchanged therefor. Please refer
to the section of this prospectus entitled "United States Federal Income Tax
Considerations."
Exchange Agent
United States Trust Company of New York is serving as exchange agent in
the exchange offers.
Fees and Expenses
We will bear all expenses related to the exchange offers. Please refer to
the section in this prospectus entitled "The Exchange Offers--Terms of the
Exchange Offers--Fees and Expenses."
Use of Proceeds
We will not receive any proceeds from the issuance of the New 13%
Debentures. We are making these exchange offers solely to satisfy certain of our
obligations under our registration rights agreement. Please refer to the
sections in this prospectus entitled "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a discussion of our use of the
proceeds from the original issuance of the Old 13% Debentures.
Consequences of Failure to Exchange Old 13% Debentures
If you do not exchange your Old 13% Debentures in these exchange offers,
or if you do not properly tender your Old 13% Debentures in these exchange
offers,
o you will no longer be able to obligate us to register our initial
13% Debentures under the Securities Act except in the limited
circumstances provided under our registration rights agreement, and
you will not be entitled to obligate us to register the SFAC 13%
Debentures at all;
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o you will not be able to resell, offer to resell or otherwise
transfer our initial 13% Debentures unless they are registered under
the Securities Act or unless you resell them, offer to resell or
otherwise transfer them under an exemption from the registration
requirements of, or in a transaction not subject to, the Securities
Act; and
o SFAC 13% Debentures that are not exchanged will be subordinated and
junior in right of payment to the New 13% Debentures, the 11% Senior
Subordinated Discount Debentures due 2009 issued by SFC Sub, Inc., a
Delaware corporation which is our direct parent (which we refer to
as the "11% Debentures) and any untendered 10 1/4% Senior Notes due
2001 issued by Specialty Foods, which we refer to as "SFC 10 1/4%
Notes," 11 1/8% Senior Notes due 2002 issued by Specialty Foods,
which we refer to as "SFC 11 1/8% Notes" and 11 1/4% Senior
Subordinated Notes due 2003 issued by Specialty Foods, which we
refer to as "SFC Subordinated Notes." We collectively refer to the
SFC 10 1/4% Notes, the SFC 11 1/8% Notes and the SFC Subordinated
Notes as the "SFC Notes."
Please refer to the section in this prospectus entitled "Risk
Factors--Your failure to participate in the exchange offers will have adverse
consequences."
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Summary of Terms of the New 13% Debentures
Issuer
SFAC New Holdings, Inc.
Notes Offered
$587,126,474 aggregate principal amount of our New 13% Debentures. The
form and terms of the New 13% Debentures received in exchange for our initial
13% Debentures are the same as the form and terms of our initial 13% Debentures
except that the New 13% Debentures will be registered under the Securities Act,
will not bear legends restricting their transfer and will not be entitled to
registration rights under our registration rights agreement. The New 13%
Debentures will evidence the same debt as our initial 13% Debentures (excluding
the $55,000 aggregate principal amount of SFAC 13% Debentures outstanding as of
the date of the private exchange) and both our initial 13% Debentures and the
New 13% Debentures will be governed by the same indenture.
The form and terms of the New 13% Debentures received in exchange for the
SFAC 13% Debentures will be substantially the same in all material respects as
those of the SFAC 13% Debentures except that the New 13% Debentures will be
issued by us, will have a maturity date of June 15, 2009, are redeemable at any
time at redemption prices that vary according to time and provide for
restrictive covenants and events of default. In addition, except in connection
with an early redemption or purchase by us, there will not be any payment of
cash interest on the New 13% Debentures prior to December 15, 2004. Moreover,
the New 13% Debentures evidence our debt and not the debt of Specialty Foods
Acquisition Corporation and the SFAC 13% Debentures and the New 13% Debentures
are not governed by the same indenture.
Maturity Date
June 15, 2009
Interest on the New 13% Debentures
Interest on the New 13% Debentures will accrue at 13% per year, compounded
semi-annually, from date of original issuance. Payment of all interest accrued
prior to June 15, 2004 will be deferred and will be paid only at maturity or
upon our earlier redemption or purchase of the New 13% Debentures. All accrued
but deferred interest will also bear interest at the rate of 13% per year,
compounded semi-annually. Beginning June 15, 2004, the New 13% Debentures will
accrue interest at 13% per year, payable in cash semi-annually in arrears on
June 15 and December 15 of each year commencing December 15, 2004.
Interest on the New 13% Debentures will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
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Original Issue Discount
The New 13% Debentures will have "original issue discount" for Federal
income tax purposes. Consequently, holders will be required to include amounts
in gross income for Federal income tax purposes in advance of the receipt of
cash attributable to them. Please refer to the section of this prospectus
entitled "United States Federal Income Tax Considerations."
Sinking Funds
None.
Optional Redemption
We will be able to redeem the New 13% Debentures, in whole or in part, at
our option, at any time, at a redemption price (expressed as a percentage of
accreted value on the optional redemption date) of 50.0% on or before June 15,
2000, 55.0% on or before June 15, 2001, 60.0% on or before June 15, 2002, 75% on
or before June 15, 2003, plus (after June 15, 2004) accrued and unpaid interest,
if any, to the redemption date.
Change of Control
Upon a change of control of SFAC New Holdings, you will have the right to
require us to repurchase all of your New 13% Debentures at a repurchase price
equal to the prices described above under "Optional Redemption." We cannot
assure you that we will have available or that we will be able to obtain
sufficient funds to repurchase your New 13% Debentures when required upon a
change of control. Please refer to the section in this prospectus entitled
"Description of the New 13% Debentures --Repurchase at the Option of
Holders--Change of Control."
Ranking
Except as described below, the New 13% Debentures will:
o be secured by a first priority lien on and security interest in all
of the outstanding capital stock of SFC New Holdings,
o rank senior in right of payment with all our subordinated
indebtedness and equal in right of payment with all our senior
secured indebtedness,
o be effectively junior in right of payment to all of our
subsidiaries' existing or future indebtedness, whether or not
secured.
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Restrictive Covenants
The indentures under which the New 13% Debentures will be issued limit our
and our subsidiaries' ability to:
o pay dividends on, and repurchase or redeem our capital stock and our
subsidiaries' capital stock and repurchase or redeem our
subordinated obligations,
o incur additional indebtedness or issue preferred stock,
o grant or suffer to exist additional secured claims against our and
our subsidiaries' properties,
o invest and sell assets and subsidiary stock, and
o engage in transactions with related entities.
In addition, the indentures limit our ability to consolidate, merge and
transfer substantially all of our assets, and also contain restrictions on
distributions from our subsidiaries. All of these limitations and prohibitions
have a number of important qualifications and exceptions. Please refer to the
sections in this prospectus entitled "Risk Factors--Restrictions imposed by our
debt agreement may significantly limit our ability to execute our business
strategy and increase the risk of default under our debt obligations" and
"Description of the New 13% Debentures--Certain Covenants."
Absence of a Public Market for the Notes
The New 13% Debentures are new securities and there is currently no
established market for them. We cannot assure you that a market for the New 13%
Debentures will develop or be liquid. The SFAC 13% Debentures, but not our
initial 13% Debentures, are currently freely tradable in the over-the-counter
market. Our initial 13% Debentures are not eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages market. Following
commencement of the exchange offers, you may continue to trade the SFAC 13%
Debentures in the over-the-counter market, but the New 13% Debentures will not
be eligible for trading in this market until the exchange offers are completed.
Form of New 13% Debentures
The New 13% Debentures will be represented by one or more permanent global
securities in bearer form deposited on behalf of The Depository Trust Company
with United States Trust Company of New York, as custodian. You will not receive
New 13% Debentures in registered form unless one of the events described in the
section of this prospectus entitled "Description of the New 13% Debentures--Book
Entry; Delivery and Form" occurs. Instead, beneficial interests in the New 13%
Debentures will be shown on, and transfers of these interests will be effected
only through, records maintained in book-entry form by The Depository Trust
Company with respect to its participants.
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Risk Factors
You should consider carefully the information provided in the section in
this prospectus entitled "Risk Factors" beginning on page 12 and all the other
information provided to you in this prospectus in deciding whether to tender
your initial 13% Debentures in the exchange offers.
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Pro Forma Ratio of Earnings to Fixed Charges
The following table contains our pro forma ratio of earnings to fixed
charges and the resulting deficiencies for each of the periods indicated. The
data used to compute the ratio has been derived from Specialty Foods Acquisition
Corporation's consolidated financial statements. Our earnings were insufficient
to cover our fixed charges for the past five years fiscal years.
Year ended December 31,
--------------------------------------- Quarter ended
1994 1995 1996 1997 1998 March-31,-1999
------ ------ ------ ------ ------ --------------
Ratio of earnings
to fixed charges........ 0.21 0.34 0.12 0.22 0.28 0.04
Deficiency
(in millions) .......... 95.4 87.3 121.4 111.9 106.6 36.4
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RISK FACTORS
Before tendering your initial 13% Debentures in the exchange offers, you
should carefully consider the information below, as well as all other
information provided to you in this prospectus, including information in the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Special Note Regarding
Forward-looking Statements."
We have substantial debt which may limit our ability to borrow, restrict
the use of our cash flows, constrain our business strategy and prevent us from
meeting our debt obligations.
We have substantial debt and debt service requirements. Our substantial
debt may have the following consequences:
o limiting our ability to borrow additional amounts for working
capital, capital expenditures or other purposes;
o preventing us from satisfying our obligations with respect to the
New 13% Debentures;
o consuming a substantial portion of our cash flow from operations in
the form of debt service payments; and
o limiting our ability to complete acquisitions, to capitalize on
significant business opportunities and to react to changes in
general economic conditions, interest rates, competitive pressures
and adverse changes in government regulation.
We cannot assure you that our cash flow and capital resources will be
sufficient to repay the Old 13% Debentures or the New 13% Debentures, our other
existing indebtedness and any indebtedness that we may incur in the future, or
that we will be successful in obtaining alternative financing. If we are unable
to repay our debts, we may be forced to reduce or cease some of our operations,
sell additional assets, obtain additional equity capital or refinance or
restructure our debt. Please refer to the sections in this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business."
We expect to continue to incur negative cash flow from operations and may
continue to incur net losses due to the high level of interest expense arising
from our substantial debt.
Since 1997, Specialty Foods Acquisition Corporation has reported positive
operating profits in our financial statements. However, due to the high level of
our interest expense Specialty Foods Acquisition Corporation has, it has
reported net losses and negative cash flows from operating activities. Specialty
Foods Acquisition Corporation's interest expense was $134 million in fiscal 1998
and $135 million in fiscal 1997. As a result of our
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restructuring on June 11, 1999, we have acquired Specialty Foods Acquisition
Corporation's business operations. Given our current levels of debt and our
interest costs on the New 13% Debentures, we expect to continue to incur high
interest expense which will result in reported net losses and negative cash
flows from operating activities for the foreseeable future.
Continued losses and negative cash flow may prevent us from pursuing our
strategies for growth and could limit our ability to meet our debt service
obligations, including our obligations under the Old 13% Debentures and the New
13% Debentures, capital expenditure requirements or working capital needs.
Please refer to the section in the prospectus entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Restrictions imposed by our debt agreements may significantly limit our
ability to execute our business strategy and increase the risk of default under
our debt obligations.
The indentures for the Old 13% Debentures and the New 13% Debentures
contain a number of significant covenants. These covenants will limit our
ability to, among other things:
o borrow additional money;
o make capital expenditures and other investments;
o pay dividends;
o merge, consolidate, or dispose of our assets; and
o enter into transactions with related entities.
If we fail to comply with these covenants we will default under the
indentures. A default, if not waived, could result in acceleration of our
indebtedness, in which case the debt would become immediately due and payable.
If this occurs, we may not be able to repay our debt or borrow sufficient funds
to refinance it. Even if new financing is available, it may not be on terms that
are acceptable to us. In addition, complying with these covenants may cause us
to take actions that we otherwise would not take, or not take actions that we
otherwise would take. Please refer to the sections in this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Strategy" and
"Description of the New 13% Debentures."
Factors affecting our business operations may limit our ability to
increase our future earnings and cash flows.
Our continued and future success depends on our ability to increase our
earnings and cash flow which, in turn, depends on factors specific to the food
industry and numerous other factors beyond our control. These include changes in
general economic conditions; adverse changes in local markets; limited shelf
life of food products; lack of attractiveness of a
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particular food product line after its novelty has worn off; evolving consumer
preferences and nutritional and health-related concerns; federal, state and
local food processing controls; consumer product liability claims; risks of
product tampering; our continued ability to hire and retain qualified management
personnel; and the availability and expense of liability insurance and other
overhead expenses.
In the future, we may acquire or try to acquire products and businesses
from, make investments in, or enter into strategic alliances with, companies
which have products or distribution networks in our current markets or in areas
into which we intend to expand our distribution network. Any future
acquisitions, investments, strategic alliances or related efforts will be
accompanied by risks such as:
o the difficulty of assimilating the operations of the respective
entities;
o the potential disruption of our ongoing business;
o the inability of management to capitalize on the opportunities
presented by acquisitions, investments, strategic alliances or
related efforts;
o the inability to maintain uniform standards, controls, procedures
and policies; and
o the impairment of relationships with employees and customers as a
result of changes in management.
We cannot assure you that we would be successful in overcoming these risks
or any other problems encountered with these acquisitions, investments,
strategic alliances or related efforts. Please refer to the section in this
prospectus entitled "Business--Strategy."
The baking industry is highly competitive, which might adversely affect
our results of operations and cause us to be unable to implement our business
strategy.
The baking industry is highly competitive. Competition in the baking
industry is based on a variety of factors including price, breadth of products
offered, product quality and customer service. Significant changes in marketing
or pricing strategies by one or more of our competitors could adversely affect
our business. Some of our competitors have greater financial, marketing and
other resources than we have, while smaller competitors may have lower fixed
costs and greater operating flexibility. Generally, our competitors generate
positive cash flows and have substantially less debt than we have. Please refer
to the section of this prospectus entitled "Business--Competition."
Our inability to compete adequately in the baking industry could result in
price reductions, reduced margins and losses of our market share.
14
<PAGE>
We may suffer adverse effects from changes in demographic trends and
consumer preferences.
The baking industry is affected by changes in consumer preferences, tastes
and eating habits, local, regional and national economic conditions and
demographic trends. Factors such as increased raw material, labor and benefits
costs, the availability of experienced management and hourly employees and
difficulties or delays in developing and introducing new products to suit
consumer preferences may adversely affect the baking industry in general and our
businesses in particular. Consequently, our success will depend on our ability
to recognize and react to such trends adequately. Any changes in these factors
could adversely affect our profitability. In addition, the failure of customers
to respond favorably to our marketing or new products, could have an adverse
effect on our profitability.
Many of our employees are unionized and a prolonged work stoppage at any
of our facilities could have a material adverse effect on our business and
results of operations.
We, through our subsidiaries, are parties to numerous collective
bargaining agreements with unions representing employees involved in the
manufacture and distribution of our bakery products. These contracts generally
run for periods of three to five years. While we believe that our relations with
our employees are generally good, we cannot assure you that there will not be
one or more localized work stoppages in the future. Any prolonged work stoppage
at a subsidiary could have a material adverse effect on the subsidiary and us.
Fluctuations in the price of raw materials may adversely affect our
financial performance.
Flour, sugar, vegetable oils and other agricultural products, and plastic
and paper for packaging, constitute significant components of our cost of goods
sold. The prices of these commodity raw materials often fluctuate, which may
adversely affect our financial performance. Please refer to the sections of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Raw Materials."
The heavy regulation of the food industry may limit our growth and affect
our competitive position.
Our operations are extensively regulated by the United States Food and
Drug Administration and other state and local authorities. These regulations
apply to the processing, packaging, storage, distribution and labeling of our
products, as well as environmental compliance. Our processing facilities and
products may be inspected periodically by federal, state and local authorities.
We believe that our operating subsidiaries are currently in substantial
compliance with all material governmental laws and regulations, and that they
maintain all material permits and licenses relating to their operations.
Nevertheless, we cannot assure you that these subsidiaries currently comply with
those laws and regulations in all respects, that they will be able to maintain
compliance with existing
15
<PAGE>
laws or regulations, or that they will comply with any future laws and
regulations. If any of our subsidiaries fail to comply with any applicable laws
and regulations, both civil remedies, including fines, injunctions, recalls or
seizures, and criminal sanctions may be imposed on the subsidiary. Any penalty
imposed on any of our subsidiaries could have an adverse effect on that
subsidiary and on us. See "Business--Legal and Regulatory Matters--Regulation."
Complying with environmental laws may adversely affect our results of
operations.
Extensive and changing federal, state, local and foreign environmental
laws and regulations govern our and our subsidiaries' past and present business
operations, and ownership and operation of real property. These laws and
regulations apply to the discharge of materials into the environment, the
handling and disposition of wastes (including solid and hazardous wastes), and
other matters relating to protecting the environment. Although we do not expect
the costs of complying with federal, state, local and foreign environmental laws
and regulations to have a material impact on our capital expenditures, earnings
or competitive position, we cannot assure you that additional environmental
issues will not require additional investigation, assessment or expenditures
beyond what we currently expect. Please refer to the section of this prospectus
entitled "Business--Environmental Matters."
Failure to address the year 2000 problem may cause disruptions in our
operations and in our services to our customers, which would affect our results
of operations and financial condition.
Many computer systems and software products will not function properly in
the year 2000 and beyond due to a once-common programming standard that
represents years using two digits. This problem is often referred to as the
"year 2000 problem." It is possible that our currently installed computer
systems, software products or other information technology systems, including
imbedded technology, or those of our suppliers, contractors or major systems
developers, working either alone or in conjunction with other software or
systems, will not properly function in the year 2000 because of the year 2000
problem. If we or our customers, suppliers, contractors and major systems
developers are unable to address these year 2000 issues in a timely manner, we
could suffer a material adverse effect on our results of operations and
financial condition. Although we currently believe we have addressed our year
2000 problem, we are not able to determine the potential impact of a failure of
some or all of our systems if our compliance efforts are not completely
successful. Similarly, we are unable to assess the potential impact on our
business of a failure or disruption to any of our suppliers, customers, service
providers or major third parties. Please also refer to the section of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000."
There may be a negative effect on our financial condition if our
subsidiaries' trademarks are challenged.
We believe that trademarks owned or licensed by us or by our subsidiaries
have significant value and are important to the marketing of our products.
Although these trademarks are registered in the United States, we cannot be sure
that these trademarks cannot
16
<PAGE>
be circumvented, or that the trademarks do not or will not violate the
proprietary rights of others, or would be upheld if challenged, or that we or
our subsidiaries would not be prevented from using our trademarks. Any challenge
to our use of these trademarks could have an adverse effect on our financial
condition and results of operations, either as a result of a negative ruling
with regards to our use, validity or enforceability of the trademarks, or
because of the time consumed and the legal costs of defending against a claim.
In addition, we cannot be sure that we will have the financial resources
necessary to enforce or defend our trademarks. Please refer to the section of
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Our financial condition and results may be affected by adverse publicity.
Our ability to compete depends in part on maintaining our and our
subsidiaries' reputations with the consumer. Publicity resulting from food
quality, illness, injury, or other health concerns, including food-borne illness
claims, or operating issues stemming from any or all of our subsidiaries'
operations, or even a competitor's operations, can adversely affect a business
such as ours. As a result, it is possible that such adverse publicity may
adversely affect our financial condition and results of operations.
Litigation against us could have an adverse effect on our business.
We are involved in a litigation pertaining to one of our former
subsidiaries, and routine litigation in the ordinary course of business. Please
refer to the section of this prospectus entitled "Business--Legal Matters." A
negative outcome of this litigation for us could adversely affect our business.
Although we are not currently subject to any material product liability
litigation, product liability litigation involving any of our products may arise
in the future. Any successful claim against us in an amount materially exceeding
our insurance coverage could have a material adverse effect on our business,
financial condition and results of operations. In addition to insurance held by
our suppliers, we maintain insurance relating to personal injury and product
liability in amounts that we consider adequate for the baking industry. However,
while we have been able to obtain this insurance in the past, we cannot assure
you that will continue to be able to do so in the future.
Payment of principal and interest on the notes effectively depends on
receiving income from our subsidiaries which have no obligations to make any
payments on the notes.
We are a holding company with few direct operations and few assets of
significance other than the stock of our subsidiaries. As such, we are dependent
on the cash flows of our subsidiaries to meet our obligations, including the
payment of principal and interest on the New 13% Debentures. Our subsidiaries
are separate legal entities that have no obligation to pay any amounts due under
the New 13% Debentures or to make any funds available for payments due under the
New 13% Debentures, whether by dividends, loans or other payments. Our
subsidiaries do not guarantee the payment of the New 13% Debentures. The
17
<PAGE>
New 13% Debentures therefore will be effectively junior in right of payment to
the claims of the creditors of our subsidiaries, including trade creditors and
holders of indebtedness of our subsidiaries. Our current and future subsidiaries
have and will continue to have significant amounts of financing and other
indebtedness in connection their operations. Please refer to the sections of
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Business" and "Description of Our Other Indebtedness and Our Accounts
Receivable Transfer Program."
Payment of principal and interest on the New 13% Debentures is
structurally junior in right of payment to the claims of our subsidiaries'
creditors, who would be entitled to realize their claims on our subsidiaries'
assets before you.
The New 13% Debentures will be structurally junior in right of payment to
the existing or future claims, whether or not secured, of our subsidiaries'
creditors, who would be entitled to realize their claims before you. If any of
our subsidiaries is dissolved, liquidated, reorganized or becomes bankrupt, the
assets of that subsidiary will be available to satisfy obligations of the
subsidiary before any payment may be made on the New 13% Debentures.
The indentures for the Old 13% Debentures and the New 13% Debentures
permit us and our subsidiaries to incur additional indebtedness in certain
circumstances. Please refer to the section of this prospectus entitled
"Description of the New 13% Debentures." Accordingly, there might only be a
limited amount of assets available to satisfy your claims as a holder of the New
13% Debentures upon an acceleration of the maturity of the New 13% Debentures.
Our controlling stockholders may take actions that may be contrary to your
interests.
A subsidiary of Specialty Foods Corp. owns 90% of our capital stock. As a
result, Specialty Foods Corp. is in a position to elect all of our directors
who, in turn, appoint all of our executive officers. In addition, Specialty
Foods Corp. is in a position to amend our certificate of incorporation and
by-laws, effect corporate transactions such as mergers and asset sales and
otherwise control our management and policies without the approval of any other
security holder, subject to the provisions of the indenture. Accordingly,
Specialty Foods Corp. will be able to, directly or indirectly, control all of
our affairs in a manner that may be contrary to your interests. Please refer to
the section of this prospectus entitled "Security Ownership."
We may be unable to pay our debt obligations if a change of control occurs
under the indenture.
Upon certain change of control events, you may require us to repurchase
all or a portion of your New 13% Debentures at the purchase prices contained in
the section of this prospectus entitled "Prospectus Summary--Summary of Terms of
the New 13% Debentures--Optional Redemption." Our ability to repurchase the
notes upon a change in
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<PAGE>
control event will be limited by the terms of our other debt agreements. Upon a
change of control event, we may be required immediately to repay the outstanding
principal and other amounts owed by us under our credit facility or other
financing agreements.
We may not be able to repay amounts outstanding under that credit facility
or obtain necessary consents under that facility to repurchase the New 13%
Debentures. Any requirement to offer to purchase the notes may result in our
having to refinance our outstanding indebtedness, which we may not be able to
do. The term "change of control" is defined in the section of this prospectus
entitled "Description of the New 13% Debentures."
A court could declare the New 13% Debentures void, junior in right of
payment or take other actions detrimental to you.
An unpaid creditor or representative of creditors, such as a trustee in
bankruptcy or SFAC New Holdings as a debtor-in-possession in a bankruptcy
proceeding, could file a lawsuit claiming that the issuance of the SFAC 13%
Debentures constitutes a fraudulent conveyance. If the court were to make such a
finding, it may also find that the issuance of the New 13% Debentures is part of
the fraudulent conveyance. If it did so, the court could:
o void our obligations under the New 13% Debentures;
o declare the New 13% Debentures junior in right of payment to other
indebtedness; or
o take other actions detrimental to you as a holder of the New 13%
Debentures.
To make this determination, a court would have to find that:
o we did not receive fair consideration or reasonably equivalent value
for the SFAC 13% Debentures, and that,
o at the time the SFAC 13% Debentures were issued, we were insolvent
or rendered insolvent by the issuance of the SFAC 13% Debentures;
were engaged in a business or transaction for which our remaining
assets constituted unreasonably small capital; or intended to incur,
or believed that we would incur, debts which it would be beyond our
ability to pay as they matured.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction and upon the valuation assumptions and the methodology
applied by the court.
Moreover, regardless of solvency, a court could also void the issuance of
the New 13% Debentures if it determined that the transaction or the issuance of
the SFAC 13% Debentures was made with intent to hinder, delay or defraud
creditors, or a court could subordinate the New 13% Debentures to the claims of
all existing and future creditors on similar grounds.
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<PAGE>
You may find it difficult to sell your New 13% Debentures.
The New 13% Debentures will be registered under the Securities Act but
will not be eligible for trading on the Private Offerings, Resales and Trading
through Automated Linkages market. The New 13% Debentures will constitute a new
issue of securities with no established trading market, and there can be no
assurance as to:
o the development of any market for the New 13% Debentures;
o the liquidity of any market for the New 13% Debentures that may
develop;
o your ability to sell your New 13% Debentures; or
o the price at which you would be able to sell your New 13%
Debentures.
If a market for the New 13% Debentures were to exist, the New 13%
Debentures could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the market for similar debentures and the financial
performance of SFAC New Holdings. Historically, the market for non-investment
grade debt has been subject to disruptions that have caused substantial
volatility in the prices of securities similar to the New 13% Debentures. We
cannot assure you that the market for the New 13% Debentures, if any, will not
be subject to similar disruptions. Any disruption may adversely affect you as a
holder of the New 13% Debentures.
Holders of SFAC 13% Debentures who do not participate in the exchange
offers will be subordinated and junior in right of payment to the New 13%
Debentures and the 11% Debentures.
Any SFAC 13% Debentures that remain outstanding after the exchange offers
will be structurally subordinated to all New 13% Debentures and any untendered
and tendered but unaccepted initial 13% Debentures and will also be structurally
subordinated to $322,249,152 aggregate principal amount of 11% Debentures.
If you hold initial 13% Debentures, your failure to participate in the
exchange offers will have adverse consequences.
The initial 13% Debentures were not registered under the Securities Act or
under the securities laws of any state and you may not resell them, offer them
for resale or otherwise transfer them unless they are subsequently registered or
resold under an exemption from the registration requirements of the Securities
Act and applicable state securities laws. If you do not exchange your initial
13% Debentures for New 13% Debentures pursuant to the exchange offers, or if you
do not properly tender your Old 13% Debentures in the exchange offers, you will
not be able to resell, offer to resell or otherwise transfer the initial 13%
Debentures unless they are registered under the Securities Act or unless you
resell them, offer to resell or otherwise transfer them under an exemption from
the registration requirements of, or in a transaction not subject to, the
Securities Act. In addition, you will no longer be able to
20
<PAGE>
obligate us to register the initial 13% notes under the Securities Act except in
the limited circumstances provided under our registration rights agreement.
If you do not exchange your SFAC 13% Debentures for New 13% Debentures
pursuant to the exchange offers or if you do not properly tender your SFAC 13%
Debentures, you will no longer be able to obligate us to register additional New
13% Debentures under the Securities Act.
Certain persons who participate in the exchange offers must deliver a
prospectus in connection with resales of the New 13% Debentures.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission, we believe that you may offer for resale, resell or
otherwise transfer the New 13% Debentures without compliance with the
registration and prospectus delivery requirements of the Securities Act.
However, in some instances described in this prospectus under "The Exchange
Offers," you will remain obligated to comply with the registration and
prospectus delivery requirements of the Securities Act to transfer your New 13%
Debentures. In these cases, if you transfer any New 13% Debenture without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your New 13% Debentures under this
Act, you may incur liability under the Securities Act. We do not and will not
assume or indemnify you against this liability.
If you wish to participate, you must make sure that you comply with the
exchange offer procedures.
We will only issue New 13% Debentures to you after we timely receive your
Old 13% Debentures, a properly completed and duly executed letter of
transmittal, and all other required documents. Therefore, you should allow
enough time to ensure timely delivery of your Old 13% Debentures. We are under
no duty to notify you of defects or irregularities with respect to your tender
of Old 13% Debentures for exchange. If your Old 13% Debentures are not tendered
or are tendered but not accepted, they will, after the exchange offers end,
continue to have the existing restrictions upon transfer. In addition, when the
exchange offers end, certain registration rights under our registration rights
agreement will terminate.
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<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the New 13%
Debentures in exchange for the outstanding Old 13% Debentures. We are making
these exchange offers solely to satisfy our obligations under our registration
rights agreement.
The original issuance of the SFAC 13% Debentures occurred in 1993 and
resulted in an aggregate of approximately $147.7 million in net proceeds to
Specialty Foods Acquisition Corporation The net proceeds were used to finance
the 1993 acquisition of the underlying businesses of Specialty Foods.
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<PAGE>
CAPITALIZATION
The following table shows our pro forma capitalization as of March 31,
1999 after giving effect to the Restructuring Transactions. You should read this
table together with the consolidated financial statements and related notes
included in this prospectus beginning on page F-1 and the information in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
As of March 31, 1999
(in thousands)
Cash and Cash Equivalents (1) ............................ --
SFC New Holdings, Inc. .................................
Term Loan ............................................ 168,646
Revolving Credit Facility ............................ 99,708
11 1/4% Senior Notes due 2001 ........................ 220,695
12 1/8% Senior Notes due 2002 ........................ 149,925
13 1/4% Senior Subordinated Notes due 2003 ........... 197,646
Other ................................................ 4,245
---------
Subtotal ................................... 840,865
SFAC New Holdings, Inc. ................................
13% Senior Secured Debentures due 2009 ............... 304,583
SFC Sub, Inc. ..........................................
11% Senior Secured Debentures due 2009 ............... 166,317
Specialty Foods Corporation
10 1/4% Senior Notes due 2001 ........................ 4,305
11 1/8% Senior Notes due 2002 ........................ 75
11 1/4% Senior Subordinated Notes due 2003 ........... 2,354
Specialty Foods Acquisition Corporation
13% Senior Secured Debentures ........................ 53
Total long-term debt, including current portion .......... 1,318,552
---------
Preferred stock .......................................... 19,500
Stockholders' equity (2) ................................. (938,626)
Total capitalization ..................................... 399,426
=========
(1) Reflects the estimated fees of approximately $18.9 million paid in
connection with our private exchange offer that was completed on June 11,
1999.
(2) Reflects the write-off of deferred debt issuance costs on the original SFC
Notes of $16.9 million in connection with the exchange offers made by
Specialty Foods that were completed on June 11, 1999.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected net sales and income (loss) from operations data for 1998,
1997 and 1996 and the total assets and long-term debt data as of December 31,
1998 and 1997 presented below have been derived from Specialty Foods Acquisition
Corporation's consolidated financial statements included in this prospectus
beginning on page F-1. The selected net sales and income (loss) from operations
data for 1995 and 1994 and the total assets and long-term debt data as of
December 31, 1996, 1995 and 1994 presented below have been derived from
Specialty Foods Acquisition Corporation's consolidated financial statements that
are not included in this prospectus.
You should read the following information in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," our consolidated financial statements
and the related notes and the other financial data appearing in this prospectus.
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In millions)
Net Sales $ 742 $ 718 $ 706 $ 704 $ 667
Loss from continuing
operations (1) $ (106) $ (112) $ (326) $ (245) $ (97)
Income (loss) from
discontinued
operations (2)(3) $ 10 $ 165 $ (161) $ (61) $ 45
Loss per share from
continuing
operations $ (1.69) $ (1.78) $ (5.12) $ (3.84) $ (1.50)
Weighted number of shares
outstanding 62.8 63.1 63.6 63.9 64.6
Total Assets $ 534 $ 518 $ 515 $ 979 $ 1,237
Long-Term Debt $ 1,250 $ 1,134 $ 1,173 $ 1,134 $ 1,071
- ----------
(1) Included in continuing operations is a goodwill write-down of $203 million
in 1996 and $157 million in 1995.
(2) Included in discontinued operations is a goodwill write-down of $152
million in 1996 and $97 million in 1995. Additionally, discontinued
operations included a gain on disposal of $133 million in 1997.
(3) Interest expense is not allocated to discontinued operations.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following table provides the percentage of the net sales of Specialty
Foods Acquisition Corporation represented by certain items in our statements of
operations for the periods presented. The data used to compute the ratio has
been derived from Specialty Foods Acquisition Corporation's consolidated
financial statements. In this section, "we" and "our" and similar expressions
refer to Specialty Foods Acquisition Corporation priort to the Restructuring
Transactions and SFAC New Holdings, Inc. and its subsidiareies for subsequent
periods.
<TABLE>
<CAPTION>
Quarter ended
Year ended December 31, March 31,
---------------------------------------------
1998 1997 1996 1999 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 44.4 44.8 46.5 44.7 44.7
----- ----- ----- ----- -----
Gross profit 55.6 55.2 53.5 55.3 55.3
Operating expenses:
Selling, distribution, general and
administrative 51.3 51.2 49.6 54.4 55.3
Amortization of intangible assets 0.2 0.1 1.0 0.4 0.1
Goodwill write-down -- -- 28.9 -- --
----- ----- ----- ----- -----
Total operating expenses 51.5 51.3 79.5 54.8 55.4
----- ----- ----- ----- -----
Operating profit (loss) 4.1 3.9 (26.0) 0.5 (0.1)
Interest expense, net 18.0 18.8 18.7 18.3 18.4
Other expenses, net 0.4 0.7 1.4 0.4 0.5
----- ----- ----- ----- -----
Loss from continuing operations (14.3)% (15.6)% (46.1)% (18.2)% (19.0)%
===== ===== ===== ===== =====
</TABLE>
Results of Operations
First Quarter 1999 Compared to First Quarter 1998
Our consolidated net sales from continuing operations increased 17.2% to
$200.3 million in 1999 compared to $170.9 million in 1998. This increase in net
sales was primarily due to the inclusion of Archway's sales in 1999, price
increases taken at Metz and higher cafe sales at Boudin.
Our gross profit margin remained constant at 55.3% in 1999 and 1998. Our
gross profit margin benefitted from higher pricing, a shift to higher margin
products and moderately favorable commodities. However the benefit was offset by
inflationary cost increases and higher depreciation expense.
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<PAGE>
Our selling, distribution, and general and administrative expenses, which
we refer to as "SDG&A", increased $14.2 million in 1999 to $108.8 million,
primarily due to the inclusion of acquisitions completed in 1998. However, as a
percentage of sales, SDG&A expenses decreased one percentage point to 54.3% in
1999 due to the fact that we realized cost synergies as a result of the 1998
acquisitions.
Our net interest expense increased $5.3 million in 1999 to $36.7 million
from $31.4 million in 1998. The increase was primarily due to higher levels of
accreted interest, higher interest expense on our senior secured debt and lower
interest income in 1999.
Our net other expense in 1999 and 1998 consists principally of discount
expense on our Accounts Receivable Transfer Facility.
As a result of the above factors, our net loss from continuing operations
increased to $36.5 million in 1999 compared to $32.4 million in 1998.
As a result of our net operating loss position, for tax purposes we report
minimal state income tax and no federal income tax due.
1998 Compared to 1997
Our consolidated net sales from continuing operations increased 3.4% to
$742.3 million in 1998 compared to $718.1 million in 1997. This increase was due
to increased sales volume at Metz and the inclusion of ten weeks of Archway's
sales in 1998. However, the increase was partially offset by our having one less
week of sales in 1998 (because 1997 was a fifty-three week fiscal year for our
operating units), changes in our customer mix and lower pricing at Mother's. The
increase in volume at Metz was the result of its expansion into central Illinois
and its increased private label business.
Our gross profit margin increased to 55.6% in 1998 from 55.2% in 1997. Our
gross profit margin benefitted from a shift at Mother's towards higher margin
products and customers and lower commodity costs at Metz. However, the benefit
was partially offset by increases in manufacturing costs and higher depreciation
expense.
Our SDG&A increased $12.8 million, or 3.5%, in 1998 to $380.8 million.
However, as a percentage of sales, SDG&A expenses remained constant in 1998. The
increase in SDG&A in 1998 was caused by the inclusion of ten weeks of Archway's
operations, contractual wage increases, increased marketing expenses at Mother's
and Metz's new business initiatives. However, staff reductions at both Mother's
and Metz tempered the increased level of our 1998 SDG&A expenditures.
Our net interest expense in 1998 decreased $0.5 million, or 0.4%, to
$134.0 million from $134.5 million in 1997. The decrease was primarily due to
lower borrowings under our Revolving Credit Facility and the interest we earned
on our cash equivalents. Proceeds from the sale of Stella increased our
available cash and decreased our required borrowing levels in 1998. However, the
decrease was offset by additional indebtedness that we incurred as a result of
the accretion of interest on our SFAC 13% Debentures and our 11% Debentures.
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<PAGE>
Our net other expense was $3.1 million in 1998 compared to $4.7 million in
1997, a decrease of $1.6 million or 34%. This reduction in 1998 was primarily
due to a decrease in our loss on disposals of property, plant and equipment.
As a result of all of these factors, our net loss from continuing
operations decreased to $106.0 million in 1998 compared to $112.3 million in
1997, a decrease of 5.6%.
As a result of our net operating loss position, for tax purposes we report
minimal state income tax and no federal income tax due.
1997 Compared to 1996
Our consolidated net sales from continuing operations increased 1.7% to
$718.1 million in 1997, compared to $706.0 million in 1996. The $12.1 million
increase was principally due to increased cafe sales at Boudin and an additional
week of sales resulting from 1997 being a fifty-three week fiscal year.
Our gross profit margin increased to 55.2% in 1997 from 53.5% in 1996
primarily as a result of lower commodity costs.
SDG&A expenses increased by $17.6 million, or 5.0%, in 1997 to $368.0
million. Selling expenses increased primarily because we increased the number of
Boudin's cafe locations and increased promotional spending at Mother's.
Distribution expenses increased due to contractual wage increases in Metz's and
Mother's direct-store-delivery systems. General and administrative expenses
decreased, primarily as a result of reduced corporate overhead expenses at
Specialty Foods and the fact that severance expenses in 1996 related to some of
our former senior executives were non-recurring.
Our net interest expense increased in 1997 by $2.1 million, or 1.6%, to
$134.5 million from $132.4 million in 1996. This increase was principally due to
the additional indebtedness we incurred in connection with the accretion of
interest on our SFAC 13% Debentures and our 11% Debentures.
Our net other expense was $4.7 million in 1997 compared to $9.1 million in
1996. The decrease was due primarily to a decrease in our loss on disposals of
property, plant, and equipment in 1997. This decrease occurred due to our
recording in 1996 a non-recurring loss on disposals of property, plant and
equipment in connection with a sale-leaseback transaction.
As a result of the above factors and a goodwill write-off of $203.3
million in 1996, our net loss from continuing operations decreased to $112.3
million in 1997 compared to $325.8 million in 1996.
As a result of our net operating loss tax position, for tax purposes we
report minimal state income tax and no federal income tax due.
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Our extraordinary loss of $5.7 million in 1997 resulted from writing-off
deferred financing costs associated with the Revolving Credit Facility, the Term
Loan Facility and the Accounts Receivable Facility, each of which we refinanced
in the first quarter of 1998.
In view of our highly leveraged capital structure, we and many of our
stakeholders consider EBITDA to be an important performance measure. EBITDA
consists of earnings (loss) before income taxes plus all net interest expense
and all depreciation and amortization expense. You should not think of EBITDA as
an alternative measure of operating results or cash flows from operating
activities, as determined in accordance with generally accepted accounting
principles. However, EBITDA is a widely used financial measure of the potential
capacity of a company to incur and service debt, and accordingly we believe that
EBITDA provides additional information for determining our ability to meet our
future obligations and debt service requirements. Our reported EBITDA may not be
comparable to similarly titled measures used by other companies. Our EBITDA from
continuing operations for the twelve months ended December 31, 1998, 1997 and
1996 and the three months ended March 31, 1999 and 1998 is calculated as
follows:
<TABLE>
<CAPTION>
Twelve Months Ended Three Months Ended
December 31, March 31,
------------ ---------
(In thousands)
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Continuing operations:
Operating profit (loss) $ 30,511 $ 27,358 $(183,193) $ 1,024 $ (212)
Goodwill write-down ... -- -- 203,304 -- --
Amortization .......... 1,471 900 7,032 1,017 212
Depreciation .......... 25,733 20,187 20,836 8,314 5,441
--------- --------- --------- --------- ---------
EBITDA ........... $ 57,715 $ 48,445 $ 47,979 $ 10,335 $ 5,441
========= ========= ========= ========= =========
</TABLE>
Liquidity and Capital Resources
In 1998, our net cash used in operating activities totaled $44.8 million,
including cash requirements of $19.6 million related to continuing operations,
$13.5 million related to working capital and $11.7 million for discontinued
businesses. Net of the effects of acquisitions, our use of cash related to
working capital was primarily related to reducing our accounts payable by $8.5
million through taking advantage of certain discount opportunities and
expenditures associated with acquisition liabilities and restructuring payments
which contributed to our $12.4 million reduction in accrued liabilities. Our use
of cash related to working capital was offset by $8.9 million provided by
increased funding under the Accounts Receivable Transfer Facility.
Our net cash used in operating activities in 1997 was $97.6 million. Our
increase in net cash used in operating activities in 1997 compared to 1996 was
primarily due to increased cash requirements related to discontinued operations,
payments of accrued acquisition liabilities, restructuring payments and
reductions in accounts payable and accrued expenses.
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In 1998, we invested a total of $239.6 million in our business. This
amount included $135.0 million to acquire businesses, $35.4 million to purchase
previously leased transportation and production equipment and $56 million to
make planned capital expenditures.
Our net cash provided by financing activities amounted to $56.0 million in
1998, primarily as a result of additional borrowings under the Revolving Credit
Facility, offset by refinancing costs and scheduled payments on long-term debt.
Our net cash used in financing activities amounted to $61.0 million in 1997, as
a paydown of revolving credit borrowings and normal payments on long-term debt
were partially offset by our issuance of redeemable preferred stock. In 1996,
our cash used by financing activities, $1.9 million, was primarily due to
payments of long-term debt and refinancing costs, slightly offset by increased
revolver borrowings.
As of March 31, 1999, we had a cash balance of $17 million and $97.8
million of borrowings under our $122.8 million Revolving Credit Facility.
Outstanding letters of credit of $10.2 million as of March 31, 1999 reduce our
available funds under the facility.
We expect our 1999 working capital requirements to be lower than Specialty
Foods Acquisition Corporation's in 1998, and our planned 1999 capital
expenditures are substantially reduced from 1998 levels. Our liquidity was
significantly enhanced by the $110 million of net proceeds that we received on
the sale of H&M on April 12, 1999. We believe that our available funds and the
proceeds from the H&M sale will be adequate to fund our 1999 operations, capital
expenditures and certain targeted bakery acquisitions. To satisfy our debt
service obligations beyond 1999, we may need to sell additional assets,
refinance or restructure our existing indebtedness or issue new equity. However,
we cannot assure you that our available funds will be adequate to meet our
needs.
On June 11, 1999, we completed our private exchange transactions. In
addition, in June 1999, we amended and restated the Revolving Credit Facility,
the Term Loan Facility and the Accounts Receivable Transfer Facility. The
Revolving Credit Facility and the Term Loan Facility contain restrictive
covenants that require us to maintain specified leverage and interest coverage
ratios and other limitations regarding capital expenditures, sales of assets,
loans and investments and encumbrances of assets. In addition, those facilities
significantly limit our ability to incur additional debt. The Revolving Credit
Facility and Term Loan Facility mature in January 2001. The Accounts Receivable
Transfer Facility begins to amortize December 15, 2000 and matures in January
2001.
Year 2000
The year 2000 issue is the result of computer programs using a two-digit
format to define the applicable year. For example, "1999" is recorded as "99."
Computer systems using a two-digit date format will be unable to interpret dates
beyond the year 1999, as the computer will be unable to differentiate between
"1900" and "2000." Consequently, the year 2000 issue could cause system failures
and other computer errors, resulting in business and operational disruptions. We
developed a three-phase program to address the year 2000 issue as it relates to
our information systems and other computer-based operations. Phase I
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was the identification of which of our systems could be affected by the year
2000 issue. Phase I was completed in 1998.
Phase II, which was completed during 1999, included the development and
implementation of the corrective steps necessary to ensure year 2000 issue
compliance. Phase III, the final testing of all systems potentially at risk to
ensure remediation of any year 2000 related problems, was completed during 1999.
We have completed our review of our systems and have contacted software
suppliers to assess major areas of potential exposure due to the year 2000
issue. While a number of our systems have been determined to be year 2000 issue
compliant, certain applications required remediation. We have completed our
remediation and have replaced certain non-year 2000 issue compliant hardware and
software. We have completed our testing of year 2000 issue related software
changes. In addition, we have contacted key third parties to assess their level
of year 2000 issue compliance. Our significant suppliers have informed us that
they have completed their year 2000 issue compliance changes.
We have spent approximately $1.3 million on our year 2000 compliance
program.
We are not able to determine the potential impact of a failure of some or
all of our systems in the event our compliance efforts are not completely
successful. We are also unable to assess the potential effect on our operations
and financial condition of a systems failure or disruption to any of our
suppliers, customers, service providers or other major third parties.
Quantitative and Qualitative Disclosure about Market Risk
During 1998, we entered into interest rate swap agreements to reduce our
exposure to changes in the cost of our variable rate borrowings, as required by
our term loan facility. Under the interest rate swap agreements, which expire in
January 2000, we receive floating rate payments from the counterparties based
upon the three-month LIBOR and we make fixed rate payments at 5.753% and 5.765%
to the respective counterparties. The payments are calculated based upon a
notional principal amount of $100 million. We recognize the net differential of
interest to be paid or received under the remaining agreements as it is
incurred. In 1998, we made net payments totaling $30,000 to the counterparties.
Off-balance-sheet risk from the interest rate swap agreements includes the risk
associated with changes in market values and interest rates. The counterparties
to the agreements are major financial institutions. Special Note Regarding
Forward-looking Statements
Any statements in this prospectus about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and are forward-looking statements. These statements are often, but not always,
made through the use of words or phrases such as "will likely result," "expect,"
"will continue," "anticipate," "estimate," "intend," "plan," "projection,"
"would" and "outlook." Accordingly, these statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in them. Any forward-looking statements are
qualified in
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their entirety by reference to the factors discussed throughout this prospectus.
The following cautionary statements identify important factors that could cause
our actual results to differ materially from those projected in the
forward-looking statements made in this prospectus. Among the key factors that
have a direct bearing on our results of operations are:
o general economic and business conditions; the existence or absence
of adverse publicity; the existence or absence and effect of
litigation; changes in, or failure to comply with, government
regulations; changes in marketing and technology; changes in
political, social and economic conditions; changes in interest
rates;
o industry conditions, including competition and consolidation in the
baking industry and excess industry capacity;
o our highly leveraged capital structure and substantial principal
repayment and interest payment obligations;
o cost and availability of raw materials such as flour and sugar;
o weather in geographic areas where grain and other raw materials used
in the baking industry are grown and produced;
o success of acquisitions and operating initiatives; changes in
business strategy or development plans;
o timing of and value received in connection with asset divestitures;
o costs and other effects of legal and administrative proceedings;
o costs and timely success of year 2000 issue compliance;
o dependence on senior management; availability of qualified
personnel; and labor and employee benefit costs;
o access to capital markets and other risks relating to the
availability of financing; and
o other factors referenced in this prospectus, including in the
section entitled "Risk Factors."
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any of our forward-looking
statements, you should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the date on
which it is made and we undertake no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for us to
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predict which will arise. In addition, we cannot assess the impact of each
factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
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BUSINESS
We produce, market and distribute bakery products, including bread,
cookies and other baked goods, throughout the United States. Our operations,
which we collectively refer to as the "Businesses," are comprised of:
o Metz Baking Company, a retail bread company;
o Mother's Cake and Cookie Co. and Archway Cookies, Inc., retail
cookie marketers and distributors;
o Andre-Boudin Bakeries, Inc., a marketer of premium branded specialty
breads and related products.
As of June 11, 1999, we and SFC New Holdings acquired substantially all of
the oustanding debt securities of Specialty Foods and Specialty Foods
Acquisition Corporation, in exchange for our securities and securities of SFC
New Holdings. We own all of the capital stock of SFC New Holdings. We, SFC New
Holdings and each of our subsidiaries, including the Businesses, are separate
corporate entities. Unless otherwise stated, references to the terms "we,"
"our," "Company" and other terms similar to those terms used in this prospectus
mean, collectively, Specialty Foods Corporation, Specialty Foods Acquisition
Corporation, SFC New Holdings, SFAC New Holdings and all of those entities'
subsidiaries, including the Businesses.
General
We operate principally in one business segment--bakery products, including
bread, cookies, baked goods and bakery cafes. We believe our cookie operations
are the third largest in the United States. We also believe that we have a
leading regional position in multiple product lines within the bread and baked
goods markets of the baking industry. We operate one of the largest food
distribution systems in the country, with a network of more than 2,490
direct-store-delivery routes in 45 states.
Metz, established in 1922 and headquartered in Deerfield, Illinois, is a
leading retail bread company serving a 17 state area of the Midwestern United
States. Metz's product line includes breads, buns, rolls and sweet goods. These
products are marketed by Metz under a large number of brand names, including
Taystee, Holsum, Old Home, Master, Country Hearth, Egekvist, D'Italiano,
Pillsbury, Healthy Choice and numerous private labels. Metz manufactures its
products in 23 bakeries located in 8 states and distributes its products through
a network of approximately 1,550 company-owned direct-store-delivery system
routes to retail grocers, club stores, mass merchandisers, convenience stores
and other outlets.
Our cookie business consists of two companies, Mother's and Archway, and
is headquartered in Oakland, California. Combined, Mother's and Archway are the
nation's third largest cookie company. Our cookies are distributed through an
extensive direct-store-delivery system with over 900 routes serving 45 states.
We sell our cookies primarily to retail grocers, club stores and mass merchants.
Additionally, Archway cookies are sold
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through franchisees that resell the cookies through similar distribution
channels in certain U.S. geographical areas and Canada.
Mother's, founded in 1914, is the second largest retail cookie marketer
and distributor in the Western United States. Mother's products are marketed
under the Mother's, Mrs. Wheatley's, Bakery Wagon and Marie Lu brand names.
Mother's also distributes imported cookies under the Lu brand. Mother's has the
leading share position in the Western United States in many "variety" cookie
segments (such as oatmeal). Archway, established in 1936, is the nation's
leading producer of home style soft cookie varieties. Archway bakes more than
one billion cookies annually, and produces more than 60 varieties of cookies,
including home style, holiday and sugar free products, all under the Archway
brand name. Mother's products are manufactured in a bakery located in
California. Archway products are manufactured at company facilities in Iowa and
Ohio.
Boudin, which was founded in 1849 and is based in San Francisco, is a
marketer of premium branded specialty breads and bread-related products. Boudin
sells most of its products through more than 40 company-owned and operated
bakery cafes in California and the Chicago area. Boudin also distributes some of
its products through its own direct-mail catalog, restaurants and supermarkets.
History and Development
Specialty Foods was formed in June 1993 to acquire the North American food
businesses of a subsidiary of Artal Group S.A. Specialty Foods commenced
operations in August 1993. Specialty Foods Acquisition Corporation owns all of
Specialty Foods' capital stock.
In 1996, we adopted a strategy of divesting certain brands, regions and
product lines to improve the focus of our businesses. In December 1996, we sold
Bloch & Guggenheimer, Inc. and Burns & Ricker, Inc. Under our ownership, Bloch &
Guggenheimer manufactured, marketed and distributed pickles, peppers and spices,
primarily through retail grocers in the greater New York metropolitan area.
Burns & Ricker manufactured, marketed and distributed baked premium snack
products through brokers and distributors to grocery stores.
In February 1997, we divested our subsidiary, Gai's Seattle French Baking
Company, a restaurant and institutional bakery operation serving the
northwestern United States. In March 1997, we divested our subsidiary San
Francisco French Bread Company, a sourdough bread operation located in
California. In August 1997, we divested a restaurant and institutional bakery
operated by Metz located in Illinois. In December 1997, we sold our subsidiary
Stella Foods, Inc., which was one of the largest specialty cheese producers in
the United States, for $405 million. On April 14, 1999, we divested our
subsidiary H&M Food Systems Company, Inc. by selling all the stock of its
holding company for approximately $132 million.
In 1998, as part of our strategy to strengthen our remaining core bakery
operations, we completed five acquisitions of bakery companies. The acquired
companies complement our existing businesses, expand our geographic scope and
strengthen our competitive
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position. In October 1998, we acquired Archway, which, added to Mother's,
represents the nation's third largest cookie business. The Archway acquisition
provides us with a strong, established brand name, a more diversified product
line and a nation-wide presence. The Archway acquisition also provides
opportunities to realize significant operational and distribution synergies. We
acquired the capital stock of Archway for approximately $90 million, and used an
additional approximately $26 million to repay certain indebtedness of Archway.
In 1998, we also completed four smaller, strategic bread acquisitions in
1998 for a total aggregate consideration of $19.6 million. Boudin acquired Pane
Corporation, which does business as San Diego Bread Company. San Diego Bread
Company sells a variety of specialty breads, including a private label sourdough
that complements Boudin's premium sourdough bread brand in California. The
acquisition of the San Diego Bread Company provides Boudin with the opportunity
to strengthen its position in Southern California.
Metz also acquired three bakery companies in 1998:
o Clear Lake Bakery, Inc., which bakes and distributes a variety of
bread, buns, rolls, doughnuts and sweet rolls throughout Iowa;
o Grandma Sycamore's Bakery, which distributes its brand name bread
throughout Utah and neighboring states; and
o Eagle (Rock Island) Bakery, which produces private label bread and
buns distributed in Iowa and Illinois.
We believe these bread acquisitions provide significant opportunities for
reducing Metz's costs and for strengthening Metz's competitive position in its
core Midwestern service area.
On June 7, 1999, we acquired Grocers Baking Company of Grand Rapids,
Michigan for $33.2 million plus the assumption of an additional $5.8 million of
indebtedness. Grocers had 1998 sales of approximately $60 million. Grocers sells
a variety of bread, buns, sweet goods, cookie dough and other frozen products in
Western Michigan under several leading brands, including Oven Fresh, Lumber Jack
and April Hill. Additionally, in July 1999, we completed a small add-on
acquisition of a Detroit-based baker, Blue-Bird Products, Inc.
We intend to continue to selectively acquire bakery businesses in order to
build enterprise value by realizing significant cost synergies. We have
identified additional potential acquisition candidates, each of which will
provide a range of opportunities for synergy if they are combined with our
existing bakery businesses. However, since we have a significant amount of debt,
we might be unable to complete all of our targeted acquisitions.
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Financing Structure
Our financing structure at the date of this prospectus consists of the
following:
o $122.8 million Revolving Credit Facility at the operating company
level, which we refer to as our "Revolving Credit Facility";
o $168.2 million Term Loan Facility at the SFC New Holdings level,
which we refer to as our "Term Loan Facility";
o $220.7 million of 11 1/4% Senior Notes due 2001 issued by SFC New
Holdings, which we refer to as "11 1/4% Senior Notes";
o $149.9 million of 12 1/8% Senior Notes due 2002 issued by SFC New
Holdings, which we refer to as "12 1/8% Senior Notes";
o $197.7 million of 13 1/4% Senior Subordinated Notes due 2003 issued
by SFC New Holdings, which we refer to as "Subordinated Notes";
o our initial 13% Debentures, which had an accreted value at June 30,
1999 of $314.4 million; and
o SFC Sub Inc.'s 11% Debentures, with an accreted value at June 30,
1999 of $170.3 million.
In addition, because not all holders of outstanding debt securities of
Specialty Foods and Specialty Foods Acquisition Corporation exchanged them for
our securities in the private exchange transactions that were completed on June
11, 1999, there are also outstanding the following securities of our parent
companies:
o $4,305,000 of SFC 10 1/4% Notes;
o $75,000 of SFC 11 1/8% Notes;
o $2,354,000 of SFC Subordinated Notes;
o $54,176 of SFAC 13% Debentures.
Collectively, we refer to the SFC 10 1/4% Notes, the SFC 11 1/8% Notes and the
SFC Subordinated Notes as the "SFC Notes."
We are also a party to an accounts receivable securitization facility
under which the accounts receivable of our operating subsidiaries are
transferred to a master trust, which we refer to as our "Accounts Receivable
Transfer Facility." The maximum amount of accounts receivable that can be sold
to the Accounts Receivable Transfer Facility is $50 million.
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Refinancing Transaction
The Revolving Credit Facility, the Term Loan Facility and the Accounts
Receivable Facility were refinanced in March 1998 and again in June 1999. As a
result, the Term Loan and Revolving Credit Facilities have a final maturity date
of January 31, 2001. The Accounts Receivable Facility also has a final maturity
date of January 31, 2001 and begins to amortize on December 15, 2000. For
additional information, see the section of this prospectus entitled "Description
of Our Other Indebtedness and Our Accounts Receivable Transfer Program."
Private Exchange Offers
In May 1999, we and our subsidiary SFC New Holdings commenced private
exchange offers for debt securities of both Specialty Foods Acquisition
Corporation and Specialty Foods. Those private exchange transactions were
completed on June 11, 1999. We offered holders of the SFAC 13% Debentures who
were "accredited investors" within the meaning of Rule 501(a)(1)(2) or (3) of
the Securities Act the opportunity to exchange their existing debt for our
initial 13% Debentures and an aggregate of 31,925 shares of our common stock.
The initial 13% Debentures include provisions which (as compared to the terms of
the SFAC 13% Debentures):
o extend the first date on which interest must be paid in cash to
December 15, 2004 and extend the final maturity date to June 15,
2009;
o give us the right to redeem the initial 13% Debentures, in whole or
in part, at any time, at specified percentages of their accreted
value, commencing at 50% of such amount until June 15, 2000;
o resulted in consenting holders of the SFAC 13% Debentures holding an
aggregate of 10.0% of our equity interest.
SFC New Holdings offered to exchange an aggregate of up to $225,000,000
aggregate principal amount of its initial 11 1/4% Senior Notes and up to
$5,659,368 aggregate principal amount of 11% Debentures of SFC Sub for all of
the outstanding SFC 10 1/4% Senior Notes; up to $150,000,000 aggregate principal
amount of its initial 12 1/8% Senior Notes and up to $3,772,912 aggregate
principal amount of 11% Debentures for all of the outstanding SFC 11 1/8% Senior
Notes; and up to $200,000,000 aggregate principal amount of its initial
Subordinated Notes and up to $18,864,558 aggregate principal amount of 11%
Debentures for all of the outstanding SFC Subordinated Notes.
The New 13% Debentures we are offering by means of this prospectus have
the same terms and covenants as the initial 13% Debentures for which they will
be exchanged, and will remain structurally senior to the SFAC 13% Debentures.
The holders of the SFC Subordinated Notes were offered a consent payment
of $35 per $1,000 note to consent to the transaction, and the holders of the SFC
11 1/8% Senior Notes and the SFC 10 1/4% Senior Notes were offered a consent
payment of $10 per $1,000 note.
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In addition, we obtained the consent of the lenders to our Revolving Credit
Facility and Term Loan Facility to amend their agreements to conform to our new
holding company structure.
We conduct substantially all of our business through our subsidiaries.
Consequently, our ability and the ability of SFC New Holdings or of any new
intermediate holding company to meet our individual obligations to our creditors
depends on our subsidiaries' earnings, cash flow, ability to pay dividends and
ability to advance funds to us and Specialty Foods. In addition, if a subsidiary
is liquidated or reorganized, our rights and the rights of SFC New Holdings and
of any new intermediate holding company, and of these companies' creditors and
securities holders, including the holders of debt securities, to participate in
the subsidiary's assets will be limited by prior claims of the subsidiary's
creditors (except to the extent that we are, or SFC New Holdings or the
intermediate holding company is, also a creditor with recognized claims against
the subsidiary).
Strategy
Our strategy is to build the enterprise value of our operating companies,
which we believe is best attained in the current baking industry environment by
realizing significant cost synergies from acquisitions. Since May 1998, we have
consummated seven bakery acquisitions and we intend to continue to acquire
bakery businesses to the extent our financial resources allow. We have
identified potential acquisition candidates that would provide us with a range
of synergy opportunities if they were combined with our existing bakery
business. When our financial capabilities preclude us from pursuing additional
acquisitions, we will explore available options to maximize the value of our
stakeholders' investments.
Competition
Our bakery businesses compete in the highly competitive bakery products
industry. Competition in the industry is likely to increase due to continued
industry consolidation and overcapacity in certain areas of the country. Our
competitors include large multi-product food companies (such as Bestfoods),
national bakers (such as Interstate Brands and Earthgrains), cookie companies
with national distribution (such as Keebler and Nabisco) and numerous smaller
regional and local companies. Many of our larger competitors have significantly
greater financial, marketing and other resources than we do, while smaller
competitors may have lower fixed costs and greater operating flexibility. We are
also more highly leveraged than most of our competitors, which may place us at a
competitive disadvantage or restrict our ability to implement our acquisition
strategy in a consolidating industry. We do not encounter material foreign
competition. Competition in our industry is based on a number of factors
including price, quality, brand loyalty, service, freshness, marketing
effectiveness and obtaining access to retail outlets and adequate shelf space.
Raw Materials
We are a major purchaser of flour, sugar, vegetable oils and other
agricultural products, as well as of plastic, paper and corrugated products for
packaging materials. Although we have some long-term contracts, we buy the bulk
of our raw materials on the open market or under short-term agreements. The
prices we pay for food product raw
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materials generally reflect external forces, among which weather conditions and
commodity market activities are the most significant. Although the prices of our
principal raw materials fluctuate as a result of government actions and/or
market forces (which directly affect the cost of products and value of
inventories), raw materials are generally in adequate supply and readily
available from numerous sources. Occasionally, and where possible, we make
advance purchases of important commodities in order to lock in what we perceive
to be favorable prices and to limit exposure to short-term market price
fluctuations. We attempt to pass through increases in the costs of purchased
ingredients to our customers where possible. Our ability to do so depends
primarily upon competitive conditions and the pricing methodologies we use in
our various geographical areas.
Seasonality
Our business is moderately seasonal, with higher sales, operating profit
and cash flows generally occurring in the second, third and fourth quarters of
the year. This seasonality is due primarily to higher bread, bun and cookie
sales in the summer and fall months and during the year-end holiday season.
Customers, Sales and Backlog
No single customer accounts for more than 10% of our net sales. Our
principal customers are retail food outlets, club stores, mass merchandisers and
consumers who buy directly through our bakery cafes. In general, we do not
believe that our order backlog is significant or material for an understanding
of our business.
Legal and Regulatory Matters
Litigation
On May 20, 1993, prior to our acquisition of our former subsidiary Stella
Foods, Inc. from Artal, Cacique, Inc. commenced proceedings against Stella in
the California Superior Court, Alameda County. Cacique's action relates to
"Hispanic"-style cheese, which was produced by Stella between 1993 and September
1994. In November 1997, we sold Stella to a third party, but we retained
liability with respect to Cacique's action. We have indemnified the purchaser in
connection with the action, and we continue to control the defense of the
action.
Cacique's complaint asserts claims for misappropriation of trade secrets,
trademark interference, inducing breach of contract, interference with business
relations, unfair competition and conspiracy to commit certain of these causes
of action.
Cacique claims damages for lost profits of approximately $14 million, as
well as punitive damages and attorneys' fees. Stella has filed a cross-complaint
seeking approximately $14 million in damages that alleges that Cacique engaged
in predatory pricing practices.
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A trial of this matter is currently being conducted and is expected to
conclude during the third quarter of 1999. Although litigation always has an
element of uncertainty, and we can give no assurances about the impact that this
litigation will have on us, our management believes that the ultimate resolution
of this matter will not have a material adverse effect on our financial
condition or results of operations.
We are also involved in contractual disputes, administrative and legal
proceedings and investigations of various types, arising out of the ordinary
course of business. Although litigation always has an element of uncertainty,
and we therefore cannot give any assurances about the impact that these matters
will have on us, we do not believe that any single matter, if adversely
determined, would have a material adverse effect on our financial condition or
results of operations. We do not currently believe that there is a reasonable
possibility that all or a majority of these matters will be decided against us.
Regulation
Public Health
We must comply with the Federal Food, Drug and Cosmetic Act and
regulations administered by the Food and Drug Administration. This comprehensive
regulatory scheme governs, among other things, the manufacture, composition,
ingredient labeling, packaging and safety of food. For example, the FDA
regulates manufacturing practices for food through its current "good
manufacturing practices" regulations, specifies the recipes for certain foods,
including many of the kinds of products marketed by our subsidiaries, and
prescribes the format and content of certain information required to appear on
the labels of food products.
We have revised the labeling of our products to comply with regulations
administered by the FDA under the Nutrition Labeling and Education Act of 1990.
These regulations require nutritional labeling on all foods that are a
meaningful source of nutrition, including many of our products. Furthermore,
these regulations limit the use of certain terms on labels, while requiring the
use of certain other terms.
Our operations and products are also governed by state and local
regulation through measures such as licensing of plants, enforcement by state
health agencies of various state standards and inspection of our facilities.
A party who violates federal, state or local regulations may be subject to
cease and desist orders, injunctions and/or monetary penalties. Offending
products also may be seized and condemned. We believe that our facilities and
practices will continue to comply with applicable government regulations in all
material respects.
40
<PAGE>
Employee Safety Regulations
We must comply with health and safety regulations, including regulations
issued under the Occupational Safety and Health Act. These regulations, which
are aimed at protecting our employees from accidents, require us to comply with
manufacturing, health and safety standards.
Other
We also must comply with regulations imposed by other governmental
agencies, including the United States Department of Agriculture and the Federal
Trade Commission. For example, under the Federal Trade Commission Act and its
related regulations, the FTC is permitted to regulate advertising by our
businesses.
Environmental Matters
Our business operations and our ownership and operation of real property
are governed by extensive and changing federal, state, local and foreign
environmental laws and regulations. These regulations pertain to the discharge
of materials into the environment, the handling and disposition of wastes
(including solid and hazardous wastes), and other matters relating to protection
of the environment. We do not expect that the costs of complying with
environmental laws and regulations will have a material impact on our capital
expenditures, earnings or competitive position. However, we cannot assure you
that new environmental issues relating to any matter or any site, whether
presently known or not, will not require additional, currently unanticipated
investigation, assessment or expenditures.
Trademarks, Patents and Licenses
We own or license a number of trademarks and trade names which our
management believes provide significant value to several of the Businesses
because of their recognition by customers and consumers. We own or license a
number of patents, but those patents and licenses are not considered to be
material to the conduct of our businesses, and we do not believe that any of our
businesses are substantially dependent upon patent protection.
Employees
As of June 30, 1999, we employed approximately 8,500 persons.
Approximately 62% of our labor force is or will be covered by collective
bargaining agreements when we complete currently on-going negotiations. Our
collective bargaining agreements generally run for three to five years. We
believe that our relations with our employees are generally good.
Properties
We use various owned and leased plants, warehouses, and other facilities
in our operations. These facilities are located primarily in the Midwest and
California. Our management believes that the facilities are properly equipped
with suitable machinery. These facilities and related equipment are generally
well maintained and are adequate for the
41
<PAGE>
conduct of our current operations. Our management also believes that our
facilities have sufficient capability and capacity to meet our long-term needs.
The following is a summary of significant facilities that we were
operating as of June 30, 1999.
Number of Facilities
--------------------
Owned Leased Total
----- ------ -----
32 66 98
We have mortgages on substantially all of our owned facilities for the
benefit of the lenders under our Revolving Credit Facility.
We also operate 349 retail outlets and retail bakery stores.
42
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table provides you with information about our executive
officers and directors, and executive officers of our subsidiaries who may be
deemed to be our executive officers.
Name Age Position
- ---- --- --------
Executive Officers
------------------
Lawrence S. Benjamin............. 43 Chief Executive Officer, President and
Director
Robert B. Aiken.................. 36 President and Chief Executive Officer
of Metz
Robert L. Fishbune............... 43 Vice President and Chief Financial
Officer
Henry J. Metz.................... 48 Chairman of Metz
Patrick J. O'Dea................. 38 President and Chief Executive Officer
of Mother's
David E. Schreibman.............. 31 Vice President, Secretary & General
Counsel
Lawrence J. Strain............... 46 President of Boudin
Directors
---------
Robert B. Haas................... 52 Chairman of the Board of Directors
Thomas J. Baldwin................ 40 Director
J. Taylor Crandall............... 45 Director
Jerry M. Meyer................... 58 Director
Andrew J. Nathanson.............. 41 Director
David G. Offensend............... 46 Director
Marc C. Particelli............... 44 Director
Anthony P. Scotto................ 52 Director
Douglas D. Wheat................. 48 Director
Mr. Benjamin has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since February 1997; President and Chief Executive
Officer of Specialty Foods and Specialty Foods Acquisition Corporation since
January 1997; and President and Chief Executive Officer of Stella Foods, Inc. (a
former subsidiary of Specialty Foods) from August 1994 until December 1997. Mr.
Benjamin held various positions from 1986 through August 1994 with operating
units of Kraft Foods, Inc., including President of All American Gourmet Company,
Vice President of Kraft Frozen Products Group and Vice President and General
Manager of the Specialty Ingredients Unit of Kraft General Foods, Inc.
Mr. Aiken has been President of Metz since April 1998 and Chief Executive
Officer of Metz since January 1999. Mr. Aiken was Vice President, Secretary and
General Counsel of Specialty Foods and Specialty Foods Acquisition Corporation
from February 1997 until
43
<PAGE>
April 1998. From October 1995 until February 1997, Mr. Aiken was Executive Vice
President, General Counsel and Secretary of Metz.
Mr. Fishbune has been Vice President and Chief Financial Officer of
Specialty Foods and Specialty Foods Acquisition Corporation since May 1996. Mr.
Fishbune was a Partner at Coopers & Lybrand L.L.P. from 1988 until May 1996.
Mr. Metz has been Chairman of Metz since January 1999. Mr. Metz was Chief
Executive Officer of Metz from August 1993 through December 1998, and President
of Metz from February 1983 to April 1998. Mr. Metz was Chief Operating Officer
of Metz from 1988 until August 1993.
Mr. O'Dea has been President and Chief Executive Officer of Mother's since
April 1997. Mr. O'Dea was Vice President, Retail of Stella Foods, Inc. from 1995
to March 1997. Prior to joining Stella Foods, Inc., Mr. O'Dea spent 12 years
with Procter & Gamble, most recently as Director of Marketing for its Snack Food
Business.
Mr. Schreibman has been Vice President, Secretary and General Counsel of
Specialty Foods and Specialty Foods Acquisition Corporation since May 1999 and
Vice President and General Counsel - Business Units of Specialty Foods and
Specialty Foods Acquisition Corporation since October 1998. Mr. Schreibman was
Chief Counsel - Mergers and Acquisitions for the Sara Lee Corporation from
October 1995 to October 1998. Prior to October 1995, Mr. Schreibman was in
private law practice as an associate with Sidley & Austin.
Mr. Strain has been President of Boudin since January 1999; Vice President
of Bakery Operations from August 1990 through December 1998. Prior to 1990, Mr.
Strain was Vice President and operating partner of Boudin International, Inc.
Mr. Haas has been Chairman of the Board of Specialty Foods and Specialty
Foods Acquisition Corporation since their organization in 1993 and Chairman of
the Board of Haas Wheat & Partners Incorporated, a private investment firm,
since 1992 and Chairman of the Board of Haas & Partners Incorporated, a private
investment firm, since 1989. Mr. Haas is Chairman of the Board of Playtex
Products, Inc., NBC Acquisition Corp. and Nebraska Book Company, Inc. and a
Director of Sybron International Corporation.
Mr. Baldwin has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since May 1996; Chief Executive Officer of Christmas
Corner, Inc. since January 1995 and President of PB Ventures since July 1994.
Mr. Baldwin was also Managing Director of Invus Group, Ltd. from 1990 through
February 1995.
Mr. Crandall has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since August 1993; Vice President and Chief Financial
Officer of Keystone, Inc., an affiliate of the Company, since October 1986 and
President, Director and sole stockholder of Acadia MGP, Inc. (managing general
partner of Acadia FW Partners, L.P., the sole general partner of Acadia
Partners, L.P.), an affiliate of Specialty Foods since March 1992.
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<PAGE>
Mr. Crandall also is a Director of Bell & Howell Holdings Company, Physicians
Reliance Network, Sunterra Corp., Integrated Orthopedics and Washington Mutual.
Mr. Meyer has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since June 1996. Mr. Meyer also is a Director of Century
Capital Financial, Inc. and City National Bank in Kilgore and Longview, Texas.
Mr. Nathanson has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since August 1993 and Managing Director of Donaldson,
Lufkin & Jenrette Securities Corporation since January 1991. Mr. Nathanson also
is a Director of Duane Reade, Inc.
Mr. Offensend has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since August 1993 and Founder of Evercore Partners, LLC
since October 1995. Mr. Offensend was also Managing Director of Oak Hill
Partners, Inc. and its predecessor from April 1990 to September 1995; Vice
President and Director of Acadia MGP, Inc. from March 1992 to September 1995;
and Vice President of Keystone from March 1992 to September 1995.
Mr. Particelli has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since November 1997 and Managing Director of Oak Hill
Partners, Inc. since August 1997. Mr. Particelli was Principal of Odyssey
Partners L.P. from October 1995 to August 1997 and Senior Vice President of Booz
Allen & Hamilton Inc. prior to October 1995.
Mr. Scotto has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since August 1993; Managing Director of Oak Hill
Partners, Inc. and its predecessor since March 1988; and Consultant to Oak Hill
Capital Management, Inc. since November 1998. Mr. Scotto also is a Director of
Ivex Packaging Corporation, Holophane Corporation and Grove Worldwide LLC.
Mr. Wheat has been Director of Specialty Foods and Specialty Foods
Acquisition Corporation since June 1993 and President of Haas Wheat & Partners
Incorporated, a private investment firm, since November 1992. Mr. Wheat was
Co-Chairman of Grauer & Wheat, Inc., a private investment firm, from April 1989
to October 1992. Mr. Wheat also is a Director of Playtex Products, Inc.
Compensation of Executive Officers
The following table shows the compensation for the years ended December
31, 1998, December 31, 1997 and December 31, 1996 of Mr. Benjamin, our President
and Chief Executive Officer who holds the same positions in SFC New Holdings,
who we refer to as the "CEO," and each of our four most highly compensated
executive officers (excluding the CEO but including our operating subsidiaries).
We have an annual bonus plan and a long-term incentive plan in which our
executive officers may participate.
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<PAGE>
The CEO and four most highly compensated executive officers hold their
respective positions at SFC New Holdings and at SFAC New Holdings, but they are
not compensated separately by each entity.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation (1)
------------------------------------------- -----------------------------
Awards
-----------------------------
Other Securities
Annual Underlying
Name and Principal Fiscal Compensation Options/SARs All Other
Position Year Salary($) Bonus($) ($) (1) (#)(2) Compensation($)
- -------- ---- --------- -------- ------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence S. Benjamin 1998 625,000 1,774,000 89,000 -- 101,000(3)
President and Chief 1997 560,000 1,015,000 84,000 1,300,000 89,000
Executive Officer of 1996 320,000 72,000 -- 50,000 --
us and SFC New
Holdings
William D. Day (4) 1998 300,000 528,000 -- -- 8,500(5)
President and Chief 1997 209,000 215,000 31,000 -- 600
Executive Officer of 1996 145,000 -- -- 15,000 400
H&M
Robert L. Fishbune 1998 376,000 601,500 62,000 -- 64,000(6)
Vice President and 1997 350,000 298,000 62,000 100,000 80,000
Chief Financial 1996 191,000 150,000 51,000 100,000 29,000
Officer of
us and SFC New
Holdings
Henry J. Metz 1998 338,000 262,500 -- -- 500(7)
Chairman of Metz 1997 334,000 251,000 -- -- 1,000
1996 320,000 240,000 93,000 50,000 2,000
Patrick J. O'Dea 1998 295,000 225,000 -- -- 30,300(8)
President and Chief 1997 260,000 260,000 -- -- 207,000
Executive Officer of 1996 184,000 -- -- 20,000 400
Mother's
</TABLE>
- ---------------
(1) The amounts listed for Mr. Benjamin include $71,000 and $76,000 for tax
reimbursement payments made in 1997 and 1998, respectively. The amounts
for Mr. Fishbune in 1996, 1997 and 1998 include $43,000, $50,000 and
$49,000, respectively, for tax reimbursement payments. In 1997, Mr. Day
received $31,000 in tax reimbursement. In 1996, Mr. Metz received $54,000
of tax reimbursement payments and $39,000 for personal use of the Metz
airplane.
(2) Options were generally granted to our employees, including the named
executive officers, under our 1994 Stock Option Plan, which was amended in
February 1995 and which we refer to as our "Stock Option Plan." Options
granted are either non-qualified stock options or incentive stock options.
Options granted generally have a ten year term.
(3) In 1998, Specialty Foods made a $90,000 contribution to a retirement
account maintained by Mr. Benjamin. Mr. Benjamin (and Mr. Fishbune) have
established accounts into which they contribute up to 15% of their base
pay (on an after-tax basis) to annuity or money-market funds. We provide
contributions to their retirement accounts and we reimburse them for taxes
incurred as a result of our contributions. The amounts listed for 1998 for
Mr. Benjamin also include life insurance premiums ($3,000) and personal
financial planning services ($8,000).
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<PAGE>
(4) H&M was sold in April 1999.
(5) The amounts listed for Mr. Day in 1998 include life insurance premiums
($1,500) and reimbursement of moving and relocation expenses ($7,000).
(6) In 1998, Specialty Foods made a $56,000 contribution to a retirement
account maintained by Mr. Fishbune (see note 3 for a description of the
account). The amounts listed for Mr. Fishbune also include life insurance
premiums ($1,500) and personal financial planning services ($6,500).
(7) In 1998, Mr. Metz received a $500 reimbursement for relocation expenses.
(8) The amounts listed for Mr. O'Dea in 1998 include a $30,000 relocation
allowance and payment of $300 in life insurance premiums.
Aggregated Options/SARs Exercised In Last Fiscal Year And Year-End Option/SAR
Values
The following table describes, for the named executive officers, aggregated
information concerning the number of shares of Specialty Foods Acquisition
Corporation common stock, par value $.01 per share, underlying unexercised stock
options at December 31, 1998 and the value of unexercised, in-the-money options
at that date.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Options/SARs at Fiscal Value of Unexercised In-the-Money
Year-End Options/SARs at Fiscal Year-End
Name (#) Exercisable/Unexercisable ($) Exercisable/Unexercisable
---- ----------------------------- -----------------------------
<S> <C> <C>
Lawrence S. Benjamin 825,000/675,000 (1)
President and Chief
Executive Officer of
us and SFAC New Holdings
William D. Day 18,750/6,250 (1)
President and Chief Executive
Officer of H&M
Robert L. Fishbune 100,000/100,000 (1)
Vice President and Chief
Financial Officer of us and
SFAC New Holdings
Henry J. Metz 153,750/31,250 (1)
Chairman of Metz
Patrick J. O'Dea 26,250/8,750 (1)
President and Chief Executive
Officer of Mother's
</TABLE>
47
<PAGE>
- ----------
(1) All of the options listed in this table have an exercise price of
$0.021322 per share. Due to the fact that the Specialty Foods Acquisition
Corporation common stock is not publicly traded, it is not currently
possible to calculate a precise value for the Specialty Foods Acquisition
Corporation common stock. In October 1997, the Board of Directors of
Specialty Foods Acquisition Corporation realized that certain previously
granted stock options had exercise prices which exceeded the fair market
value of the Specialty Foods Acquisition Corporation common stock. In view
of this diminished value, the Board of Directors of Specialty Foods
Acquisition Corporation determined that adjusting the exercise price of
stock options previously awarded to existing employees (including the
named executive officers) was in our best interest. On October 30, 1997,
the Board of Directors of Specialty Foods Acquisition Corporation repriced
the exercise price of existing options from $0.726703211 to $0.021322 per
share of Specialty Foods Acquisition Corporation common stock, which the
Board of Directors of Specialty Foods Acquisition Corporation determined
was not below the fair market value of that common stock.
Metz-Mother's Cake & Cookie Company Consolidated Pension Plan for Non-Union
Employees
The following table provides you with information about the estimated
annual benefits payable upon retirement for the specified compensation and years
of service classifications under the Metz-Mother's Cake & Cookie Company
Consolidated Pension Plan for Non-Union Employees, which we refer to as the
"Pension Plan." Messrs. Metz and O'Dea are the only named executive officers
participating in the Pension Plan.
Pension Plan Table For The Pension Plan
Annual Final
Average
Compensation Years of Service
------------ ----------------
15 20 25 30 35
------- ------- ------- ------- -------
125,000 $23,988 $32,547 $41,105 $49,564 $49,664
150,000 $29,369 $39,834 $50,299 $60,764 $60,764
175,000 $33,833 $46,466 $59,100 $71,734 $71,734
200,000 $37,495 $52,035 $66,575 $81,115 $81,115
225,000 $41,158 $57,604 $74,050 $90,497 $90,497
250,000 $42,746 $60,038 $77,291 $94,564 $94,564
300,000 $42,746 $60,018 $77,291 $94,564 $94,564
350,000 $42,746 $60,018 $77,291 $94,564 $94,564
400,000 $42,746 $60,018 $77,291 $94,564 $94,564
450,000 $42,746 $60,018 $77,291 $94,564 $94,564
500,000 $42,746 $60,018 $77,291 $94,564 $94,564
Compensation under the Pension Plan generally refers to total annual cash
compensation (up to $160,000 for 1998, as limited by the IRS Code section
401(a)(17)),
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<PAGE>
including pre-tax salary deferrals, but excluding certain specified items such
as compensation received under the Metz Long-Term Incentive Compensation Plan,
the Mother's Long-Term Incentive Compensation Plan, the Metz Annual Bonus
Incentive Plan and the Mother's Annual Bonus Incentive Plan.
In 1998, the amount of compensation covered under the Pension Plan Messrs.
Metz and O'Dea was $160,000 (as limited by IRS Code section 401(a)(171)). As of
December 31, 1998, Mr. Metz had approximately 27 years of credited service under
the Pension Plan and Mr. O'Dea had approximately one and one-half years of
credited service under the Pension Plan. Benefits are computed on a straight
life annuity basis and are not subject to deduction for Social Security or other
offset amounts.
Employment Arrangements
The following summaries of some of our employment agreements and
arrangements are not necessarily complete, so you should also read the text of
the agreements and arrangements, copies of which are listed as exhibits to the
registration statement and have either been filed as exhibits or incorporated by
reference into this prospectus.
Employment Agreement with Mr. Benjamin
Specialty Foods Acquisition Corporation, Specialty Foods and certain of
their subsidiaries, including the Businesses, which we collectively refer to as
the "Employers," entered into an Amended and Restated Executive Employment
Agreement with Mr. Benjamin, dated as of March 15, 1999 and effective January 1,
1999. Under this employment agreement, the initial term of employment ends June
30, 2001. However, the employment agreement will automatically be renewed for
additional one-year periods unless one of the parties cancels the renewal and
notifies the other party six months before the renewal term would begin. In
addition, if the employment agreement is terminated under certain circumstances,
the Employers will make post-termination salary and bonus payments to Mr.
Benjamin (or his estate). The employment agreement provides for an initial base
salary of $655,000 and an annual target bonus of 75% of base salary if we meet
specified EBITDA targets.
Mr. Benjamin's employment agreement also provides that he may be entitled
to receive, under certain circumstances, payments to offset (at least in part)
certain tax consequences to him if he exercises stock options, receives certain
payments, and/or has his contract terminated in connection with a change of
control of Specialty Foods Acquisition Corporation or Specialty Foods. These
payments are limited, in some circumstances, to the tax savings actually
realized by the Employers, and in other circumstances, by various dollar
amounts.
Mr. Benjamin has agreed to be bound by certain confidentiality,
non-competition and non-solicitation restrictions described in his employment
agreement.
49
<PAGE>
Employment Agreement with Mr. Fishbune
The Employers also entered into an Amended and Restated Executive
Employment Agreement, dated as of March 15, 1999 and effective January 1, 1999,
with Mr. Fishbune. The initial term of Mr. Fishbune's employment agreement ends
December 31, 2000, but will be automatically renewed for additional one-year
periods unless the renewal is canceled by the Employers or Mr. Fishbune upon six
months' prior notice. In addition, if Mr. Fishbune's employment agreement is
terminated under certain circumstances, the Employers will make post-
termination salary and bonus payments to him (or his estate). Mr. Fishbune's
employment agreement provides for an initial base salary of $400,000 and an
annual target bonus of 75% of base salary if we meet specified EBITDA targets.
Mr. Fishbune's Employment Agreement also provides that he may be entitled
to receive, under certain circumstances, payments to offset (at least in part)
certain tax consequences to him if he exercises stock options, receives certain
payments, and/or has his contract terminated in connection with a change of
control of Specialty Foods Acquisition Corporation or Specialty Foods. These
payments are limited, in some circumstances, to the tax savings actually
realized by the Employers, and in other circumstances, by various dollar
amounts.
Mr. Fishbune has agreed to be bound by certain confidentiality,
non-competition and non-solicitation restrictions described in his employment
agreement.
Employment Agreement with Mr. O'Dea
Specialty Foods, Mother's and MCC-DSD Holdings, Inc. (parent company of
Mother's and a wholly owned subsidiary of Specialty Foods) entered into an
Amended and Restated Executive Employment Agreement with Mr. O'Dea, effective
July 15, 1997. Mr. O'Dea's employment agreement provides for an initial
employment term ending December 31, 2000. However, this employment agreement may
be terminated at an earlier date under certain listed circumstances. Mr. O'Dea's
employment agreement provides for an initial base salary of $280,000 and an
annual target bonus of 75% of base salary if we meet specified performance
targets. In addition, if Mr. O'Dea's employment agreement is terminated in
certain circumstances, the Employers will make post-termination salary and bonus
payments to him (or his estate).
Mr. O'Dea has agreed to be bound by certain confidentiality,
non-competition and non-solicitation restrictions set forth in his employment
agreement.
Divestiture Award Agreements
Certain of our executive officers and other key employees, including
Messrs. Benjamin, Fishbune and Metz, have entered into Divestiture Award
Agreements with us. According to these agreements, a recipient will receive or
has received a percentage of the net cash proceeds received by us (after
deducting fees and expenses) if we sell certain of our subsidiaries.
50
<PAGE>
Change in Control Arrangements
Under the Mother's Amended and Restated Supplemental Long-Term Incentive
Compensation Plan, adopted in 1999, which we refer to as the "Mother's Long-Term
Plan," certain management employees, including certain named executive officers,
are eligible to receive awards based upon the total value of Mother's. We will
determine the amounts of any award payments to be made under the Mother's
Long-Term Plan on June 1, 2001, or earlier if there is a change in control of
Mother's. The award amounts under the Mother's Long-Term Plan will be offset, in
certain cases, by amounts payable under certain of the Deferred Bonus Agreements
described below.
Certain of our executive officers and other key employees, including
Messrs. Benjamin, Fishbune, Metz and O'Dea, entered into Deferred Bonus
Agreements with us. Under these agreements, they are entitled to receive
deferred bonus payments in amounts equal to their bonus payments under our
annual bonus plans. A payment of vested amounts relating to bonuses earned
through 1998 was made on March 31, 1999. Further payments relating to 1998 bonus
amounts earned through 1998 will be made on January 15, 2000. Messrs. Benjamin
and Fishbune waived the payments due to them on March 31, 1999 after they
received payments under the Divestiture Award Agreements relating to H&M
described above. In addition, on March 31, 2001 Messrs. Benjamin, Fishbune and
O'Dea will receive payments of amounts vested relating to any bonuses they may
earn for 1999 and 2000. However, if there is a change in control, the awards
that relate to bonuses earned prior to the change in control vest immediately
and will be paid within 90 days.
Compensation of Directors
Our employees do not receive any additional compensation for serving as
one of our directors or on one of our committees of the board of directors. We
reimburse our directors for reasonable out-of-pocket expenses that they incur in
connection with attending board of directors meetings or committee meetings. Our
directors are also covered by director's liability insurance. Each of Messrs.
Baldwin and Meyer also receive directors fees of $20,000 annually.
Compensation Committee Interlocks and Insider Participation In Compensation
Decisions
J. Taylor Crandall, Robert B. Haas, Anthony P. Scotto and Douglas D. Wheat
are all of the members of the compensation committee of the board of directors
of each of Specialty Foods Acquisition Corporation and Specialty Foods. Each of
Messrs. Crandall, Haas, Scotto and Wheat owns a beneficial interest in or is an
executive officer of one or more of the entities that have entered into
financial advisory arrangements with Specialty Foods, as described below.
Messrs. Haas and Wheat are controlling shareholders and are Chairman of
the Board and President, respectively, of Haas Wheat & Partners Incorporated.
Haas Wheat & Partners Incorporated was a party to a financial advisory agreement
with Specialty Foods pursuant to which Haas Wheat agreed to provide financial
advisory and other consulting services to
51
<PAGE>
Specialty Foods for a five-year period in exchange for an annual fee of
$700,000. Specialty Foods' board of directors approved a one-year extension of
the agreement in August 1998.
J. Taylor Crandall is Vice President and Chief Financial Officer of
Keystone and is President, Director and sole stockholder of Acadia MGP, Inc.,
the managing general partner of Acadia FW Partners, L.P., the sole general
partner of Acadia. Mr. Scotto is a Managing Director of Oak Hill Partners, Inc.
and its predecessor. Each of Penobscot-MB Partners, which we refer to as
"Penobscot," an affiliate of Acadia, and Keystone entered into a five-year
financial advisory agreement with Specialty Foods, under which they were paid an
annual fee, $200,000 per year in the case of Penobscot and $100,000 per year in
the case of Keystone. Specialty Foods' Board of Directors approved a one-year
extension of the agreement in August 1998.
52
<PAGE>
SECURITY OWNERSHIP
SFC Sub, Inc. owns 90% of our capital stock and the remaining 10% is held
by the holders of the SFAC 13% Debentures. All of the capital stock of SFC Sub,
Inc. is owned by Specialty Foods, and all of the capital stock of Specialty
Foods is owned by Specialty Foods Acquisition Corporation The following table
provides, as of June 15, 1999, information regarding the beneficial ownership of
voting securities of Specialty Foods Acquisition Corporation by (i) each person
known by Specialty Foods Acquisition Corporation to be the beneficial owner of
more than 5% of any class of its voting securities, (ii) each of our directors
and named executive officers, and (iii) all of our executive officers and
directors as a group.
<TABLE>
<CAPTION>
Percentage of
Name and Address Number of Shares Outstanding Shares
of Beneficial Owner of Common Stock of Common Stock (1)
- ------------------- --------------- -------------------
<S> <C> <C>
Acadia Partners, L.P. (2) ........................ 27,063,347 40.86%
201 Main Street
Fort Worth, Texas 76102
Keystone, Inc. (3) ............................... 9,358,502 14.13%
201 Main Street
Fort Worth, Texas 76102
Artal Luxembourg S.A. (4) ........................ 5,959,327 9.49%
Aandorenstraat 2
3300 Tienen, Belgium
Robert B. Haas (5) ............................... 5,881,496 9.26%
300 Crescent Court, Suite 1700
Dallas, Texas 75201
UBS Capital LLC (6) .............................. 5,366,913 8.55%
299 Park Avenue
New York, New York 10171
DLJ Merchant Banking Partners, L.P. (7) .......... 3,812,562 6.07%
277 Park Avenue
New York, New York 10172
Thomas J. Baldwin ................................ -- --
J. Taylor Crandall (2) ........................... -- --
Jerry M. Meyer ................................... -- --
Andrew J. Nathanson (7) .......................... -- --
David G. Offensend ............................... -- --
Marc C. Particelli ............................... -- --
Anthony P. Scotto (2) ............................ -- --
Douglas D. Wheat (8) ............................. 276,264 *
Henry J. Metz (9) ................................ 1,217,750 1.93%
Lawrence S. Benjamin (10) ........................ 1,001,771 1.57%
Robert L. Fishbune (11) .......................... 125,000 *
Patrick J. O'Dea (12) ............................ 35,000 *
All directors and executive officers
as a group ....................................... 8,587,793 13.24%
</TABLE>
- ----------
* Less than 1%
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(1) The holdings of all of the stockholders listed in this table may be
diluted by the exercise of the warrants listed in footnotes (b), (c) and
(e) below or options which, under employment arrangements and stock option
plans approved by Specialty Foods Acquisition Corporation, Specialty
Foods, SFC New Holdings and us, may be granted to certain employees. The
Stock Option Plan makes available to certain operating company employees
and headquarters employees options to purchase 5,852,917 shares of
Specialty Foods' common stock.
(2) Acadia's shares of common stock include shares owned by FWHY-Coinvestments
VII Partners, L.P., SFC Partners, L.P. and SFC Partners II, L.P., parties
related to Acadia. Acadia's shares of common stock also include 3,467,002
shares of common stock issuable upon the exercise of 8,775 warrants issued
by Specialty Foods Acquisition Corporation in favor of Acadia under a
Warrant Agreement dated June 27, 1997. Please refer to the section of this
prospectus entitled "Relationships and Related Transactions." The general
partner of Acadia is Acadia FW Partners, L.P., the managing general
partner of which is Acadia MGP, Inc., a corporation controlled by J.
Taylor Crandall. In addition, Mr. Crandall controls Group 31, Inc., the
general partner of each of FWHY, SFC Partners and SFC Partners II.
Therefore, Acadia FW and Acadia MGP may be deemed to beneficially own the
shares of common stock held by Acadia, SFC Partners, SFC Partners II and
FWHY. Mr. Scotto is a limited partner of SFC Partners II and disclaims
beneficial ownership of the shares of common stock held by SFC Partners
II. The address of Acadia FW, Acadia MGP, FWHY, SFC Partners, SFC Partners
II and Mr. Crandall is 201 Main Street, Fort Worth, Texas 76102.
(3) Keystone's shares of common stock include 3,467,002 shares of common stock
issuable upon the exercise of 8,775 warrants issued by Specialty Foods
Acquisition Corporation in favor of Keystone under a Warrant Agreement
dated June 27, 1997. Please refer to the section of this prospectus
entitled "Relationships and Related Transactions." Keystone is controlled
by Robert M. Bass. As such, Mr. Bass may be deemed to beneficially own the
shares of common stock held by Keystone. The address of Mr. Bass and
Keystone is 201 Main Street, Fort Worth, Texas 76102.
(4) The parent entity of Artal Luxembourg S.A. is Artal Group S.A., a
Luxembourg company.
(5) Mr. Haas' shares of common stock include 101,011 shares owned by HWP
Specialty Subsidiary Partners, 25,253 shares owned by HWP Specialty
Subsidiary Partners II, and 1,000,000 shares owned by the Haas Family
Long-Term Trust. Mr. Haas' shares of common stock also include 770,445
shares of common stock issuable upon the exercise of 1,950 warrants issued
by Specialty Foods Acquisition Corporation in favor of Mr. Haas under a
Warrant Agreement dated September 19, 1997. Please refer to the section of
this prospectus entitled "Relationships and Related Transactions." The
shares owned by HWP Specialty Subsidiary Partners and HWP Specialty
Subsidiary Partners II also are beneficially owned by Mr. Douglas Wheat.
(6) Union Bank of Switzerland owns indirectly 100% of the capital stock of UBS
Capital LLC.
(7) The following entities hold shares of common stock: DLJ Merchant Banking
Partners, L.P.; DLJ International Partners, C.V.; DLJ Offshore Partners,
C.V.; DLJ Merchant Banking Funds, Inc.; DLJ First ESC L.L.C., an "employee
securities corporation" (as defined in the Investment Company Act of 1940)
formed to hold securities of employees of DLJ Merchant Banking, DLJ
International Partners, DLJ Banking Partners and DLJ First ESC); and
Donaldson, Lufkin & Jenrette Securities Corporation. Except for his
allocable portion of the shares held by DLJ First ESC, Mr. Nathanson
disclaims beneficial ownership of the shares of common stock held by the
DLJ Entities.
(8) Mr. Wheat's shares of common stock include 101,011 shares owned by HWP
Specialty Subsidiary Partners and 25,253 shares owned by HWP Specialty
Subsidiary Partners II, which also are beneficially owned by Mr. Robert B.
Haas, and 150,000 shares owned by the Carrol Wheat Jr. Children's Trust,
for which Mr. Wheat serves as a trustee.
(9) Mr. Metz's shares of common stock include 185,000 shares that Mr. Metz has
the right to acquire upon the exercise of options.
(10) Mr. Benjamin's shares of common stock include 825,000 shares that Mr.
Benjamin has the right to acquire upon the exercise of options.
(11) Mr. Fishbune's shares of common stock include 125,000 shares that Mr.
Fishbune has the right to acquire upon the exercise of options.
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(12) Mr. O'Dea's shares of common stock include 35,000 shares that Mr. O'Dea
has the right to acquire upon the exercise of options.
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RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders' Agreement
In 1993, simultaneously with acquiring the businesses underlying Specialty
Foods, Haas Wheat, Acadia, Keystone, UBS Capital LLC, Artal Belgium S.A. and DLJ
Merchant Banking (in some cases acting through affiliates) acquired common stock
of Specialty Foods Acquisition Corporation at a price of $0.726703211 per share.
On August 16, 1993, these principal stockholders entered into a stockholders'
agreement governing the relationships among them. Under this stockholders'
agreement, if the principal stockholders transfer the common stock to any of
their affiliates or to members of management, the transferees must also agree to
be bound by the stockholders' agreement.
The stockholders' agreement imposes restrictions and conditions on the
transfer of Specialty Foods Acquisition Corporation common stock, subject to
certain exceptions. Under the stockholders' agreement, the parties have the
right to participate in certain sales of the Specialty Foods Acquisition
Corporation common stock by other parties. In addition, the parties to the
stockholders' agreement were granted certain preemptive rights with respect to
the issuance of common stock by Specialty Foods Acquisition Corporation and the
right, in certain circumstances, to have their common stock registered for
public sale under the Securities Act of 1933.
The stockholders' agreement also contains provisions relating to the
corporate governance of Specialty Foods Acquisition Corporation Under the
stockholders' agreement, Acadia has the right to nominate three directors,
Keystone has the right to nominate two directors, Haas Wheat has the right to
nominate two directors, and UBS Capital, Artal Belgium and DLJ Merchant Banking
Partners each have the right to nominate one director. Under certain conditions,
Acadia and Keystone can increase the number of directors they can nominate.
Certain Transactions with Stockholders of Specialty Foods Acquisition
Corporation
In 1998, Specialty Foods paid annual financial advisory fees to Haas Wheat
($700,000), Penobscot ($200,000) and Keystone ($100,000) under financial
advisory agreements with these parties. In 1998, the Board of Directors of
Specialty Foods extended the terms of each of the financial advisory agreements
between Specialty Foods and Haas Wheat, Penobscot and Keystone for one year.
Please refer to the section of this prospectus entitled "Executive Compensa
tion--Compensation Committee Interlocks and Insider Participation in
Compensation Decisions."
In November 1996, SF Leasing L.L.C. (of which Acadia and Keystone each
owns a 45% interest and Haas Wheat owns a 10% interest) purchased from Metz all
of the equipment at a Metz manufacturing facility for $3,222,000, a price that
was based on the appraised value of the equipment. The equipment was then leased
back to Metz in a transaction that was deemed by the parties to be equivalent to
an arms length transaction. In September 1998, SF Leasing, L.L.C. resold to Metz
all of the equipment at that manufacturing facility for $3,013,381. During 1998,
SF Leasing L.L.C. received $614,439 in rental payments from
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Metz. Specialty Foods' Board of Directors determined that the foregoing
transactions were on terms no less favorable to it and Metz than could have been
obtained by Specialty Foods and Metz in a transaction with an unaffiliated third
party.
In December 1998, Specialty Foods retained Donaldson, Lufkin and Jenrette
Securities Corporation, which we refer to as "DLJ," an affiliate of DLJ Merchant
Banking Partners, to serve as its financial advisor in connection with its
proposed sale of H&M. Upon completion of the sale of H&M, the Company paid DLJ
approximately $1,600,000 as compensation for its financial advisory services.
In March 1998, Specialty Foods paid DLJ $5,092,000 in connection with its
refinancing of its Revolving Credit Facility and Term Loan Facility. DLJ acts as
the Syndication Agent and Collateral Agent under both of those loan agreements.
In 1998, Specialty Foods paid DLJ a $100,000 retainer in connection with its
recently completed exchange offers.
Tax Sharing Agreement
SFC New Holdings has entered into a tax sharing agreement with Specialty
Foods Acquisition Corporation under which SFC New Holdings has agreed to pay to
Specialty Foods Acquisition Corporation the pro rata share of Specialty Foods
Acquisition Corporation's consolidated income tax liability attributable solely
to SFC New Holdings and each of its subsidiaries. SFC New Holdings and each of
its subsidiaries are also parties to a tax sharing agreement under which each
subsidiary has agreed to pay to SFC New Holdings the pro rata share of Specialty
Foods Acquisition Corporation's consolidated income tax liability attributable
to each such subsidiary. Specialty Foods, SFC Sub, Inc., SFAC New Holdings and
Specialty Foods Acquisition Corporation are also parties to a tax sharing
agreement under which:
o Specialty Foods has agreed to pay to Specialty Foods Acquisition
Corporation the pro rata share of Specialty Foods Acquisition
Corporation's consolidated income tax liability attributable solely
to Specialty Foods, SFC Sub, Inc. and SFAC New Holdings, and
o SFC Sub, Inc. and SFAC New Holdings have each agreed to pay to
Specialty Foods the pro rata share of such tax liability
attributable to each of SFC Sub, Inc. and SFAC New Holdings.
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THE EXCHANGE OFFERS
Purpose of the Exchange Offers
Our registration rights agreement requires us to file not later than
October 9, 1999, which is 120 days following the date of original issuance of
our initial 13% Debentures, the registration statement of which this prospectus
is a part for registered exchange offers with respect to an issue of new notes
in exchange for the Old 13% Debentures. The New 13% Debentures will be
substantially identical in all material respects to our initial 13% Debentures
except that the New 13% Debentures will be registered under the Securities Act,
will not bear legends restricting their transfer and will not be entitled to
registration rights under our registration rights agreement. This summary of the
registration rights agreement does not contain all the information that you
should consider and we refer you to the provisions of the registration rights
agreement, which has been filed as an exhibit to the registration statement of
which this prospectus is a part and a copy of which is available as indicated
under the heading "Where You Can Obtain More Information."
This prospectus also covers an offer being made to provide holders of SFAC
13% Debentures, who did participate in the private exchange transactions that
were completed on June 11, 1999, with the opportunity to exchange their
securities for New 13% Debentures. Many of these holders were not eligible to
participate in those private exchanges because they did not qualify as
"accredited investors" under Rule 501(a)(1), (2) or (3) of the Securities Act of
1933. We refer to the exchange offer for our initial 13% Debentures and the
exchange offer for the SFAC 13% Debentures collectively as the "exchange
offers."
We are required to:
o use our reasonable best efforts to cause the registration statement
to be declared effective no later than December 8, 1999, which is
180 days after the date of issuance of our initial 13% Debentures;
o keep the exchange offers effective for not less than 30 days or
longer if required by applicable law after the date that notice of
the exchange offers is mailed to holders of the Old 13% Debentures,
and
o use our reasonable best efforts to consummate the exchange offers no
later than December 23, 1999, which is 195 days after the date of
issuance of our initial 13% Debentures.
The exchange offers being made here, if commenced and consummated within
the time periods described in this paragraph, will satisfy those requirements
under the registration rights agreement.
This prospectus, together with the letter of transmittal, is being sent to
all record holders of our initial 13% Debentures as of August 9, 1999. It is
also being sent to current holders of SFAC 13% Debentures as of the same date.
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Based on interpretations by the staff of the Securities and Exchange
Commission, in no- action letters issued to third parties, we believe that the
New 13% Debentures issued pursuant to the exchange offers may be offered for
resale, resold or otherwise transferred by each holder of New 13% Debentures
other than (1) a broker-dealer who acquires the Old 13% Debentures directly from
us for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act, and (2) any holder that directly
or indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, us, without compliance with the registration
and prospectus delivery provisions of the Securities Act, so long as this
holder:
o is acquiring the New 13% Debentures in the ordinary course of its
business,
o is not participating in, and does not intend to participate in, a
distribution of the New 13% Debentures within the meaning of the
Securities Act and has no arrangement or understanding with any
person to participate in a distribution of the New 13% Debentures
within the meaning of the Securities Act, and
o is not a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, us.
By tendering the Old 13% Debentures in exchange for New 13% Debentures,
each holder, other than a broker-dealer, will be required to make
representations to that effect. If a holder of Old 13% Debentures is
participating in or intends to participate in, a distribution of the New 13%
Debentures, or has any arrangement or understanding with any person to
participate in a distribution of the New 13% Debentures to be acquired in these
exchange offers, this holder may be deemed to have received restricted
securities and may not rely on the applicable interpretations of the staff of
the Securities and Exchange Commission. Any such holder will have to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction.
Each broker-dealer that receives New 13% Debentures for its own account in
exchange for Old 13% Debentures may be deemed to be an underwriter within the
meaning of the Securities Act and must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of these New 13% Debentures. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an underwriter within the meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with offers to resell, resales and other
transfers of New 13% Debentures received in exchange for Old 13% Debentures
which were acquired by such broker-dealer as a result of market making or other
trading activities. We have agreed that we will make this prospectus available
to any broker-dealer for a period of time not less than 90 days after the
consummation of the exchange offers for use in connection with any such offer to
resell, resale or other transfer. Please refer to the section in this prospectus
entitled "Plan of Distribution."
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Shelf Registration Statement
In the event that:
(1) because of any change in law or applicable interpretations thereof
by the staff of the Securities and Exchange Commission, we are not
permitted to effect the exchange offers, or
(2) for any other reason, the exchange offers are not consummated within
195 days from the date of issuance of our initial 13% Debentures, or
(3) any holder so requests with respect to securities not eligible to be
exchanged for exchange securities in the exchange offers, or
(4) any applicable law or interpretations do not permit any holder to
participate in the exchange offers, or
(5) any holder that participates in the exchange offers does not receive
freely transferrable exchange securities in exchange for tendered
securities,
then in the case of clauses (1) through (5) of this sentence, we will be
obligated, at our sole expense, to:
o use our reasonable best efforts to file, as promptly as practicable
and in no event more than 45 days following this request, with the
Securities and Exchange Commission a shelf registration statement
covering resales of our initial 13% Debentures, and
o use our reasonable best efforts to keep the shelf registration
statement continuously effective, supplemented and amended as
required by the Securities Act, in order to permit the prospectus
which is a part of this shelf registration statement to be usable by
holders for a period of two years after the date of issuance of our
initial 13% Debentures or the shorter period of time that will
terminate when all of the applicable Old 13% Debentures have been
sold under this shelf registration statement.
If a shelf registration statement is filed, we will provide to each holder
of the Old 13% Debentures being registered copies of the prospectus that is a
part of the shelf registration statement. We will also notify each of these
holders when the shelf registration statement has become effective and take
certain other actions as are required to permit unrestricted resales of the Old
13% Debentures being registered. A holder that sells Old 13% Debentures pursuant
to the shelf registration statement will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement that are applicable to such a
holder, including indemnification rights and obligations.
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Liquidated Damages
In the event that:
(1) we do not file the registration statement or the shelf registration
statement, as the case may be, with the Securities and Exchange
Commission on or before the dates specified above for these filings,
(2) the registration statement or the shelf registration statement, as
the case may be, is not declared effective on or before the dates
specified above for its effectiveness,
(3) the exchange offers are not consummated on or before December 23,
1999, or
(4) the shelf registration statement is filed and declared effective but
thereafter ceases to be effective or usable in connection with its
intended purpose (each such event referred to in clauses (1)
through( 4), being called a registration default),
then we will be obligated to pay liquidated damages to each holder of transfer
restricted securities, as described below. Transfer restricted securities means
each of our initial 13% Debentures until:
o the date on which that initial 13% Debenture has been exchanged by a
person other than a broker-dealer for a New 13% Debenture in the
registered exchange offers,
o following the exchange by a broker-dealer in the registered exchange
offers of an Old 13% Debenture for a New 13% Debenture, the date on
which this New 13% Debenture is sold to a purchaser who receives
from this broker-dealer on or before the date of the sale a copy of
the prospectus contained in the exchange offers registration
statement,
o the date on which the initial 13% Debenture has been effectively
registered under the Securities Act and disposed of in accordance
with the shelf registration statement,
o the date on which the initial 13% Debenture is distributed to the
public under Rule 144 promulgated under the Securities Act, or
o the date on which the initial 13% Debenture is eligible for resale
pursuant to Rule 144 without volume restrictions.
Liquidated damages will be an additional amount during the first 90-day
period immediately following the occurrence of one or more such registration
defaults, in an amount equal to $0.05 per week per $1,000 principal amount of
transfer restricted securities held by
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such holder. The amount of liquidated damages thereafter will increase each week
by an additional $0.05 per $1,000 principal amount of transfer restricted
securities, up to a maximum amount of liquidated damages of $0.30 per week per
$1,000 principal amount of transfer restricted securities. Liquidated damages
will accrue from the date a registration default occurs until the date on which:
o the registration statement is filed,
o the registration statement or shelf registration statement is
declared effective and the exchange offer is consummated for all
validly tendered securities,
o the shelf registration statement is declared effective, or
o the shelf registration statement again becomes effective or made
usable, as the case may be.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
Upon completion of the exchange offers, holders of Old 13% Debentures who
do not exchange their Old 13% Debentures for New 13% Debentures in the exchange
offers generally will no longer be entitled to registration rights and will not
be able to offer or sell their Old 13% Debentures, unless such Old 13%
Debentures are subsequently registered under the Securities Act, which, subject
to certain limited exceptions, we will have no obligation to do, or pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Please refer to the section in this prospectus
entitled "Risk Factors--Your failure to participate in the exchange offers will
have adverse consequences."
Terms of the Exchange Offers
Expiration Date; Extensions; Amendments; Termination
The exchange offers will expire at 5:00 p.m., New York City time, on ,
1999, unless we extend it in our reasonable discretion. The expiration date of
the exchange offers will be at least 30 business days after the commencement of
the exchange offers in accordance with Rule 14e-l(a) under the Securities
Exchange Act of 1934 and our registration rights agreement.
To extend the expiration date, we will need to notify the exchange agent
of any extension by oral, promptly confirmed in writing, or written notice. We
will also need to notify the holders of the Old 13% Debentures by mailing an
announcement or by means of a press release or other public announcement
communicated, unless otherwise required by applicable law or regulation, before
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
We expressly reserve the right:
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o to delay acceptance of any Old 13% Debentures, to extend the
exchange offers or to terminate the exchange offers and not permit
acceptance of Old 13% Debentures not previously accepted if any of
the conditions described below under "--Conditions" have occurred
and have not been waived by us, if permitted to be waived, by giving
oral or written notice of this delay, extension or termination to
the exchange agent, or
o to amend the terms of the exchange offers in any manner.
If we amend the exchange offers in a manner determined by us to constitute
a material change, we will promptly disclose this amendment in a manner
reasonably calculated to inform the holders of the Old 13% Debentures of this
amendment including providing public announcement, or giving oral or written
notice to the holders of the Old 13% Debentures. A material change in the terms
of the exchange offers could include, among other things, a change in the timing
of the exchange offers, a change in the exchange agent, and other similar
changes in the terms of the exchange offers. If any material change is made to
terms of the exchange offers, we will disclose this change by means of a
post-effective amendment to the registration statement of which this prospectus
is a part and will distribute an amended or supplemented prospectus to each
registered holder of Old 13% Debentures. In addition, we will also extend the
exchange offers for an additional five to ten business days as required by the
Securities Exchange Act of 1934, depending on the significance of the amendment,
if the exchange offers would otherwise expire during this period. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral, promptly confirmed in writing, or written notice thereof
to the exchange agent.
Procedures for Tendering
To tender your Old 13% Debentures in the exchange offers, you must
complete, sign and date the letter of transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the letter of transmittal, and
mail or otherwise deliver the letter of transmittal or the facsimile, or an
agent's message, together with the certificates representing the Old 13%
Debentures being tendered and any other required documents, to the exchange
agent on or before 5:00 p.m., New York City time, on the expiration date.
Alternatively, you may:
o if you hold SFAC 13% Debentures, send a timely confirmation of a
book-entry transfer of your SFAC 13% Debentures into the exchange
agent's account at The Depository Trust Company pursuant to the
procedure for book-entry transfer described below, on or before 5:00
p.m. on the expiration date, or
o comply with the guaranteed delivery procedures described below.
The term agent's message means a message, transmitted by The Depository
Trust Company to, and received by, the exchange agent and forming a part of a
book-entry confirmation, which states that The Depository Trust Company has
received an express acknowledgment from its participant tendering Old 13%
Debentures which are the subject of
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this book-entry confirmation that this participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may enforce this
agreement against this participant.
The method of delivery of the Old 13% Debentures, the letter of
transmittal and all other required documents is at your election and risk.
Instead of delivery by mail, we recommend that you use an overnight or
hand-delivery service. If you choose the mail, we recommend that you use
registered mail, properly insured, with return receipt requested. In all cases,
you should allow sufficient time to assure timely delivery. You should not send
any letters of transmittal or Old 13% Debentures to us. You must deliver all
documents to the exchange agent at its address provided below. You may also
request your respective brokers, dealers, commercial banks, trust companies or
nominees to tender your Old 13% Debentures on your behalf.
Your tender of Old 13% Debentures will constitute an agreement between you
and us in accordance with the terms and subject to the conditions provided in
this prospectus and in the letter of transmittal.
Only a holder of Old 13% Debentures may tender these Old 13% Debentures in
the exchange offers. A holder, with respect to the exchange offers, is any
person in whose name Old 13% Debentures are registered or any other person who
has obtained a properly completed bond power from the registered holder.
If you are the beneficial owner of Old 13% Debentures that are registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your Old 13% Debentures, you should contact this
registered holder promptly and instruct this registered holder to tender on your
behalf. If you wish to tender on your own behalf, you must, before completing
and executing the letter of transmittal and delivering your Old 13% Debentures,
either make appropriate arrangements to register ownership of the Old 13%
Debentures in your name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an eligible guarantor institution within the meaning of Rule
17ad-15 under the Securities Exchange Act of 1934, each referred to as an
eligible institution, unless the Old 13% Debentures are tendered:
o by a registered holder, or by a participant in The Depository Trust
Company whose name appears on a security position listing as the
owner, who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the letter of
transmittal if the New 13% Debentures are being issued directly to
this registered holder or deposited into the participant's account
at The Depository Trust company, or
o for the account of an eligible institution.
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If the letter of transmittal is signed by the record holder(s) of the Old
13% Debentures tendered, the signature must correspond with the name(s) written
on the face of the Old 13% Debentures without alteration, enlargement or any
change whatsoever. If the letter of transmittal is signed by a participant in
The Depository Trust Company, the signature must correspond with the name as it
appears on the security position listing as the holder of the Old 13%
Debentures.
If the letter of transmittal is signed by a person other than the
registered holder of any Old 13% Debentures listed, such Old 13% Debentures must
be endorsed or accompanied by bond powers and a proxy that authorize such person
to tender the Old 13% Debentures on behalf of the registered holder in
satisfactory form to us as determined in our sole discretion, in each case as
the name of the registered holder or holders appears on the Old 13% Debentures.
If the letter of transmittal or any Old 13% Debentures or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless we waive the
requirement, evidence satisfactory to us of their authority to so act must also
be submitted with the letter of transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed letter of transmittal accompanied by the Old 13%
Debentures tendered, or a timely confirmation received of a book-entry transfer
of Old 13% Debentures into the exchange agent's account at The Depository Trust
Company with an agent's message, or a notice of guaranteed delivery from an
eligible institution is received by the exchange agent. Issuances of New 13%
Debentures in exchange for Old 13% Debentures tendered pursuant to a notice of
guaranteed delivery by an eligible institution will be made only against
delivery of the letter of transmittal, and any other required documents, and the
tendered Old 13% Debentures, or a timely confirmation received of a book-entry
transfer of Old 13% Debentures into the exchange agent's account at The
Depository Trust Company with an agent's message, with the exchange agent.
We will determine, in our sole discretion, all questions as to the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of the tendered Old 13% Debentures. Our determination will be final
and binding. We reserve the absolute right to reject any and all Old 13%
Debentures not properly tendered or any Old 13% Debentures which, if accepted,
would, in our opinion or our counsel's opinion, be unlawful. We also reserve the
absolute right to waive any conditions of the exchange offers or irregularities
or defects in tender as to particular Old 13% Debentures. Our interpretation of
the terms and conditions of the exchange offers, including the instructions in
the letter of transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old 13%
Debentures must be cured within such time as we shall determine. We, the
exchange agent or any other person will be under no duty to give notification of
defects or irregularities with respect to tenders of Old 13% Debentures. Neither
we nor the exchange agent will incur any liability for failure to give such
notification. Tenders of Old 13% Debentures will not be deemed to have been made
until such irregularities have been cured or waived. Any Old 13% Debentures
received by the exchange agent that are not
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properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the exchange agent to the
tendering holders of such Old 13% Debentures, unless otherwise provided in the
letter of transmittal, as promptly as practicable following the expiration date.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the indenture for the initial and New 13% Debentures, to:
o purchase or make offers for any Old 13% Debentures that remain
outstanding subsequent to the expiration date, or, as described
under "--Expiration Date; Extensions; Amendments; Termination," to
terminate the exchange offers in accordance with the terms of our
registration rights agreement, and
o to the extent permitted by applicable law, purchase Old 13%
Debentures in the open market, in privately negotiated transactions
or otherwise. The terms of these purchases or offers could differ
from the terms of the exchange offers.
Acceptance of Old 13% Debentures for Exchange; Delivery of New 13%
Debentures
Upon satisfaction or waiver of all of the conditions to the exchange
offers, we will accept all Old 13% Debentures properly tendered, promptly after
the expiration date, and will issue the New 13% Debentures promptly after the
expiration date and acceptance of the Old 13% Debentures. Please refer to the
section of this prospectus entitled "--Conditions" below. For purposes of the
exchange offers, Old 13% Debentures will be deemed to have been accepted as
validly tendered for exchange when, as and if we had given oral or written
notice to the exchange agent.
In all cases, issuance of New 13% Debentures for Old 13% Debentures that
are accepted for exchange pursuant to the exchange offers will be made only
after timely receipt by the exchange agent of certificates for such Old 13%
Debentures or a timely book-entry confirmation of such Old 13% Debentures into
the exchange agent's account at the book-entry transfer facility, a properly
completed and duly executed letter of transmittal or an agent's message and all
other required documents, in each case, in form satisfactory to us and the
exchange agent. If any tendered Old 13% Debentures are not accepted for any
reason set forth in the terms and conditions of the exchange offers or if Old
13% Debentures are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or non-exchanged Old 13% Debentures will be
returned without expense to the tendering holder thereof, or, in the case of Old
13% Debentures tendered by book-entry transfer procedures described below, the
non-exchanged Old 13% Debentures will be credited to an account maintained with
the book-entry transfer facility, as promptly as practicable after withdrawal,
rejection of tender, the expiration date or earlier termination of the exchange
offers.
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Book-Entry Transfer
The exchange agent will make a request to establish an account with
respect to the Old 13% Debentures at The Depository Trust Company for purposes
of the exchange offers within two business days after the date of this
prospectus. Any financial institution that is a participant in The Depository
Trust Company's systems may make book-entry delivery of Old 13% Debentures by
causing The Depository Trust Company to transfer such Old 13% Debentures into
the exchange agent's account at The Depository Trust Company in accordance with
The Depository Trust Company's procedures for transfer.
However, although delivery of Old 13% Debentures may be effected through
book-entry transfer into the exchange agent's account at The Depository Trust
Company, an agent's message or the letter of transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the exchange agent at the address
indicated below under "--Exchange Agent" on or before the expiration date or the
guaranteed delivery procedures described below must be complied with. Delivery
of documents to The Depository Trust Company does not constitute delivery to the
exchange agent. All references in the prospectus to deposit of Old 13%
Debentures will be deemed to include The Depository Trust Company's book-entry
delivery method.
Guaranteed Delivery Procedure
If you are a registered holder of Old 13% Debentures and desire to tender
such Old 13% Debentures, and (1) the Old 13% Debentures are not immediately
available, or (2) time will not permit your 13% Debentures or other required
documents to reach the exchange agent before the expiration date, or (3) the
procedures for book-entry transfer cannot be completed on a timely basis and an
agent's message delivered, you may still tender in the exchange offers if:
o you tender through an eligible institution,
o prior to the expiration date, the exchange agent receives from this
eligible institution a properly completed and duly executed letter
of transmittal, or facsimile thereof, and notice of guaranteed
delivery, substantially in the form provided by us, by facsimile
transmission, mail or hand delivery, setting forth your name and
address as holder of the Old 13% Debentures and the amount of Old
13% Debentures tendered, stating that the tender is being made
thereby and guaranteeing that within five business days after the
expiration date the certificates for all tendered Old 13%
Debentures, in proper form for transfer, or a book-entry
confirmation with an agent's message, as the case may be, and any
other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent, and
o the certificates for all tendered Old 13% Debentures, in proper form
for transfer, or a book-entry confirmation as the case may be, and
all other documents required by the letter of transmittal are
received by the exchange agent within five business days after the
expiration date.
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Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw tenders
of Old 13% Debentures at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"--Exchange Agent" and before acceptance of the notes for exchange by us. Any
notice of withdrawal must:
o specify the name of the person having tendered the Old 13%
Debentures to be withdrawn,
o identify the Old 13% Debentures to be withdrawn, including, if
applicable, the registration number or numbers and total principal
amount of these Old 13% Debentures,
o be signed by the person having tendered the Old 13% Debentures to be
withdrawn in the same manner as the original signature on the letter
of transmittal by which these Old 13% Debentures were tendered
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to permit the trustee with respect
to the Old 13% Debentures to register the transfer of these Old 13%
Debentures into the name of the person having made the original
tender and withdrawing the tender,
o specify the name in which these Old 13% Debentures are to be
registered, if different from that of the person having tendered the
Old 13% Debentures to be withdrawn, and
o if applicable because the Old 13% Debentures have been tendered
pursuant to the book-entry procedures, specify the name and number
of the participant's account at The Depository Trust Company to be
credited, if different than that of the person having tendered the
Old 13% Debentures to be withdrawn.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of notices of withdrawal and our determination will
be final and binding on all parties. Any Old 13% Debentures so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
exchange offers. Any Old 13% Debentures which have been tendered for exchange
which are not exchanged for any reason will be returned to the holder thereof
without cost to such holder. In the case of Old 13% Debentures tendered by
book-entry transfer into the exchange agent's account at The Depository Trust
Company pursuant to the book-entry transfer procedures described above, these
Old 13% Debentures will be credited to an account maintained with The Depository
Trust Company for the Old 13% Debentures, as promptly as practicable after
withdrawal, rejection of tender, expiration date or earlier termination of the
exchange offers. Properly withdrawn Old 13% Debentures may be retendered by
following one of the procedures described under "--Procedures for Tendering" and
"--Book-Entry Transfer" above at any time on or before the expiration date.
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Conditions
Notwithstanding any other term of the exchange offers, we will not be
required to accept Old 13% Debentures for exchange, or issue New 13% Debentures
in exchange for any Old 13% Debentures, and we may terminate or amend the
exchange offers as provided in this prospectus before the acceptance of these
Old 13% Debentures, if:
o an action or proceeding has been instituted or threatened in any
court or before any governmental agency or body that in our judgment
would reasonably be expected to prohibit, prevent or otherwise
impair our ability to proceed with the exchange offers;
o a change in the current interpretation of the staff of the
Securities and Exchange Commission has occurred which current
interpretation permits the New 13% Debentures issued pursuant to the
exchange offers in exchange for the Old 13% Debentures to be offered
for resale, resold or otherwise transferred by their holders, other
than in certain circumstances;
o a law, statute, rule or regulation has been adopted or enacted
which, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offers;
o a stop order has been issued by the Securities and Exchange
Commission or any state securities authority suspending the
effectiveness of the registration statement of which this prospectus
is a part or the qualification of the indenture for the notes under
the Trust Indenture Act of 1939 or proceedings shall have been
initiated or, to our knowledge, threatened for that purpose;
o a governmental approval has not been obtained, which approval we
deem in our sole discretion, necessary for the consummation of the
exchange offers; or
o a change, or a development involving a prospective change, in our
business or financial affairs has occurred which, in our sole
judgment, might materially impair our ability to proceed with the
exchange offers.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us, in whole or in part, at any time and from time to time, if we
determine in our reasonable discretion that any of the foregoing events or
conditions has occurred or exists or has not been satisfied, subject to
applicable law. Our failure at any time to exercise any of these rights will not
be deemed a waiver of any of these rights and each of these rights will be
deemed an ongoing right which we may assert at any time and from time to time.
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If we determine that we may terminate the exchange offers, as provided
above, we may:
o refuse to accept any Old 13% Debentures and return any Old 13%
Debentures that have been tendered to their holders
o extend the exchange offers and retain all Old 13% Debentures
tendered before the expiration date, subject to the rights of such
holders of tendered Old 13% Debentures to withdraw their tendered
Old 13% Debentures, or
o waive the termination event with respect to the exchange offers and
accept all properly tendered Old 13% Debentures that have not been
withdrawn or otherwise amend the terms of the exchange offers in any
respect as provided under the section in this prospectus entitled
"--Expiration Date; Extensions; Amendments; Termination."
The exchange offers are not conditioned upon any minimum principal amount
of Old 13% Debentures being tendered for exchange.
We have no obligation to, and will not knowingly, accept tenders of Old
13% Debentures from our affiliates within the meaning of Rule 405 under the
Securities Act or from any other holder or holders who are not eligible to
participate in the exchange offers under applicable law or its interpretation,
by the Securities and Exchange Commission, or if the New 13% Debentures to be
received by the holder or holders of Old 13% Debentures in the exchange offers,
upon receipt, will not be tradable by this holder without restriction under the
Securities Act and the Securities Exchange Act of 1934 and without material
restrictions under the blue sky or securities laws of substantially all of the
states of the United States.
Accounting Treatment
We will record the New 13% Debentures at the same carrying value as the
Old 13% Debentures, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. We will amortize the costs of the exchange offers over the term of the
New 13% Debentures.
Exchange Agent
We have appointed United States Trust Company of New York as exchange
agent for the exchange offers. You should direct all questions and requests for
assistance or additional copies of this prospectus or the letter of transmittal
to the exchange agent as follows:
By Mail:
United States Trust Company of New York
P.O. Box 843 Cooper Station
New York, NY 10276
Attn: Corporate Trust Services
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By Overnight Courier and By Hand
after 4:30 p.m. on the expiration date:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, NY 10003
By Hand before 4:30 p.m.:
United States Trust Company of New York
111 Broadway
New York, NY 10006
ATTN: Lower Level Corporate Trust Window
Facsimile Transmission: (212) 780-0592
Attention: Customer Service
Confirm by Telephone: (800) 548-6565
Fees and Expenses
We will bear the expenses of soliciting tenders pursuant to the exchange
offers. The principal solicitation for tenders pursuant to the exchange offers
is being made by mail; however, our offices and regular employees may make
additional solicitations by telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offers. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offers. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the Old 13% Debentures, and in handling or
forwarding tenders for exchange.
We will pay the expenses incurred in connection with the exchange offers,
including fees and expenses of the exchange agent and trustee and accounting,
legal, printing and related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of Old
13% Debentures pursuant to the exchange offers. However, tendering holders will
pay the amount of any such transfer taxes, whether imposed on the registered
holder or any other persons, if:
o certificates representing New 13% Debentures or Old 13% Debentures
for principal amounts not tendered or accepted for exchange are to
be delivered to, or are to be registered or issued in the name of,
any person other than the registered holder of the Old 13%
Debentures tendered, or
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o tendered Old 13% Debentures are registered in the name of any person
other than the person signing the letter of transmittal, or
o a transfer tax is imposed for any reason other than the exchange of
Old 13% Debentures pursuant to the exchange offers.
If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
Your Failure to Participate in the Exchange Offers Will Have Adverse
Consequences
If you do not exchange your initial 13% Debentures for New 13% Debentures
pursuant to the exchange offers or if you do not properly tender your initial
13% Debentures in the exchange offers, you will not be able to resell, offer to
resell or otherwise transfer your initial 13% Debentures unless they are
registered under the Securities Act or unless you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities Act. In addition, you
will no longer be able to obligate us to register your initial 13% Debentures
under the Securities Act except in the limited circumstances provided under our
registration rights agreement and you will not be entitled to obligate us to
register your initial 13% Debentures at all. The restrictions on transfer of
your initial 13% Debentures arise because we issued the initial 13% Debentures
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
addition, if you want to exchange your initial 13% Debentures in the exchange
offers for the purpose of participating in a distribution of the New 13%
Debentures, you may be deemed to have received restricted securities, and, if
so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent the initial 13% Debentures are tendered and accepted in the exchange
offers, the trading market, if any, for the initial 13% Debentures would be
adversely affected. Please refer to the section in this prospectus entitled
"Risk Factors."
DESCRIPTION OF OUR OTHER INDEBTEDNESS AND
OUR ACCOUNTS RECEIVABLE TRANSFER PROGRAM
Term Loan Facility and Revolving Credit Facility
DLJ Capital Funding, Inc. and certain financial institutions and other
entities, which we collectively refer to as the "Lenders," currently provide
Specialty Foods and SFC New Holdings with (i) the Term Loan Facility, which is a
secured senior term loan facility, in an aggregate principal amount of
$168,211,259 million (as of June 30, 1999), which we refer to as the "Term
Loans," and (ii) the Revolving Credit Facility, which provides certain of
Specialty Foods' operating subsidiaries with up to $122,801,241 million in
aggregate principal amount of secured revolving loans, which we refer to as the
"Revolving Loans," and letters of credit, which we refer to collectively with
the Revolving Loans and the Term Loans, the "Loans"; we refer to the Revolving
Credit Facility and the Term Loan Facility collectively
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as the "Credit Facilities." The maturity date of both the Term Loans and the
Revolving Loans is January 31, 2001.
General
The Term Loan Facility is governed by the Term Loan Agreement, by and
among Specialty Foods, SFC New Holdings and the Lenders. The Revolving Credit
Facility is governed by the Revolving Credit Agreement, by and among certain of
SFC New Holdings' operating subsidiaries and the Lenders. Loans outstanding
under the Term Loan Agreement will bear interest based on either, at the
election of the borrower (the terms are defined in the Term Loan Agreement):
o the alternate base rate, equal to the greater of (a) the reserve
adjusted federal funds effective rate plus 0.50%, and (b) the
administrative agent's base rate, plus the applicable term loan
margin for base rate loans; or
o the reserve adjusted LIBO rate, plus the applicable term loan margin
for LIBO rate loans.
Repayment
The Term Loans are required to be repaid in quarterly installments of
$434,375 through and including October 31, 2000 and $165,605,000 at the stated
maturity date, January 31, 2001.
The $122.8 million Revolving Credit Facility is comprised of two
sub-facilities. The Revolving I Facility is a $25 million commitment under which
revolving loans may be borrowed, prepaid and reborrowed by the revolving loan
borrowers (as defined in the Revolving Credit Facility). Letters of credit may
be issued under the Revolving I Facility, which terminates on January 31, 2001.
As of June 30, 1999 there were no borrowings under the Revolving I
Facility and $10.3 million of Letters of Credit issued which reduce availability
under that facility. As of June 30, 1999, the $97.8 million Revolving II
Facility, which matures on January 31, 2001, was fully drawn down by the
revolving loan borrowers. Amounts repaid under the Revolving II Facility may not
be reborrowed.
Revolving loans bear interest based on, at the election of the borrower,
either (terms are as defined in the Revolving Credit Facility) :
o the applicable base rate equal to the greater of:
(a) the reserve adjusted federal funds rate plus 0.50%;
(b) the administrative agent's base rate plus the applicable base
rate revolving loan margin; or
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o the reserve adjusted LIBO rate plus the applicable revolving LIBO
loan margin.
Fees on letters of credit outstanding are paid at the applicable base rate
revolving loan margin per annum. A fee is paid on unused commitments under the
Revolving Credit Facility.
Security and Guaranties
The Revolving Loans and other obligations under the Revolving Credit
Facility are or will be guaranteed by us, SFC New Holdings, Specialty Foods,
several new holding companies, which we refer to as the "Holding Companies," and
each of the Holding Companies' domestic operating subsidiaries, other than
inactive subsidiaries and other than subsidiaries constituting revolving credit
borrowers (as that term is defined in the Revolving Credit Facility).
The Term Loan Facility is secured on an equal basis by a grant of a
security interest in all of the capital stock of Finance Corp., which is defined
below, and each Holding Company and a pledge of all inter-company notes payable
to us and/or SFC New Holdings from our three main operating companies. The
Revolving Credit Facility (and any related guarantees of it) is also secured by
mortgages on some of the real property of some of SFC New Holdings'
subsidiaries, grants of security interests in substantially all of the other
assets of each Holding Company and each of our subsidiaries. The secured assets
do not include:
o the collateral securing the Accounts Receivable Facility;
o the assets of inactive, foreign or certain non-wholly owned
subsidiaries; or
o the stock of foreign subsidiaries in excess of 65% of that stock.
Covenants
The Credit Facilities restrict SFC New Holdings and its subsidiaries from
creating, incurring, assuming, or suffering to exist indebtedness, and from
issuing capital stock, with certain exceptions (including indebtedness permitted
under the relevant indentures).
The Credit Facilities also contain restrictions that, among other things,
limit SFC New Holdings' ability to:
o incur, create and maintain liens;
o incur and maintain guarantee obligations;
o undertake certain fundamental corporate changes;
o dispose of assets;
o declare and pay dividends and other payments of our capital stock;
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o make more than a certain amount of capital expenditures in any year;
o invest, lend and advance funds, and make acquisitions;
o make optional payments or purchases of 11 1/4% Senior Notes, 12 1/8%
Senior Notes and Subordinated Notes, and amend its debt and
capitalization documents;
o enter transactions with affiliates (with certain exceptions);
o enter sale/leaseback transactions (with certain exceptions);
o change our fiscal year-end;
o enter agreements containing negative pledge clauses;
o change the lines of business in which it or its subsidiaries may
engage; and
o change the nature of our business and the business conducted by SFC
New Holdings and Finance Corp.
In addition to the covenants described above, the Credit Facilities
require, among other things, that, as of certain dates and for certain periods
described in Term Loan Agreement:
o SFC New Holdings maintain a ratio of consolidated total
indebtedness, senior secured indebtedness and operating company
indebtedness to consolidated EBITDA (as those terms are defined in
the Term Loan Agreement) that does not exceed certain limits;
o SFC New Holdings maintain an interest coverage ratio (as defined in
the Term Loan Agreement) in excess of certain limits; and
o SFC New Holdings maintain a certain minimum consolidated EBITDA (as
defined in the Term Loan Agreement).
Events of Default
The Term Loan Agreement and the Revolving Credit Agreement contain events
of default that are customary in facilities of these types, including, among
others:
o the failure by SFC New Holdings or any of its subsidiaries which is
a borrower to make principal payments when due, or to make payments
of interest or fees within five days of them becoming due;
o the material breach of representations or warranties at the time
they were made;
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o the failure by SFC New Holdings or any of its subsidiaries to
perform or observe any covenant under the relevant agreement or the
other loan documents (in some cases after certain grace periods);
o the failure to pay when due (subject to grace periods), whether due
by acceleration or otherwise, any of SFC New Holdings' or its
subsidiaries' indebtedness in excess of $5.0 million in the
aggregate, or the occurrence of any event which enables the holder
of any that indebtedness to accelerate the maturity of it;
o the bankruptcy, insolvency or similar event of SFC New Holdings of
any of its material subsidiaries;
o certain ERISA defaults by SFC New Holdings or any commonly
controlled entity;
o undischarged and unstayed final judgments in excess of $5.0 million
in the aggregate, against SFC New Holdings or any of its material
subsidiaries, which remain unsatisfied or unstayed for at least 30
days;
o the impairment of loan documentation, any security interest or any
guaranty; or
o a change in control.
In addition, each of the Term Loan Agreement and the Revolving Credit
Agreement state that there will be an event of default under an agreement if
there is an event of default under the other agreement or a termination event
under the Receivables Transfer Agreement, which is defined below.
Accounts Receivable Transfer Program
General
As part of the private exchange offers by Specialty Foods and Specialty
Foods Acquisition Corporation that were completed on June 11, 1999, Specialty
Foods contributed to SFC New Holdings stock of Specialty Foods Finance
Corporation, which we refer to as "Finance Corp.," a wholly owned special
purpose subsidiary through which some of our operating companies sell their
accounts receivable. In connection with those exchange offers, SFC New Holdings
also assumed the responsibilities of the master servicer under the related
accounts receivable finance documents from Specialty Foods.
Under the terms of the non-recourse, off-balance sheet accounts receivable
transfer program, which we refer to as the "Accounts Receivable Transfer
Program," certain of our operating subsidiaries, which we refer to as the
"Accounts Receivable Sellers," transfer on a daily basis all of their accounts
receivable to Finance Corp., at a discount to the face amount of the
receivables. Finance Corp. then transfers, at a discount to the face amount of
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the receivables, an undivided interest in the receivables to a Master Trust
created under the terms of a Pooling Agreement and related Supplement, which we
refer to together as the "Receivables Transfer Agreement." To fund the purchase
price of the receivables transferred to it by Finance Corp., the Master Trust
draws upon a $50 million variable funding certificate representing an undivided
interest in the assets of the Master Trust.
The transfers of receivables by the Accounts Receivable Sellers to Finance
Corp., and by Finance Corp. to the Master Trust, are intended to be non-recourse
to the master servicer and the Accounts Receivable Sellers. However, the master
servicer and the Accounts Receivable Sellers share certain joint and several
obligations for breaches of certain specified covenants made by each of the
Accounts Receivable Sellers in the documentation for the Accounts Receivable
Transfer Program.
In addition, Finance Corp. was organized in a way to enable bankruptcy
counsel to give its reasoned legal opinion that the assets and liabilities of
Finance Corp., on the one hand, should not be substantively consolidated, in a
bankruptcy proceeding of the master servicer or any of the Accounts Receivable
Sellers, with our assets and liabilities or the assets and liabilities of the
Accounts Receivable Sellers, on the other hand.
Finance Corp. purchases all of the Accounts Receivable Sellers' accounts
receivable at discounts to their face amount. The amounts of the discounts are
determined from time to time. Finance Corp. funds the ongoing purchase of these
receivables from proceeds received from:
o the transfer of receivables to the Master Trust under the
Receivables Transfer Agreement;
o collections of receivables previously transferred to Finance Corp.;
o the variable funding certificate;
o additional capital contributions by us; and
o in certain instances, by the issuance by Finance Corp. of
subordinated notes to the Accounts Receivable Sellers in return for
certain accounts receivable.
Collections and Servicing of Receivables
Prior to the private exchange transactions that were completed on June 11,
Specialty Foods, and since those exchange offers, SFC New Holdings, act as
master servicer, and certain Accounts Receivable Sellers act as servicers, for
Finance Corp. The Master Servicer and the servicers provide collection and other
services to Finance Corp. in return for a servicing fee. All payments made by
third party obligors to any of the Accounts Receivable Sellers or the Master
Servicer will be transferred to the collection account held by the trustee of
the Master Trust for the benefit of the holders of the variable funding
certificates. Before the obligations of the Master Trust to acquire undivided
interests in the receivables are
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terminated, collection of accounts receivable sold to Finance Corp. will be
applied, according to the provisions and restrictions contained in the
Receivables Transfer Agreement, to:
o pay servicing and other fees and expenses;
o pay operating expenses of Finance Corp.;
o purchase additional receivables from the Accounts Receivable
Sellers;
o satisfy other obligations of Finance Corp., including payments on
subordinated notes; and
o pay dividends to SFC New Holdings (after meeting certain minimum
equity requirements and other restrictions).
During an amortization period, collections will be applied to repay the
variable funding certificate holders and to satisfy obligations owed to the
trustee before any collections are distributed to Finance Corp. as the holder of
a certificate representing a subordinated interest in the assets of the Master
Trust.
Security
Finance Corp. granted to the Master Trust, for the benefit of the holders
of the variable funding certificates, a first priority security interest in:
o all accounts receivables purchased by Finance Corp.;
o all of Finance Corp.'s interest in certain agreements;
o all of Finance Corp.'s interest in certain assets; and
o cash collections of all purchased accounts receivable.
As part of the transfer of receivables to Finance Corp., each Accounts
Receivable Seller has transferred and assigned to Finance Corp. the receivables
and related merchandise, contracts and equipment.
Repayment Events
The variable funding certificates issued by the Master Trust under the
Accounts Receivable Transfer Program have an expected final distribution date of
January 31, 2001. The amortization of the variable funding certificates will
begin on December 15, 2000. However, purchases of receivables under the
Receivable Transfer Agreements will terminate before the expected final
distribution date if certain events occur, including, among others:
o the bankruptcy, insolvency or similar event of Finance Corp., SFC
New Holdings or any of its significant subsidiaries;
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o the failure of Finance Corp. to make principal payments within one
day of their due date, or interest payments within two days of their
due date;
o the breach of material representations and warranties at the time
they were made;
o the failure of Finance Corp., SFC New Holdings or any of its
subsidiaries to perform or observe any covenant under the
Receivables Transfer Agreements (in some cases after certain notice
and/or grace periods) or to meet certain ratios with respect to the
receivables;
o the termination before the stated term, by the lenders under the
Revolving Credit Agreement, of the commitments to lend under that
agreement, or the refusal by those lenders to extend credit for a
period of 150 consecutive days;
o the failure of SFC New Holdings or any Accounts Receivable Seller to
make payments of any indebtedness in excess of $5.0 million in the
aggregate, when they are due or within any applicable grace period;
o the default of any of the indebtedness of SFC New Holdings or any of
its subsidiaries in excess of $5.0 million in the aggregate, or the
occurrence of any event which enables the holder of that
indebtedness to accelerate its maturity;
o the existence of judgments, unsatisfied or unstayed for at least 60
days, in excess of $5.0 million in the aggregate, against SFC New
Holdings or any of its material subsidiaries; or
o a change in control (as defined in the Receivables Transfer
Agreement).
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DESCRIPTION OF THE NEW 13% DEBENTURES
General
The following summary of certain provisions of the indenture does not
purport to be complete and is qualified in its entirety by reference to the
indenture, including the definitions therein of certain terms used below.
However, the summary does summarize all material provisions of the indenture.
The definitions of certain terms used in the following summary are set forth
under "Certain Definitions."
The New 13% Debentures will rank equally in right of payment with all
senior borrowings of SFAC New Holdings and senior in right of payment to all
subordinated indebtedness of SFAC New Holdings. In addition, the New 13%
Debentures will be secured by a first priority lien and security interest in all
of the issued and outstanding Capital Stock of SFC New Holdings and intercompany
notes, if any, owing to SFAC New Holdings. However, the operations of SFAC New
Holdings are conducted through its Subsidiaries and, therefore, SFAC New
Holdings is dependent upon the cash flow of its Subsidiaries to meet its
obligations, including its obligations under the New 13% Debentures and the
indenture. The New 13% Debentures will be effectively subordinated to all
indebtedness and other liabilities of SFAC New Holdings' Subsidiaries. By
acceptance of a New 13% Debenture, each holder acknowledges and agrees that,
upon certain events of bankruptcy of SFAC New Holdings and any of its
Subsidiaries, payment of the Accreted Value (as defined) or the principal and
premium, if any, and interest on the New 13% Debentures shall be subordinate in
right of payment to all obligations of SFC New Holdings and its Subsidiaries,
notwithstanding application of the doctrine of substantive consolidation. The
New 13% Debentures will be effectively subordinated to the 11 1/4% Senior Notes,
the 12 1/8% Senior Notes (together, the "Senior Notes") and the Subordinated
Notes.
Principal, Maturity and Interest
The New 13% Debentures will have an Accreted Value as of their date of
issue equal to the Accreted Value of the initial 13% Debentures for which they
are exchanged. The initial 13% Debentures, in the aggregate, had an Accreted
Value of $312,160,055 as of June 11, 1999. The New 13% Debentures will mature on
June 15, 2009. The New 13% Debentures will bear interest at the rate of 13% per
annum, compounded semi-annually, from the Original Issue Date. Payment of all
interest accrued prior to June 15, 2004 will be deferred and will be paid only
at maturity or upon the earlier redemption or purchase of New 13% Debentures by
SFC New Holdings depending on the redemption price. All accrued but deferred
interest will also bear interest at the rate of 13% per annum, compounded
semi-annually. After June 15, 2004, interest will accrue at 13% per annum and
will be payable in cash semi-annually in arrears on June 15 and December 15 of
each year, commencing on December 15, 2004, to holders of record on the
immediately preceding December 1 and June 1. Interest on the New 13% Debentures
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Original Issue Date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months. The New 13%
Debentures will be payable as to principal, interest and additional payments at
the
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office or agency of SFAC New Holdings maintained for such purpose within the
City and State of New York or, at the option of SFAC New Holdings, payment of
interest may be made by check mailed to the holders of the New 13% Debentures at
their respective addresses set forth in the register of holders of New 13%
Debentures. Until otherwise designated by SFAC New Holdings, SFAC New Holdings's
office or agency in New York will be the office of the trustee maintained for
such purpose. The New 13% Debentures will be issued in registered form, without
coupons, and in denominations of $1,000 and integral multiples thereof.
Optional Redemption
The New 13% Debentures are redeemable, in whole or in part, at SFAC New
Holdings's option at any time, upon not less than 30 nor more than 60 days'
notice to the holders of New 13% Debentures, at the redemption prices (expressed
as percentages of Accreted Value) set forth below plus, after June 15, 2004,
accrued and unpaid interest thereon to the applicable redemption date:
Percentage of
Year Accreted Value
On or before June 15, 2000 ................................. 50.0%
On or before June 15, 2001 ................................. 55.0%
On or before June 15, 2002 ................................. 60.0%
On or before June 15, 2003 ................................. 75.0%
After June 15, 2003 ........................................ 100.0%
Mandatory Redemption
Except as set forth below under "Redemption or Repurchase at the Option of
Holders," SFAC New Holdings is not required to make mandatory redemption or
sinking fund payments with respect to the New 13% Debentures.
Redemption or Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of New 13%
Debentures will have the right to require SFAC New Holdings to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such holder's New
13% Debentures pursuant to the offer described below (the "Change of Control
Offer") at a repurchase price equal to 50.0% (on or before June 15, 2000), 55.0%
(on or before June 15, 2001), 60.0% (on or before June 15, 2002), 75.0% (on or
before June 15, 2003) or 100.0% (after June 15, 2003) of the Accreted Value
thereof on the date of purchase plus, after June 15, 2004, accrued and unpaid
interest thereon to the applicable repurchase date (in any case, the "Change of
Control Payment").
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Within 60 days following any Change of Control, SFAC New Holdings will
mail a notice to each holder stating:
(1) that the Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control" and that all New 13%
Debentures tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be not later
than 30 Business Days from the date such notice is mailed (the
"Change of Control Payment Date");
(3) that any New 13% Debenture not tendered will continue to accrete or
accrue interest;
(4) that, unless SFAC New Holdings defaults in the payment of the Change
of Control Payment, all New 13% Debentures accepted for payment
pursuant to the Change of Control Offer will cease to accrete or
accrue interest after the Change of Control Payment Date;
(5) that holders electing to have any New 13% Debentures purchased
pursuant to a Change of Control Offer will be required to surrender
the New 13% Debentures, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the New 13% Debentures completed,
to the paying agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change
of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of New 13% Debentures
delivered for purchase, and a statement that such holder is
withdrawing his election to have the New 13% Debentures purchased;
and
(7) that holders whose New 13% Debentures are being purchased only in
part will be issued New 13% Debentures equal in principal amount to
the unpurchased portion of the New 13% Debentures surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or
an integral portion thereof. SFAC New Holdings will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of
New 13% Debentures in connection with a Change of Control.
On the Change of Control Payment Date, SFAC New Holdings will, to the
extent lawful,
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(1) accept for payment New 13% Debentures or portions thereof tendered
pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all New 13% Debentures or portions
thereof so tendered, and
(3) deliver or cause to be delivered to the trustee the New 13%
Debentures so accepted together with an Officers' Certificate
stating the New 13% Debentures or portions thereof tendered to SFAC
New Holdings. The trustee will promptly mail to each holder of New
13% Debentures so accepted payment in an amount equal to the
purchase price for the New 13% Debentures, and the trustee shall
promptly authenticate and mail to each holder a New 13% Debenture
equal in principal amount to any unpurchased portion of the New 13%
Debentures surrendered by such holder, if any; provided that each
such New 13% Debenture will be in a principal amount of $1,000 or an
integral multiple thereof. SFAC New Holdings will publicly announce
the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of SFAC New
Holdings, SFC Sub, SFC or SFAC to any person or group (as such term
is used in Section 13(d)(3) of the Exchange Act) (other than the
Principals or their Related Parties (as defined below)),
(ii) the adoption of a plan relating to the liquidation or dissolution of
SFAC New Holdings, SFC or SFAC,
(iii) the consummation of any transaction the result of which is that any
person or group (as defined above) (other than the Principals and
their Related Parties) owns, directly or indirectly, more of the
voting power of the voting stock of SFAC New Holdings, SFC Sub, SFC
or SFAC other than the Principals and their Related Parties,
(iv) the first day on which a majority of the members of the Board of
Directors of SFAC New Holdings, SFC Sub, SFC or SFAC are not
Continuing Directors, and
(v) SFAC New Holdings ceases to own 100% of the outstanding Equity
Interests (other than Permitted Preferred Stock) of SFC New
Holdings.
For the purposes of the foregoing clauses (i) to (v), any shares of voting
stock that are required to be voted for a nominee of any Principal or Related
Party pursuant to a binding agreement between the holder thereof and such
Principal or Related Party shall be deemed
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to be held by such Principal or Related Party, as the case may be, for purposes
of determining the percentage of voting power held by any person.
"Principals" means Haas Wheat & Partners Incorporated, Acadia Partners,
L.P. and Keystone, Inc.
"Related Party" with respect to any Principal means
(A) any controlling stockholder or partner, a direct or indirect 80% (or
more) owned Subsidiary, or spouse or immediate family member (in the
case of an individual) of such Principal,
(B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which
consist of such Principal and/or such other Persons referred to in
the immediately preceding clause (A) or the succeeding clauses (D)
or (E),
(C) any partner or stockholder of any Principal as of the date of the
indenture who acquires any assets or voting stock of SFAC New
Holdings, SFC Sub, SFC or SFAC pursuant to a general distribution by
such Principal to each of its partners or stockholders,
(D) any officer or director of any Principal as of the date of the
indenture, or
(E) co-investment entities established by any Principal within 90 days
of the date of the indenture and controlled by such Principal, any
affiliated party (including any officer or director) of such
Principal or of the general partner of such Principal (or of the
general partner of any general partner of such Principal) or any
combination of the foregoing; provided, however, that
(x) each of Douglas D. Wheat and HWP Specialty Partners, L.P.
shall be deemed a Related Party of Haas Wheat & Partners
Incorporated and
(y) any officer or director of Oak Hill Partners, Inc. as of the
date of the indenture shall be deemed a Related Party of
Acadia Partners, L.P. and Keystone, Inc.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of SFAC New Holdings, SFC or SFAC, as applicable, who
(a) was a member of such Board of Directors on the date of the indenture or (b)
was nominated for election or elected to such Board of Directors with the
affirmative vote of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election.
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Asset Sales
The indenture provides that SFAC New Holdings will not, and will not
permit any of its Subsidiaries to,
(i) sell, lease, convey or otherwise dispose of any assets (including by
way of a sale-and-leaseback) other than in the ordinary course of
business and other than sales of accounts receivable to the Accounts
Receivable Subsidiary in accordance with the "Accounts Receivable
Subsidiary" covenant described below (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the
assets of SFAC New Holdings shall be governed by the provisions of
the indenture described below under the caption "Merger,
Consolidation or Sale of Assets") or
(ii) issue or sell equity securities of any of its Subsidiaries (other
than Permitted Preferred Stock), in each case, whether in a single
transaction or a series of related transactions,
(a) that have a fair market value in excess of $3 million or
(b) for net proceeds in excess of $3 million (each of the
foregoing, an "Asset Sale"), unless
(x) SFAC New Holdings (or the Subsidiary, as the case may
be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced
by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the trustee) of
the assets sold or otherwise disposed of and
(y) at least 80% of the consideration therefor received by
SFAC New Holdings or such Subsidiary is in the form of
cash or Cash Equivalents; provided, however, that the
amount of
(A) any liabilities (as shown on SFAC New Holdings's
or such Subsidiary's most recent balance sheet or
in the notes thereto) of SFAC New Holdings or any
Subsidiary (other than liabilities that are by
their terms subordinated to the New 13%
Debentures) that are assumed by the transferee of
any such assets and
(B) any notes or other obligations of such transferee
or Marketable Securities received by SFAC New
Holdings or any such Subsidiary from such
transferee that, within 30 days (or 90 days, in
the case of Marketable Securities received in
connection with a pooling of interest transaction)
of the consummation of the Asset Sale,
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are converted by SFAC New Holdings or such Subsidiary into cash (to the extent
of the cash received), shall be deemed to be cash for purposes of this
provision.
Within 365 days after the receipt of cash proceeds from any Asset Sale,
SFAC New Holdings (or such Subsidiary) may, at its option, apply the Net
Proceeds from such Asset Sale to an investment in another business, capital
expenditures or other long-term assets, in each case, similar or related to the
line of business as SFAC New Holdings or any of its Subsidiaries were engaged in
on the date of the indenture, or to permanently reduce Indebtedness (with a
corresponding permanent reduction of any commitments with respect thereto) of a
Subsidiary of SFAC New Holdings, including, without limitation, the Senior Term
Debt and the Senior Revolving Debt. Pending the final application of any such
Net Proceeds, SFAC New Holdings (or such Subsidiary) may temporarily reduce
Senior Revolving Debt or invest such Net Proceeds in cash or Cash Equivalents.
Any Net Proceeds from an Asset Sale that are not finally applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"New 13% Debenture Excess Proceeds."
When the aggregate amount of New 13% Debenture Excess Proceeds exceeds $15
million, within five days of such date, SFAC New Holdings will be required to
make an offer to all holders of New 13% Debentures (a "New 13% Debenture Asset
Sale Offer") to purchase the maximum principal amount of New 13% Debentures that
may be purchased out of the New 13% Debenture Excess Proceeds at an offer price
in cash in an amount equal to the redemption prices set forth in the covenant
entitled "Optional Redemption" on the date fixed for the closing of such offer
in accordance with the procedures set forth in the indenture. To the extent that
the aggregate amount of New 13% Debentures tendered pursuant to a New 13%
Debenture Asset Sale Offer is less than the amount of New 13% Debenture Excess
Proceeds, SFAC New Holdings may use such deficiency for general corporate
purposes. If the aggregate principal amount of New 13% Debentures surrendered by
holders thereof exceeds the amount of New 13% Debenture Excess Proceeds, the
trustee will select the New 13% Debentures to be purchased on a pro rata basis.
Upon completion of such offer to purchase, the amount of New 13% Debenture
Excess Proceeds will be deemed to be reset at zero.
The foregoing limitations will not apply to Asset Sales to SFAC New
Holdings or any of its Wholly Owned Subsidiaries.
The Term Loan Agreement and the Note Indentures restrict SFC New Holdings'
ability to make distributions to SFAC New Holdings to redeem New 13% Debentures
in the event of a Change of Control or an Asset Sale. Any future credit
agreements or other financing agreements to which SFC New Holdings becomes a
party may contain similar provisions. In the event a Change of Control occurs or
a New 13% Debenture Asset Sale Offer is required at a time when SFC New Holdings
is prohibited from making distributions to SFAC New Holdings, SFC New Holdings
could seek the consent of its lenders or could attempt to refinance the
borrowings that contain such prohibition. If SFAC New Holdings is unable to
purchase tendered New 13% Debentures upon the occurrence of a Change of Control,
SFAC New Holdings's failure to purchase such New 13% Debentures would constitute
an Event of Default under the indenture.
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Selection and Notice
If less than all of the New 13% Debentures are to be redeemed at any time,
selection of New 13% Debentures for redemption will be made by the trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the New 13% Debentures are listed, or, if the New 13%
Debentures are not so listed, on a pro rata basis, by lot or by such method as
the trustee shall deem fair and appropriate; provided that no New 13% Debenture
of $1,000 or less shall be redeemed in part. Notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of New 13% Debentures to be redeemed at its
registered address. If any New 13% Debenture is to be redeemed in part only, the
notice of redemption that relates to such New 13% Debenture shall state the
portion of the principal amount thereof to be redeemed. A New 13% Debenture in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original New 13% Debenture.
On and after the redemption date, the New 13% Debentures or portions of them
called for redemption will cease to accrete or accrue interest.
Certain Covenants
Restricted Payments
The indenture provides that SFAC New Holdings will not, and will not
permit any of its Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
SFAC New Holdings's or any of its Subsidiaries' Equity Interests
(other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of SFAC New Holdings or dividends or
distributions payable to SFAC New Holdings or any Wholly Owned
Subsidiary of SFAC New Holdings);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of SFAC New Holdings or any Subsidiary or other Affiliate
of SFAC New Holdings (other than any such Equity Interests owned by
SFAC New Holdings or any Wholly Owned Subsidiary of SFAC New
Holdings);
(iii) purchase, redeem, defease or otherwise acquire or retire for value,
or declare, or pay any interest or other distribution on or in
respect of, any Indebtedness that is subordinated to the New 13%
Debentures (other than interest payable in the form of additional
amounts of any such subordinated Indebtedness having no sinking fund
payments prior to June 15, 2009); or
(iv) make any Restricted Investment (all such payments and other actions
set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
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(b) SFAC New Holdings would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by SFAC New Holdings and its Subsidiaries after the
date of the indenture (including all Restricted Payments permitted by the next
succeeding paragraph except clause (vi) thereof), is less than the sum of
(x) 50% of the Consolidated Net Income of SFAC New Holdings for the
period (taken as one accounting period) from the date of the
indenture to the end of SFAC New Holdings's most recently ended
fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, 100% of such deficit), plus
(y) 100% of the aggregate Net Proceeds received by SFAC New Holdings
since the date of the indenture from the issue or sale of Equity
Interests of SFAC New Holdings (other than Equity Interests sold to
a Subsidiary of SFAC New Holdings and other than Disqualified Stock)
or any debt security of SFAC New Holdings that is convertible into
or exchangeable for any Equity Interest of SFAC New Holdings (other
than Disqualified Stock) that has been so converted or exchanged,
plus
(z) 100% of any common equity capital contribution received by SFAC New
Holdings since the date of the indenture.
The foregoing provisions will not prohibit
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the indenture and the
Note Indentures;
(ii) the redemption, repurchase, retirement or other acquisition of any
of SFAC New Holdings's Equity Interests or Indebtedness subordinated
in right of payment to the New 13% Debentures of SFAC New Holdings
in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of SFAC New Holdings) of
other Equity Interests of SFAC New Holdings (other than any
Disqualified Stock);
(iii) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of SFAC New Holdings or any Subsidiary
of SFAC New Holdings held by any member of SFAC New Holdings's (or
any of its Subsidiaries') management; provided, however, that the
aggregate price paid since the date of the indenture for all such
repurchased, redeemed, acquired
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or retired Equity Interests shall not exceed an amount equal to $5
million plus the aggregate cash proceeds received by SFAC New
Holdings or any Subsidiary of SFAC New Holdings from any reissuance
of Equity Interests by SFAC New Holdings or such Subsidiary to
members of management of SFAC New Holdings and its Subsidiaries;
(iv) dividends by SFAC New Holdings to SFC or SFC Sub in an amount
sufficient to enable SFC to pay, when due, interest on any SFC
Senior Notes or SFC Subordinated Notes that remain outstanding
following the SFC Exchange Offers, in accordance with the terms
thereof; and
(v) Permitted Refinancings (as defined below) of Indebtedness
subordinated in right of payment to the New 13% Debentures.
Not later than the date of making any Restricted Payment (other than
Restricted Payments pursuant to clause (iv) of the foregoing paragraph, SFAC New
Holdings will deliver to the trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon SFAC New Holdings's latest available financial
statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The indenture provides that SFAC New Holdings will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt), and SFAC
New Holdings will not issue any Disqualified Stock and will not permit any of
its Subsidiaries to issue any shares of preferred stock; provided, however, that
SFAC New Holdings may incur Indebtedness or issue shares of Disqualified Stock
if
(i) the Fixed Charge Coverage Ratio for SFAC New Holdings's most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred, or such Disqualified
Stock is issued, would have been at least 2.25 to 1 determined on a
pro forma basis (including a pro forma application of the net
proceeds therefrom) as if the additional Indebtedness had been
incurred, or the Disqualified Stock has been issued, as the case may
be, at the beginning of such four-quarter period, and
(ii) any such Indebtedness is unsecured and subordinated or equal in
right of payment to the New 13% Debentures and has a Weighted
Average Life to Maturity that is greater than the remaining Weighted
Average Life to Maturity of the New 13% Debentures, and
provided further, that SFAC New Holdings and its Subsidiaries may incur
Indebtedness and issue shares of preferred stock if the Fixed Charge Coverage
Ratio for SFAC New Holdings'
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most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
Indebtedness is incurred, or such preferred stock is issued, would have been at
least 2.50 to 1 determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom) as if the additional Indebtedness had
been incurred, or the preferred stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The foregoing limitations do not apply to
(a) the incurrence by SFC New Holdings of Senior Term Debt in an
aggregate principal amount at any time outstanding not to exceed an
amount equal to $315 million less the aggregate amount of all
repayments, optional or mandatory, of the principal of any Senior
Term Debt (other than repayments that are immediately reborrowed)
that have been made since the date of the SFAC indenture,
(b) the incurrence by SFC New Holdings or its Subsidiaries of Senior
Revolving Debt (and guarantees thereof by SFC New Holdings and its
Subsidiaries) in an aggregate principal amount at any time
outstanding not to exceed an amount equal to $125 million less the
aggregate amount of all proceeds of sales or other dispositions of
assets applied to permanently reduce the commitments with respect to
such Indebtedness pursuant to the "Limitation on Asset Sales"
covenant,
(c) the incurrence by SFAC New Holdings and its Subsidiaries of the
Existing Indebtedness,
(d) the incurrence by SFAC New Holdings of Indebtedness represented by
the New 13% Debentures and by SFC New Holdings of Indebtedness
represented by the New Senior Notes and the New Subordinated Notes,
(e) the incurrence by SFAC New Holdings or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for
the purpose of financing all or any part of the purchase price or
cost of construction or improvement of property used in the business
of SFAC New Holdings or such Subsidiary, in an aggregate principal
amount not to exceed $5 million at any time outstanding,
(f) the incurrence by SFAC New Holdings or any of its Subsidiaries of
Indebtedness issued in exchange for, or the proceeds of which are
used to extend, refinance, renew, replace, defease or refund,
Indebtedness referred to in clauses (c), (d) or (e) above or
previously incurred under this clause (f) (the "Refinancing
Indebtedness");
provided, however, that
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(1) the principal amount of such Refinancing Indebtedness shall
not exceed the aggregate principal amount, tender or
prepayment premium and unpaid interest on the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection
therewith);
(2) any Refinancing Indebtedness incurred by any Subsidiary shall
only extend, refinance, renew, replace, defease or refund
Indebtedness of such Subsidiary or any Wholly Owned Subsidiary
of SFAC New Holdings;
(3) the Refinancing Indebtedness shall have a Weighted Average
Life to Maturity equal to or greater than either
(x) the remaining Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, replaced,
defeased or refunded or
(y) the remaining Weighted Average Life to Maturity of the
New 13% Debentures; and
(4) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of
payment to the New 13% Debentures, the Refinancing
Indebtedness shall be subordinated in right of payment to the
New 13% Debentures on terms at least as favorable to the
holders of the New 13% Debentures as those contained in the
documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded (any such
extension, refinancing, renewal, replacement, defeasance or
refunding, a "Permitted Refinancing"),
(g) intercompany Indebtedness between or among SFAC New Holdings and any
of its Wholly Owned Subsidiaries,
(h) the incurrence by SFAC New Holdings or its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of the indenture to be outstanding,
(i) the issuance by SFC New Holdings of Permitted Preferred Stock and
(j) the incurrence by SFAC New Holdings of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an
aggregate principal amount at any one time outstanding not to exceed
the sum of
(A) $35 million plus
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(B) up to $40 million of permanent reductions in commitments for
Senior Revolving Debt (other than pursuant to the mandatory
repayment provisions thereof) made since the date of the indenture.
Rights Offering
The indenture provides that SFAC New Holdings shall cause SFC New Holdings
to grant the holders of the New 13% Debentures the right to participate in any
and all offerings of Permitted Preferred Stock of SFC New Holdings (each an
"Offering"). SFAC New Holdings shall cause SFC New Holdings to require that each
Offering be made in conjunction with a Rights Offering that
(i) entitles each holder of New 13% Debentures owned on the date the
Offering is commenced to acquire all or any portion of that number
of shares of Permitted Preferred Stock equal to the product of
(a) the number of shares of Permitted Preferred Stock offered in
such Offering and
(b) the ratio of the aggregate principal amount of New 13%
Debentures then held by such holder to the aggregate principal
amount of New 13% Debentures then outstanding and
(ii) permits SFC New Holdings to offer any shares of Permitted Preferred
Stock that remain unsubscribed in such offering, to any Person on
the same terms and conditions as set forth in such Offering;
provided however, that the consummation of each Offering shall be within 60 days
following the commencement thereof.
Liens
The indenture provides that neither SFAC New Holdings nor any of its
Subsidiaries may directly or indirectly create, incur, assume or suffer to exist
any Lien on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The indenture provides that SFAC New Holdings will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction
(other than encumbrances or restrictions imposed by law or judicial or
regulatory action) if such encumbrance or restriction would by its terms
prohibit or limit any Subsidiary from
(a) (i) paying dividends or making any other distributions to SFAC New Holdings
or any of its Subsidiaries
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(A) on its Capital Stock or
(B) with respect to any other interest or participation in, or
measured by, its profits or
(ii) paying any indebtedness owed to SFAC New Holdings or any of its
Subsidiaries,
(b) making loans or advances to SFAC New Holdings or any of its Subsidiaries or
(c) transferring any of its properties or assets to SFAC New Holdings or any of
its Subsidiaries, except for such encumbrances or restrictions existing under or
by reasons of
(i) Existing Indebtedness as in effect on the date of the indenture,
(ii) the Term Loan Agreement and the Revolving Credit Agreement as in
effect as of the date of the indenture,
(iii) the indenture and the Note Indentures,
(iv) applicable law,
(v) any instrument governing Indebtedness or Capital Stock of a person
acquired by SFAC New Holdings or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in anticipation of such acquisition), which
encumbrance or restriction is not applicable to any person, or the
properties or assets of any person, other than the person, or the property
or assets of the person, so acquired,
(vi) customary non-assignment provisions in leases entered into in the
ordinary course of business,
(vii) with respect to clause (c) above, purchase money obligations for
property acquired in the ordinary course of business; provided that such
restrictions are only applicable to the property acquired through such
purchase money obligations,
(viii) permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Refinancing Indebtedness are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced or
(ix) any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of the Indebtedness
or the Capital Stock referred to in the foregoing clauses (i), (ii) or
(v); provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are not
more restrictive with respect to such dividend and other payment
restrictions than those contained in the applicable instrument governing
such Indebtedness or Capital Stock (as the case may be) as in effect on
the date of the indenture.
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Merger, Consolidation or Sale of Assets
The indenture provides that SFAC New Holdings may not consolidate or merge
with or into (whether or not SFAC New Holdings is the surviving corporation) or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, another corporation, person or entity unless
(i) SFAC New Holdings is the surviving corporation or the entity or the
person formed by or surviving any such consolidation or merger (if
other than SFAC New Holdings) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia,
(ii) the entity or person formed by or surviving any such consolidation
or merger (if other than SFAC New Holdings) or the entity or person
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of SFAC
New Holdings pursuant to a supplemental indenture, in a form
reasonably satisfactory to the trustee, under the New 13% Debentures
and the indenture,
(iii) immediately after such transaction, no Default or Event of Default
exists and
(iv) SFAC New Holdings or any entity or person formed by or surviving any
such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been
made
(A) shall have Consolidated Net Worth (immediately after the
transaction) equal to or greater than the Consolidated Net
Worth of SFAC New Holdings immediately preceding the
transaction and
(B) shall, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in
the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock."
Transactions with Affiliates
The indenture provides that SFAC New Holdings will not, and will not
permit any of its Subsidiaries to, in one or a series of related transactions,
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (including the Accounts Receivable Subsidiary and its
Subsidiaries) (each of the foregoing, an "Affiliate Transaction"), unless
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(a) such Affiliate Transaction is on terms that are no less favorable to SFAC
New Holdings or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by SFAC New Holdings or such
Subsidiary with an unrelated person and
(b) SFAC New Holdings delivers to the trustee
(i) with respect to
(x) any Affiliate Transaction constituting the purchase or sale of
goods and services in the ordinary course of business in
excess of $10 million or
(y) any other Affiliate Transaction involving aggregate payments
in excess of $500,000, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (a) above and such
Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and
(ii) with respect to any Affiliate Transaction (other than the purchase
or sale of goods and services in the ordinary course of business)
involving aggregate payments in excess of $20 million, an opinion as
to the fairness to SFAC New Holdings or such Subsidiary from a
financial point of view issued by an investment banking firm of
national standing;
provided, however, that
(A) any employment agreement entered into by SFAC New Holdings or any of its
Subsidiaries in the ordinary course of business and consistent with
business practices of companies similarly situated,
(B) transactions between or among SFAC New Holdings and/or its Wholly Owned
Subsidiaries,
(C) transactions permitted by the provisions of the indenture described above
under the covenant "Restricted Payments,"
(D) management fees payable pursuant to management agreements as in effect on
the date of the indenture,
(E) transactions permitted by the "Accounts Receivable Subsidiary" covenant
described below and
(F) transactions between SFAC New Holdings or any of its Subsidiaries on the
one hand, and DLJ or any of its Affiliates ("DLJSC") on the other hand,
involving the provision of financial, consulting or underwriting services
by DLJSC, as the case may be, provided that the fees payable to DLJSC do
not exceed the usual and customary fees
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of DLJSC for similar services, in each case, shall not be deemed Affiliate
Transactions.
Accounts Receivable Subsidiary
The indenture provides that SFAC New Holdings:
(a) may, and may permit any of its Subsidiaries to, notwithstanding the
provisions of the "Restricted Payments" covenant described above, make
Investments in the Accounts Receivable Subsidiary
(i) the proceeds of which are applied within five Business Days of
the making thereof solely to finance
(A) the purchase of accounts receivable of SFAC New Holdings
and its Subsidiaries (provided that the aggregate amount of
Investments pursuant to this clause (i)(A) made since the date
of the indenture (including any such Investments made
concurrently with the consummation of the private exchange
transactions we completed on June 11, 1999) will not exceed
$56 million, plus the amount of any return of capital
(excluding payment of dividends) or any repayment of the
principal amount of any Indebtedness constituting such
Investments by the Accounts Receivable Subsidiary since the
date of this indenture) or
(B) payments required in connection with the termination of
all arrangements relating to the sale of accounts receivable
having an aggregate fair market value not less than the amount
of such payments in exchange therefor) and
(ii) in the form of Accounts Receivable Subsidiary Notes to the
extent permitted by clause (b) below;
(b) may not, and may not permit any of its Subsidiaries to, sell accounts
receivable to the Accounts Receivable Subsidiary except for consideration in an
amount (determined upon collection of such accounts receivable and on an
aggregate basis for the Company and all of its Subsidiaries) not materially less
than that which would be obtained in an arm's length transaction (taking into
account the distributions on the Capital Stock of the Accounts Receivable
Subsidiary made pursuant to clause (g) upon collection of such accounts
receivable) and solely in the form of cash or Cash Equivalents; provided that
the Accounts Receivable Subsidiary may pay the purchase price for any such
accounts receivable in the form of Accounts Receivable Subsidiary Notes so long
as, after giving effect to the issuance of any such Accounts Receivable
Subsidiary Notes, the aggregate principal amount of all Accounts Receivable
Subsidiary Notes outstanding shall not exceed 10% of the aggregate purchase
price paid for all outstanding accounts receivable purchased by the Accounts
Receivable Subsidiary since the date of the indenture (and not written off or
required to be
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written off in accordance with the normal business practice of the Accounts
Receivable Subsidiary);
(c) may not permit the Accounts Receivable Subsidiary to sell any accounts
receivable purchased from SFAC New Holdings and its Subsidiaries or
participation interests therein to any other person except on an arm's length
basis and solely for consideration in the form of cash or Cash Equivalents or
certificates representing undivided interests of a Receivables Trust; provided
that the Accounts Receivable Subsidiary may not sell such certificates to any
other person except on an arm's length basis and solely for consideration in the
form of cash or Cash Equivalents;
(d) may not, and may not permit any of its Subsidiaries to, enter into any
guarantee, subject any of their respective properties or assets (other than the
accounts receivable sold by them to the Accounts Receivable Subsidiary) to the
satisfaction of any liability or obligation or otherwise incur any liability or
obligation (contingent or otherwise), in each case, on behalf of the Accounts
Receivable Subsidiary or in connection with any sale of accounts receivable or
participation interests therein by or to the Accounts Receivable Subsidiary,
other than customary obligations relating to breaches of representations,
warranties and covenants and other agreements of SFAC New Holdings or any of its
Subsidiaries with respect to the accounts receivable sold by SFAC New Holdings
or any of its Subsidiaries to the Accounts Receivable Subsidiary or with respect
to the servicing thereof as set forth in the Accounts Receivable Agreements as
in effect on the date of the indenture or in any replacement or substitute
agreement, so long as the obligations set forth in such replacement or
substitute agreement are no more burdensome in any material respect than those
contained in the Accounts Receivable Agreements as in effect on the date of the
indenture; provided that neither SFAC New Holdings nor any of its Subsidiaries
shall at any time guarantee or be otherwise liable for the collectibility of
accounts receivable sold by them;
(e) may not permit the Accounts Receivable Subsidiary to engage in any
business or transaction other than the purchase and sale of accounts receivable
or participation interests therein of SFAC New Holdings and its Subsidiaries and
activities incidental thereto;
(f) may not permit the Accounts Receivable Subsidiary to incur any
Indebtedness other than the Accounts Receivable Subsidiary Notes, Indebtedness
owed to SFC New Holdings and Non-Recourse Indebtedness; provided that the
aggregate principal amount of all such Indebtedness of the Accounts Receivable
Subsidiary shall not exceed the book value of its total Assets as determined in
accordance with GAAP;
(g) shall cause the Accounts Receivable Subsidiary to remit to SFC New
Holdings on a monthly basis as a distribution held by SFC New Holdings, all
available cash and Cash Equivalents not held in a collection account pledged to
acquirors of accounts receivable or participation interests therein, to the
extent not applied to
(x) pay interest or principal on the Accounts Receivable Subsidiary
Notes or any Indebtedness of the Accounts Receivable Subsidiary owed
to SFC New Holdings,
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(y) pay or maintain reserves for reasonable operating expenses of
the Accounts Receivable Subsidiary or to satisfy reasonable minimum
operating capital requirements or
(z) to finance the purchase of additional accounts receivable of
SFAC New Holdings and its Subsidiaries; and
(h) may not, and may not permit any of its Subsidiaries to, sell accounts
receivable to, or enter into any other transaction with or for the benefit of,
the Accounts Receivable Subsidiary upon the occurrence of certain events of
bankruptcy or insolvency with respect to the Accounts Receivable Subsidiary.
Reports
Whether or not required by rules and regulations of the SEC, so long as
any New 13% Debentures are outstanding, SFAC New Holdings will furnish to the
holders of New 13% Debentures all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if SFAC New Holdings were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by SFAC New Holdings' certified independent accountants. In addition, SFAC New
Holdings will provide in each such quarterly and annual report such income
statement information as its Board of Directors determines in good faith to be
appropriate with respect to each of its major product groupings. In addition,
whether or not required by the rules and regulations of the Commission, SFAC New
Holdings will file a copy of all such information with the Commission for public
availability (so long as the Commission will accept such filings) and make such
information available to prospective purchasers who request it in writing. SFAC
New Holdings will also furnish to holders of the New 13% Debentures and
prospective purchasers of the New 13% Debentures designated by holders of New
13% Debentures that are Transfer Restricted Securities, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act until such time as SFAC New Holdings either exchanges the New 13%
Debentures for registered New 13% Debentures or has registered the New 13%
Debentures for resale under the Securities Act.
Security
The New 13% Debentures are secured by a pledge of all of the issued and
outstanding Capital Stock (other than the Permitted Preferred Stock) of SFC New
Holdings and intercompany notes owing to SFAC New Holdings (if any).
SFAC New Holdings has entered into a pledge agreement (the "Pledge
Agreement") providing for the pledge by SFAC New Holdings to United States Trust
Company of New York, as collateral agent (in such capacity, the "Collateral
Agent"), for the benefit of the holders of the New 13% Debentures, of all of the
issued and outstanding Capital Stock of SFC New Holdings (other than the
Permitted Preferred Stock) and all notes representing intercompany indebtedness
owing to SFAC New Holdings that may from time to time be
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outstanding (collectively, the "Collateral"). Such pledge secures the payment
and performance when due of all of the Obligations of SFAC New Holdings under
the indenture and the New 13% Debentures as provided in the Pledge Agreement.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the indenture and the Pledge
Agreement, SFAC New Holdings will be entitled to receive all cash dividends,
interest and other payments made upon or with respect to the Collateral pledged
by them and to exercise any voting and other consensual rights pertaining to the
Collateral. Upon the occurrence and during the continuance of an Event of
Default,
(a) all rights of SFAC New Holdings to exercise such voting and other
consensual rights shall cease, and all such rights shall become vested in
the Collateral Agent, which to the extent permitted by law, shall have the
sole right to exercise such voting and other consensual rights,
(b) all rights of SFAC New Holdings to receive all cash dividends,
interest and other payments upon or with respect to the Collateral shall
cease and such cash dividends, interest and other payments shall be paid
to the Collateral Agent and
(c) the Collateral Agent may sell the Collateral or any part thereof in
accordance with the terms of the Pledge Agreement. All funds distributed
under the Pledge Agreement and received by the Collateral Agent for the
benefit of the holders of the New 13% Debenture shall be distributed by
the Collateral Agent in accordance with the provisions of the indenture.
Under the terms of the Pledge Agreement, upon an Event of Default, the
Collateral Agent will determine the circumstances and manner in which the
Collateral shall be disposed of, including, but not limited to, the
determination of whether to sell all or part of the Collateral. Moreover, upon
the full and final payment and performance of all obligations of SFAC New
Holdings under the indenture and the New 13% Debentures, the Pledge Agreement
will terminate and the pledged collateral will be released.
Events of Default and Remedies
The indenture, provides that each of the following constitutes an Event of
Default:
(i) default for 30 days in the payment when due of interest, Additional
Payments or Liquidated Damages on the New 13% Debentures;
(ii) default in payment when due, of principal of, or premium, if any, on the
New 13% Debentures when the same becomes due and payable at maturity, upon
redemption (including in connection with an offer to purchase) or
otherwise;
(iii) failure by SFAC New Holdings to comply with the provisions described above
under the captions "Asset Sale" or "Merger, Consolidation or Sale of
Assets," or failure by SFAC New Holdings for 15 days to comply with the
provisions described above under
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the captions "Restricted Payments" or "Incurrence of Indebtedness or
Preferred Stock";
(iv) failure by SFAC New Holdings for 60 days after notice to SFAC New Holdings
by the trustee or the holders of at least 25% in principal amount of the
New 13% Debentures then outstanding to comply with any other agreements in
the indenture or the New 13% Debentures;
(v) default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by SFAC New Holdings or any of its Subsidiaries (or the
payment of which is guaranteed by SFAC New Holdings or any of its
Subsidiaries), whether such Indebtedness or guarantee now exists, or is
created after the date of the indenture, which default
(a) is caused by a failure to pay at final maturity principal of such
Indebtedness (a "Final Payment Default") or
(b) results in the acceleration of such Indebtedness prior to its
express final maturity and, in each case, either
(1) the principal amount of such Indebtedness, together with
the principal amount of any other Indebtedness under
which there has been a Final Payment Default or the
maturity of which has been so accelerated, aggregates
$10 million or more, and such Final Payment Default or
acceleration shall not have been cured or rescinded
within 10 days after the occurrence thereof
(2) the principal amount of such Indebtedness, together with
the principal amount of any other Indebtedness under
which there has been a Final Payment Default or the
maturity of which has been so accelerated, aggregates
$50 million or more, or
(3) a Final Payment Default or acceleration shall have
occurred with respect to the Senior Term Debt, the
Senior Revolving Debt, the Senior Notes or the
Subordinated Notes;
(vi) failure by SFAC New Holdings, any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, to pay final judgments (other than any judgment to
the extent a reputable insurance company has accepted liability)
aggregating in excess of $10 million, which judgments remain undischarged
or unstayed for a period of 60 days;
(vii) certain events of bankruptcy or insolvency with respect to SFAC New
Holdings, any of its Significant Subsidiaries or any group of Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary; and
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(viii) SFAC New Holdings breaches certain covenants in the Pledge Agreement or
the Pledge Agreement is held in any judicial proceeding to be
unenforceable or invalid or ceases for any reason to be in full force and
effect.
If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding New 13%
Debentures may declare all the New 13% Debentures to be due and payable
immediately. Upon such declaration, the Accreted Value of (if prior to June 15,
2003) or the principal of and accrued interest on (if on or after June 15, 2003)
all New 13% Debentures shall be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to SFAC New Holdings, any Significant
Subsidiary or any group of Subsidiaries that, taken as a whole, would constitute
a Significant Subsidiary, all outstanding New 13% Debentures will become due and
payable without further action or notice. Holders of the New 13% Debentures may
not enforce the indenture or the New 13% Debentures except as provided in the
indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding New 13% Debentures may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the New
13% Debentures notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The holders of not less than a majority in aggregate principal amount of
the New 13% Debentures then outstanding by notice to trustee may on behalf of
the holders of all of the New 13% Debentures waive any existing Default or Event
of Default and its consequences under the indenture (including annulling a
declaration of acceleration of maturity) except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the New 13%
Debentures.
SFAC New Holdings is required to deliver to the trustee annually a
statement regarding Compliance with the indenture, and SFAC New Holdings is
required upon becoming aware of any Default or Event of Default, to deliver to
the trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No past, present or future director, officer, employee, incorporator or
stockholder of SFAC New Holdings, as such, shall have any liability for any
obligations of SFAC New Holdings under the New 13% Debentures or the indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of New 13% Debentures by accepting a New 13%
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the New 13% Debentures. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver be against public policy.
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Legal Defeasance and Covenant Defeasance
SFAC New Holdings may, at its option and at any time elect to have its
obligations discharged with respect to the outstanding New 13% Debentures
("Legal Defeasance"). Legal defeasance means that SFAC New Holdings will be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding New 13% Debentures, except for
(i) the rights of holders of the New 13% Debentures to receive payments,
solely from the trust fund described below, in respect of the principal
of, premium, if any, and interest on the New 13% Debentures when such
payments are due,
(ii) SFAC New Holdings's obligations with respect to the New 13% Debentures
concerning issuing temporary New 13% Debentures, registration of New 13%
Debentures, mutilated, destroyed, lost or stolen New 13% Debentures and
the maintenance of an office or agency for payment in money for security
payments held in trust,
(iii) the rights, powers, trust, and duties and immunities of the trustee, and
SFAC New Holdings's obligations in connection therewith and
(iv) the Legal Defeasance provisions of the indenture.
In addition, SFAC New Holdings may, at its option and at any time, elect
to have the obligations of SFAC New Holdings released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the New 13% Debentures. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the New 13% Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) SFAC New Holdings must irrevocably deposit with the trustee or paying
agent, in trust, for the benefit of the holders of the New 13% Debentures,
cash in U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the New 13% Debentures on
the stated maturity or on the applicable redemption date, as the case may
be, of such principal or installment of principal of, premium, if any, or
interest on such outstanding New 13% Debentures;
(ii) in the case of Legal Defeasance, SFAC New Holdings will have delivered to
the trustee an opinion of counsel in the United States reasonably accepted
to the trustee confirming that
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(A) SFAC New Holdings has received from, or there has been published by,
the IRS a ruling or
(B) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case, to the effect
that, and based thereon such opinion of counsel shall confirm that,
the holders of such outstanding New 13% Debenture will not recognize
income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, SFAC New Holdings shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that the holders of such outstanding
New 13% Debentures will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance
had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on
the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a breach
or violation of, or constitute a default under any of the Note Indentures,
the Term Loan Agreement, the Revolving Credit Agreement or any other
material agreement or instrument to which SFAC New Holdings is a party or
by which SFAC New Holdings is bound;
(vi) SFAC New Holdings shall have delivered to the trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(vii) SFAC New Holdings shall have delivered to the trustee an Officers'
Certificate stating that the deposit was not made by SFAC New Holdings
with the intent of preferring the holders of the New 13% Debentures over
the other creditors of SFAC New Holdings or with the intent of defeating,
hindering, delaying or defrauding creditors of SFAC New Holdings or
others; and
(viii) SFAC New Holdings shall have delivered to the trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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Transfer and Exchange
A holder may transfer or exchange New 13% Debentures in accordance with
the indenture. The registrar and the trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and SFAC New
Holdings may require a holder to pay any taxes and fees required by law or
permitted by the indenture. SFAC New Holdings is not required to transfer or
exchange any New 13% Debenture selected for redemption. Also, SFAC New Holdings
is not required to transfer or exchange any New 13% Debenture for a period of 15
days before a selection of the New 13% Debentures is to be redeemed.
The registered holder of a New 13% Debenture will be treated as the owner
of it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next succeeding paragraphs, the indenture and
the New 13% Debentures may be amended or supplemented with the consent of the
holders of at least a majority in principal amount of the New 13% Debentures
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for the New 13% Debentures), and any existing default (other
than a default or Event of Default in the payment of principal or premium, if
any, or interest on the New 13% Debentures, except a payment default resulting
from an acceleration that has been rescinded) or compliance with any provision
of the indenture or the New 13% Debentures may be waived with the consent of the
holders of a majority in principal amount of the then outstanding New 13%
Debentures (including consents obtained in connection with a tender offer or
exchange offer for the New 13% Debentures).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any New 13% Debenture held by a non-consenting holder of
New 13% Debentures)
(i) reduce the principal amount of New 13% Debentures whose holders must
consent to an amendment, supplement or waiver,
(ii) reduce the principal of or change the fixed maturity of any New 13%
Debenture or alter the provisions with respect to the redemption of the
New 13% Debentures,
(iii) reduce the rate of or change the time for payment of interest on any New
13% Debenture,
(iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the New 13% Debentures (except a
rescission of acceleration of the New 13% Debentures by the holders of at
least a majority in aggregate principal amount thereof and a waiver of the
payment default that resulted from such acceleration),
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(v) make any New 13% Debenture payable in money other than that stated in the
New 13% Debentures,
(vi) make any change in the provisions of the indenture relating to waivers of
past Defaults or the rights of holders of New 13% Debentures to receive
payments of principal of or interest on the New 13% Debentures,
(vii) waive a redemption payment with respect to any New 13% Debenture,
(viii) make any change in the foregoing amendment and waiver provisions, or
(ix) make any change to the collateral and security provisions in the
indenture that adversely affects any holder.
Without the consent of at least 75% in principal amount of the New 13%
Debentures then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the New 13% Debentures), no waiver or
amendment to the indenture may make any change in the provisions described above
under the caption "Change of Control" that adversely affects the rights of any
holder of New 13% Debentures.
Notwithstanding the foregoing, without the consent of any holder of New
13% Debentures, SFAC New Holdings and the trustee may amend or supplement the
indenture, or the New 13% Debentures to cure any ambiguity, defect or
inconsistency, to provide for uncertificated New 13% Debentures in addition to
or in place of certificated New 13% Debentures, to provide for the assumption of
SFAC New Holdings's obligations to holders of the New 13% Debentures in the case
of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of the New 13% Debentures or that
does not adversely affect the legal rights under the indenture of any such
holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Concerning the Trustee
The indenture contains certain limitations on the rights of the trustee,
should the trustee become a creditor of SFAC New Holdings, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The trustee is permitted to engage
in other transactions; however, if the trustee acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding New
13% Debentures have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur (which shall not be cured), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent and reasonable
person in the conduct of its own affairs. Subject to such provisions, the
trustee will be under no obligation to exercise any of its rights or powers
under the
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indenture at the request of any holder of New 13% Debentures, unless such holder
shall have offered to the trustee security and indemnity satisfactory to it
against any loss, liability or expense.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Agreements" means
(i) the Pooling Agreement dated as of November 16, 1994, as amended, among the
Accounts Receivable Subsidiary, SFC New Holdings or Specialty Foods, as
Master Servicer, and The Chase Manhattan Bank, as trustee on behalf of the
Certificateholders,
(ii) the Series 1998-1 Supplement to the Pooling Agreement, dated as of March
31, 1998, as amended, among the Accounts Receivable Subsidiary, SFC New
Holdings or Specialty Foods, as Master Servicer, and The Chase Manhattan
Bank, as trustee on behalf of the Certificateholders,
(iii) the Servicing Agreement dated as of November 16, 1994, as amended, among
the Accounts Receivable Subsidiary, SFC New Holdings or Specialty Foods,
as Master Servicer, certain of the subsidiaries of SFC New Holdings, as
servicers, and The Chase Manhattan Bank, as trustee,
(iv) the Amended and Restated Receivables Sale Agreement, dated as of November
16, 1994, as amended, among the Accounts Receivable Subsidiary, SFC New
Holdings or Specialty Foods, as Master Servicer, and certain of the
subsidiaries of SFC New Holdings, as sellers and
(v) any related instruments and agreements executed in connection therewith.
"Accounts Receivable Discount" means, with respect to any account
receivable sold by SFC New Holdings or any of its Subsidiaries to the Accounts
Receivable Subsidiary,
(a) the difference between
(i) the face amount of such account receivable and
(ii) the aggregate amount of consideration (after giving effect to any
subsequent adjustments thereto) received upon the sale of such
account receivable (with any Accounts Receivable Subsidiary Notes
received in consideration in such sale being valued at the principal
amount thereof for this purpose), less
(b) the amount of such difference that is calculated on the basis of, or with
reference to,
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(i) the historical bad debt allowance or accounts receivable write-offs
of the seller of such account receivable,
(ii) fees and other operating expenses of the Accounts Receivable
Subsidiary payable to parties other than SFAC New Holdings and its
Subsidiaries and acquirors of accounts receivable or participation
interests therein (in their capacity as acquirors) to the extent
that such fees and expenses do not exceed such amounts as would be
obtained in an arm's-length transaction and
(iii) credits to the obligor of such account receivable applied to the
face amount of such account receivable in respect of discount
expense (including prompt payment and volume discounts), rebates,
refunds, promotional allowances, billing error expense and similar
adjustments made by the Seller of such account receivable so the
face amount thereof.
"Accounts Receivable Subsidiary" means a wholly owned subsidiary of SFC
New Holdings designated as such by SFC New Holdings,
(a) that has total assets at the time of such designation with a book
value of $100,000 or less and
(b) with which neither SFC New Holdings nor any other Subsidiary of SFC
New Holdings has any obligation
(i) to subscribe for additional shares of Capital Stock or other
equity interests therein (other than to finance the purchase
of additional accounts receivable of SFC New Holdings and its
Subsidiaries) or
(ii) to maintain or preserve such Accounts Receivable Subsidiary's
financial condition or to cause it to achieve certain levels
of operating results.
"Accounts Receivable Subsidiary Notes" means the notes to be issued by the
Accounts Receivable Subsidiary for the purchase of accounts receivable.
"Accreted Value" means
(i) with respect to the New 13% Debentures, the sum of
(a) the stated principal amount of each New 13% Debenture at the
Original Issue Date plus
(b) the interest accrued (and deferred) at a rate of 13% per annum on
such principal amount through June 15, 2004, compounded
semi-annually on each June 15 and December 15, from the date of
issuance of the New 13% Debentures through the date of determination
and
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(ii) with respect to the SFAC 13% Debentures, "Accreted Value" as defined in
the SFAC indenture
"Acquired Debt" means, with respect to any specified person, Indebtedness
of any other person existing at the time such other person merged with or into
or became a Subsidiary of such specified person, including Indebtedness incurred
in connection with, or in contemplation of, such other person merging with or
into or becoming a Subsidiary of such specified person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that
(i) beneficial ownership of 20% or more of the voting securities of a person
shall be deemed to be control,
(ii) no lender party to the Term Loan Agreement or the Revolving Credit
Agreement (or any of its affiliates) shall be deemed to be an Affiliate of
SFAC New Holdings or any of its Subsidiaries solely by virtue of being
party to the Term Loan Agreement or the Revolving Credit Agreement and
(iii) an officer of a person shall not be deemed an Affiliate of such person
unless such officer directly or indirectly controls such person.
"Business Day" means each day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the liability in respect of a capital lease that would at such time
be required to be capitalized on the balance sheet in accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, partnership interests.
"Cash Equivalents" means
(i) cash,
(ii) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition,
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(iii) certificates of deposit and Eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each
case, with any lender party to the Term Loan Agreement or the Revolving
Credit Agreement or with any domestic commercial bank having capital and
surplus in excess of $500,000,000,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii)
entered into with any financial institution meeting the qualifications
specified in clause (iii) above and
(v) commercial paper issued by any lender party to the Term Loan Agreement or
the Revolving Credit Agreement (or the parent company of any such lender)
and commercial paper rated A-1 or the equivalent thereof by Moody's
Investors Service, Inc. and in each case maturing within six months after
the date of acquisition.
"Certificate of Incorporation means the certificate of incorporation of
SFAC New Holdings as filed with the Secretary of State of the State of Delaware.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of such person for such period plus
(a) an amount equal to any extraordinary loss plus any net loss realized in
connection with an Assets Sale (to the extent such losses were deducted in
computing Consolidated Net Income), plus
(b) provision for taxes based on income or profits to the extent such
provision for taxes was included in computing Consolidated Net Income,
plus
(c) consolidated interest expense of such person for such period, whether paid
or accrued (including amortization of original issue discount, non-cash
interest payments and the interest component of any payments associated
with Capital Lease Obligations), to the extent such expense was deducted
in computing Consolidated Net Income, plus
(d) all depreciation, amortization (including amortization of goodwill and
other intangibles) and other non-cash charges (excluding any non-cash
charge constituting an extraordinary item of loss or expense and any
non-cash charge that requires an accrual of or a reserve for cash charges
for any future period) of such person for such period to the extent such
depreciation, amortization and other non-cash charges were deducted in
computing Consolidated Net Income, plus
(e) one-third of all operating lease payments of such person paid or accrued
during such period, in each case, on a consolidated basis and determined
in accordance with GAAP, plus
(f) without duplication, the amount of Accounts Receivable Discount
attributable to sales of accounts receivable by such person and its
Subsidiaries to the Accounts Receivable
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Subsidiary during such period to the extent such Account Receivable
Discount was deducted in computing Consolidated Net Income for such
period.
"Consolidated Net Income" means, with respect to any person for any
period, the aggregate of the Net Income of such person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, that
(i) the Net Income of any person (other than the Accounts Receivable
Subsidiary) that is not a Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid to the referent person or a
Wholly Owned Subsidiary of the referent person,
(ii) the Net Income of any Subsidiary of the referent person (or the Accounts
Receivable Subsidiary) shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (which has not been
obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Subsidiary (or the
Accounts Receivable Subsidiary) or its stockholders,
(iii) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and
(iv) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any person, the sum of
(i) the consolidated equity of the common stockholders of such person and its
consolidated Subsidiaries plus
(ii) the respective amounts reported on such person's most recent balance sheet
with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends
unless such dividends may be declared and paid only out of net earnings in
respect of the year of such declaration and payment, but only to the
extent of any cash received by such person upon issuance of such preferred
stock, less
(x) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such
business) subsequent to the date of the indenture in the book value
of any asset owned by such person or a consolidated Subsidiary of
such person,
(y) all investments in unconsolidated Subsidiaries and in persons that
are not Subsidiaries (except, in each case, Permitted Investments),
and
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(z) all unamortized debt discount and expense and unamortized deferred
charges, all of the foregoing determined in accordance with GAAP.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means, with respect to the New 13% Debentures, any
Capital Stock which, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date on which the New 13% Debentures
mature.
"85% Owned Subsidiary" of a person means any Subsidiary of such person at
least 85% of the outstanding Capital Stock (other than, in the case of SFC New
Holdings, Permitted Preferred Stock) or other ownership interests (including at
least 51% of the outstanding voting Capital Stock or other voting ownership
interests) of which are owned directly or indirectly by such person.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of SFAC New Holdings and its
Subsidiaries (other than under the Term Loan Agreement, the Revolving Credit
Agreement and the Note Indentures) in existence on the date of the indenture,
until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of such person for such period
to the Fixed Charges of such person for such period. In the event that SFAC New
Holdings or any of its Subsidiaries incurs or redeems any Indebtedness (other
than revolving credit borrowings) or issues or redeems preferred stock or
consummates an Asset Sale or any Material Acquisition subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the event for which the calculation of the Fixed Charge
Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated giving
pro forma effect to such incurrence, guarantee or redemption of Indebtedness, or
such issuance or redemption of preferred stock, or the consummation of such
Asset Sale or such Material Acquisition, as if the same had occurred at the
beginning of the applicable period. For purposes of calculating the Fixed Charge
Coverage Ratio of SFAC New Holdings for any period commencing prior to the date
of the Transaction, pro forma effect shall be given to the Transaction and the
financing thereof as if the same had occurred at the beginning of such period.
"Fixed Charges" means, with respect to any person for any period, the sum
of
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(a) consolidated interest expense of such person for such period, whether paid
or accrued, to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue
discount, non-cash interest payments and the interest component of any
payments associated with Capital Lease Obligations but excluding
amortization of deferred financing fees), excluding, in the case of SFAC
New Holdings, the interest expense of the Accounts Receivable Subsidiary
with respect to Non-Recourse Indebtedness, plus
(b) the interest expense of any other person for such period with respect to
Indebtedness that is guaranteed by the referent person, plus
(c) the product of
(i) all cash dividend payments (and non-cash dividend payments in the
case of a person that is a Subsidiary) on any series of preferred
stock of such person, times
(ii) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of such person, expressed as a decimal,
plus
(d) one-third of all operating lease payments of such person paid or accrued
during such period, in each case, on a consolidated basis and in
accordance with GAAP, plus
(e) the amount of Accounts Receivable Discount attributable to sales of
accounts receivable by such person and its Subsidiaries to the Accounts
Receivable Subsidiary during such period.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the date of the indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Hedging Obligations" means, with respect to any person, the obligations
of such person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any person, the principal amount of
any indebtedness of such person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
representing Capital Lease Obligations or
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the balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases) or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
person prepared in accordance with GAAP, and also includes, to the extent not
otherwise included, the guarantee of items that would be included within this
definition.
"Investments" means, with respect to any person, all investments by such
person in other persons (including Affiliates) in the forms of loans (including
guarantees), advances or capital contributions (excluding commission, travel,
relocation and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in New York City or at a place of payment are authorized by law or
executive order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financial statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Marketable Securities" means, in connection with any Asset Sale, any
readily marketable equity or debt securities that are received by SFAC New
Holdings or any Subsidiary of SFAC New Holdings as consideration for such Asset
Sale and are
(a) traded on the New York Stock Exchange, the American Stock Exchange
or the National Association of Securities Dealers Automated
Quotation National Market System and
(b) issued by a corporation that has outstanding one or more issues of
debt or preferred stock securities that are rated investment grade
by Moody's Investor Services, Inc. or Standard & Poor's Corporation;
provided, that in no event shall the excess of aggregate amount of securities of
any one such corporation held immediately following the consummation of any
Asset Sale by SFAC New Holdings and its Subsidiaries over 10 times the average
daily trading volume of such securities during the 20 trading days immediately
preceding the consummation of such Asset Sale be deemed Marketable Securities.
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"Material Acquisition" means any material acquisition of a business,
Capital Stock, property or assets or any other material transaction as a result
of which a person becomes a Subsidiary of SFAC New Holdings. For purposes of
this definition, an acquisition or other transaction shall be deemed "material"
if it has an aggregate value of $5 million or more.
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by SFAC New
Holdings or any of its Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets.
"Non-Recourse Indebtedness" of any person means Indebtedness of such
person that
(i) is not guaranteed by any other person (except a Wholly Owned
Subsidiary of the referent person),
(ii) is not recourse to and does not obligate any other person (except a
Wholly Owned Subsidiary of the referent person) in any way,
(iii) does not subject any property or assets of any other person (except
a Wholly Owned Subsidiary of the referent person), directly or
indirectly, contingently or otherwise, to the satisfaction thereof
and
(iv) is not required by GAAP to be reflected on the financial statements
of any other person (other than a Subsidiary of the referent person)
prepared in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Original Issue Date" means June 11, 1999.
"Permitted Investments" means
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(a) any Investments in SFAC New Holdings or in an 85% Owned Subsidiary
of SFAC New Holdings that is engaged in the same or a similar or
related line of business as SFAC New Holdings or any of its
Subsidiaries were engaged in on the date of the indenture;
(b) any Investments in Cash Equivalents;
(c) Investments by SFAC New Holdings or any Subsidiary of SFAC New
Holdings in a person that is engaged in the same or a similar or
related line of business as SFAC New Holdings or any of its
Subsidiaries were engaged in on the date of the indenture, if as a
result of such Investment
(i) such person becomes an 85% Owned Subsidiary of SFAC New
Holdings or
(ii) such person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, SFAC New Holdings or an 85% Owned
Subsidiary of SFAC New Holdings;
(d) Investments in the Accounts Receivable Subsidiary permitted by the
"Accounts Receivable Subsidiary" covenant;
(e) Investments in agricultural commodities futures, options and other
hedging obligations in the ordinary course of business; and
(f) Investments (in addition to Investments permitted by the foregoing
clauses (a) through (e)) that, in the aggregate, do not exceed $25
million at any one time outstanding.
"Permitted Liens" means
(a) Liens securing Indebtedness of Subsidiaries of SFAC New Holdings
permitted under the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant;
(b) Liens in favor of SFAC New Holdings and its Wholly Owned
Subsidiaries;
(c) Liens on property of a person existing at the time such person is
merged into or consolidated with SFAC New Holdings or any Subsidiary
of SFAC New Holdings; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation;
(d) Liens on property existing at the time of acquisition thereof by
SFAC New Holdings or any Subsidiary of SFAC New Holdings; provided,
that such Liens were in existence prior to the contemplation of such
acquisition;
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(e) Liens existing on the date of the indenture and renewals, extensions
and replacements thereof; provided, that such renewals, extensions
or replacements shall not apply to any property or assets not
previously subject to such Liens or increase the principal amount of
Obligations secured thereby;
(f) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently pursued;
provided, that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor;
(g) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlords' or other like Liens arising in the ordinary course of
business;
(h) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements;
(i) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business;
(j) easements, rights-of-way, encroachments and other survey defects,
restrictions and other similar encumbrances and title defects which,
in the aggregate, do not in any case materially detract from the
value of the property subject thereto or materially interfere with
the ordinary conduct of the business of SFAC New Holdings and its
Subsidiaries;
(k) any Lien arising pursuant to any order of attachment, distraint or
other legal process arising in connection with court or arbitration
proceedings so long as the execution or other enforcement thereof is
effectively stayed, the claims secured thereby are being contested
in good faith by appropriate proceedings, adequate reserves have
been established with respect to such claims in accordance with GAAP
and no Default or Event of Default would result thereby;
(l) licenses for the use of intellectual property rights or like
intangible assets; and
(m) Liens incurred in the ordinary course of business of SFAC New
Holdings or any Subsidiary of SFAC New Holdings with respect to
obligations that do not exceed $5 million at any one time
outstanding and that are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other
than trade credit).
"Permitted Preferred Stock" means preferred stock of SFC New Holdings that
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(i) ranks senior to the Common Stock of SFC New Holdings in respect of
dividends and distributions in a liquidation of SFC New Holdings;
(ii) does not mature or is not mandatorily redeemable, pursuant to a
sinking fund or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, prior to June 15, 2010;
(iii) provides that dividends may be paid, at the option of SFC New
Holdings, by the issuance of additional shares of Permitted
Preferred Stock, or if permitted under the terms of SFC New
Holdings' outstanding indebtedness, in cash after June 15, 2005; and
(iv) is issued by SFC New Holdings in compliance with the provisions of
the indenture described under "Rights Offering."
"Receivables Trust" means a trust organized solely for the purpose of
securitizing the accounts receivable held by the Accounts Receivable Subsidiary
that
(a) shall not engage in any business other than
(i) the purchase of accounts receivable or participation interests
therein from the Accounts Receivable Subsidiary and the
servicing thereof,
(ii) the issuance of and distribution of payments with respect to
the securities permitted to be issued under clause (b) below
and
(iii) other activities incidental to the foregoing,
(b) shall not at any time incur Indebtedness or issue any securities,
except
(i) certificates representing undivided interests in the Trust
issued to the Accounts Receivable Subsidiary and
(ii) debt securities issued in an arm's length transaction for
consideration solely in the form of cash and Cash Equivalents,
all of which (net of any issuance fees and expenses) shall
promptly be paid to the Accounts Receivable Subsidiary, and
(c) shall distribute to the Accounts Receivable Subsidiary as a
distribution on the Accounts Receivable Subsidiary's beneficial
interest in the Receivables Trust no less frequently than once every
six months all available cash and Cash Equivalents held by it, to
the extent not required for reasonable operating expenses or
reserves therefor or to service any securities issued pursuant to
clause (b) above that are not held by the Accounts Receivable
Subsidiary.
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of the date of the indenture, by and among SFAC New Holdings
and the holders of
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the New 13% Debentures, as such agreement may be amended, modified or
supplemented from time to time.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Revolving Credit Agreement" means that certain Revolving Credit
Agreement, dated as of March 16, 1998 by and among certain Subsidiaries of
Specialty Foods and the lenders party thereto, providing for up to $125 million
in aggregate principal amount of revolving loans and letters of credit, together
with any replacement or additional loan agreement or agreements, and including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, supplemented,
extended, modified, renewed, refunded, replaced or refinanced from time to time,
whether or not with the same lenders.
"Senior Revolving Debt" means all Obligations from time to time
outstanding under the Revolving Credit Agreement.
"Senior Term Debt" means all Obligations from time to time outstanding
under the Term Loan Agreement.
"SFAC indenture" means the indenture dated as of August 16, 1993, by and
between Specialty Foods Acquisition Corporation and United States Trust Company
of New York, as trustee, pursuant to which Specialty Foods Acquisition
Corporation issued its 13% Secured Discount Debentures due 2005.
"SFC New Holdings" means SFC New Holdings, Inc., a Delaware corporation
and its subsidiaries.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulations S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" of any person means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such person or one or more of
the other Subsidiaries of that person or a combination thereof; provided,
however, that the Accounts Receivable Subsidiary and its Subsidiaries shall not
be deemed Subsidiaries of SFAC New Holdings or of any of its Subsidiaries.
"Tax Sharing Agreement" means the Tax Sharing Agreement, as amended, dated
as of August 16, 1993, between Specialty Foods Acquisition Corporation and
Specialty Foods, as amended to include SFAC New Holdings and SFC New Holdings as
of the date of the indenture.
"Term Loan Agreement" means that certain Term Loan Agreement, dated as of
August 16, 1993, by and among Specialty Foods and the lenders party thereto
providing for up to
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$315 million in aggregate principal amount of term loans, together with any
replacement or additional credit agreement or agreements, and including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, supplemented,
extended, modified, renewed, refunded, replaced or refinanced from time to time,
whether or not with the same lenders.
"Weighted Average Life of Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing
(a) the then outstanding principal amount of such Indebtedness into
(b) the sum of the products obtained by multiplying
(x) the amount of each then remaining installment, sinking fund,
serial maturity or other scheduled required payments of
principal, including payment at final maturity, in respect
thereof, by
(y) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such
payment.
"Wholly Owned Subsidiary" of any person means a Subsidiary of such person
all of the outstanding Capital Stock (other than, in the case of SFC New
Holdings, Permitted Preferred Stock) or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
person or by one or more Wholly Owned Subsidiaries of such person or by such
person and one or more Wholly Owned Subsidiaries of such person.
Global Securities
Each New 13% Debenture to be issued to a holder exchanging an Old 13%
Debenture held through a global security will be issued in the form of one or
more global securities that will be deposited with, or on behalf of, DTC, which
we refer to as the "Depository." Unless and until it is exchanged in whole or in
part for New 13% Debentures of that series in definitive form, a global security
may not be transferred except as a whole to a nominee of the Depository for such
global security, or by a nominee of the Depository to the Depository or another
nominee of the Depository, or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
Physical Securities
If a holder of Old 13% Debentures holds such security in certificated
form, New 13% Debentures issued to such holder will be in physical form.
Following initial issuance, New 13% Debentures in physical form will be issued
to a holder of New 13% Debentures upon request to SFAC New Holdings and the
applicable trustee subject to compliance with the procedures therefor of the
Depository. If the Depository is at any time unwilling or unable to continue as
a depository for the global securities and a successor depository is not
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appointed by SFAC New Holdings within 90 days, SFAC New Holdings will issue
certificated New 13% Debentures in exchange for the global securities.
Book-Entry System
Each global security will be registered in the name of Cede & Co., the
nominee of the Depository. Accordingly, beneficial interests in the global
securities will be shown on, and transfer thereof will be effected only through,
records maintained by the Depository and its participants.
The Depository has advised SFAC New Holdings as follows: the Depository is
a limited purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the United States Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository holds securities that its participants ("Direct Participants")
deposit with the Depository. The Depository also facilitates the settlement
among Direct Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in such Direct Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations. The Depository is owned by a number of its
Direct Participants and by the NYSE, the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the Depository's
book-entry system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depository and its Direct and
Indirect Participants are on file with the SEC.
The Depository advises that its established procedures provide that (i)
upon issuance of the global securities by SFAC New Holdings, the Depository will
credit the accounts of Direct Participants designated by SFAC New Holdings with
the principal amounts of the New 13% Debentures issued pursuant to the exchange
offers and (ii) ownership of interests in the global securities will be shown
on, and the transfer of the ownership will be effected only through, records
maintained by the Depository, the Direct Participants and the Indirect
Participants.
So long as a nominee of the Depository is the registered owner of the
global securities, such nominee for all purposes will be considered the sole
owner or holder of such global securities under the indenture.
Neither SFAC New Holdings, the trustee, any paying agent nor the registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Securities, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
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Principal and interest payments on the New 13% Debentures registered in
the name of the Depository's nominee will be made in immediately available funds
to the Depository's nominee as the registered owner of the global securities.
Under the terms of the New 13% Debentures, SFAC New Holdings and the trustee
will treat the persons in whose names the New 13% Debentures are registered as
the owners of such New 13% Debentures for the purpose of receiving payment of
principal and interest on such New 13% Debentures and for all other purposes
whatsoever. Therefore, neither SFAC New Holdings, the trustee nor any paying
agent has any direct responsibility or liability for the payment of principal or
interest on the New 13% Debentures to owners of beneficial interests in the
global securities. The Depository has advised SFAC New Holdings and the trustee
that its current practice is, upon receipt of any payment of principal or
interest, to credit Direct Participants' accounts on the payment date in
accordance with their respective holdings of beneficial interests in the global
securities as shown on the Depository's records. Payments by Direct and Indirect
Participants to owners of beneficial interests in the global securities will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Direct and Indirect
Participants and not of the Depository, the trustee, or SFAC New Holdings,
subject to any statutory requirements that may be in effect from time to time.
Payment of principal and interest to the Depository is the responsibility of
SFAC New Holdings or the trustee; disbursement of such payments to the owners of
beneficial interests in the global securities shall be the responsibility of the
Depository and Direct and Indirect Participants.
So long as the Depository continues to make its Same-Day Funds Settlement
System available to SFAC New Holdings, all payments of principal and interest on
the global securities will be made by SFAC New Holdings in immediately available
funds.
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DESCRIPTION OF THE OLD 13% DEBENTURES
The Old 13% Debentures are comprised of: (1) the initial 13% Debentures
that we issued and sold in connection with the exchange offers that were
completed on June 11, 1999, and (2) the SFAC 13% Debentures that were the
subject of the June 11, 1999 private exchange transactions, but which did not
participate in those exchange offers. The form and terms of our initial 13%
Debentures are the same as the form and terms of the New 13% Debentures except
that (a) our initial 13% Debentures are not registered under the Securities Act
and bear legends restricting their transfer and (b) holders of our initial 13%
Debentures have certain rights under a registration rights agreement which will
terminate upon the consummation of these exchange offers. We refer you to the
sections of this prospectus entitled "Description of the New 13% Debentures" and
"The Exchange Offers--Termination of Certain Rights."
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DESCRIPTION OF THE SFAC 13% DEBENTURES
General
The following summary of certain provisions of the SFAC indenture does not
purport to be complete and is qualified in its entirety by reference to the SFAC
indenture, as amended by the first supplemental indenture dated as of June 8,
1999, including the definitions therein of certain terms used below. However,
the summary does summarize all material provisions of the SFAC indentures, as
amended. The definitions of certain terms used in the following summary are set
forth under "Certain Definitions."
Effective Subordination of the SFAC 13% Debentures
The SFAC 13% Debentures rank pari passu in right of payment with all
senior borrowings of Specialty Foods Acquisition Corporation and senior in right
of payment to all subordinated indebtedness of Specialty Foods Acquisition
Corporation In addition, the SFAC 13% Debentures are secured by a first priority
lien and security interest in all of the issued and outstanding Capital Stock
and intercompany notes, if any, owing to Specialty Foods Acquisition Corporation
of Specialty Foods. However, the operations of Specialty Foods Acquisition
Corporation are conducted through its Subsidiaries and, therefore, Specialty
Foods Acquisition Corporation is dependent upon the cash flow of its
Subsidiaries to meet its obligations, including its obligations under the SFAC
13% Debentures and the SFAC indenture. The SFAC 13% Debentures are effectively
subordinated to all indebtedness and other liabilities of Specialty Foods
Acquisition Corporation's Subsidiaries.
Principal, Maturity and Interest
The SFAC 13% Debentures are limited in aggregate principal amount to
$319,250,000 and mature on August 15, 2005. After August 15, 1999, interest will
accrue at the rate of 13% per annum and will be payable semi-annually in arrears
on February 15 and August 15 of each year, commencing on February 15, 2000, to
holders of record on the immediately preceding February 1 and August 1. Interest
on the SFAC 13% Debentures accrues from the most recent date to which interest
has been paid. Interest is computed on the basis of a 360-day year comprised of
twelve 30-day months. The SFAC 13% Debentures are payable as to principal,
interest and Additional Payments at the office or agency of Specialty Foods
Acquisition Corporation maintained for such purpose within the City and State of
New York or, at the option of Specialty Foods Acquisition Corporation, payment
of interest may be made by check mailed to the holders of the SFAC 13%
Debentures at their respective addresses set forth in the register of holders of
SFAC 13% Debentures. Until otherwise designated by Specialty Foods Acquisition
Corporation, Specialty Foods Acquisition Corporation's office or agency in New
York will be the office of the trustee maintained for such purpose. The SFAC 13%
Debentures are issued in registered form, without coupons, and in denominations
of $1,000 and integral multiples thereof.
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Optional Redemption
After August 15, 1999, the SFAC 13% Debentures will be subject to
redemption at the option of Specialty Foods Acquisition Corporation, in whole or
in part, upon not less than 30 nor more than 60 days' notice to the holders of
SFAC 13% Debentures, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on August 15 of the years indicated below:
Year Percentage
1999 .................................. 104.33%
2000 .................................. 102.889%
2001 .................................. 101.444%
2002 and thereafter ................... 100.000%
Redemption or Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of SFAC 13%
Debentures will have the right to require Specialty Foods Acquisition
Corporation to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's SFAC 13% Debentures pursuant to the offer
described below (the "Change of Control Offer") at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase (the "Change of Control Payment"). Within 60
days following any Change of Control, Specialty Foods Acquisition Corporation
will mail a notice to each holder stating:
(1) that the Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control" and that all SFAC 13%
Debentures tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be not later
than 30 Business Days from the date such notice is mailed (the
"Change of Control Payment Date");
(3) that any SFAC 13% Debenture not tendered will continue to accrete or
accrue interest;
(4) that, unless Specialty Foods Acquisition Corporation defaults in the
payment of the Change of Control Payment, all SFAC 13% Debentures
accepted for payment pursuant to the Change of Control Offer will
cease to accrete or accrue interest after the Change of Control
Payment Date;
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(5) that holders electing to have any SFAC 13% Debentures purchased
pursuant to a Change of Control Offer will be required to surrender
the SFAC 13% Debentures, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the SFAC 13% Debentures completed,
to the paying agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change
of Control Payment Date;
(6) that holders will be entitled to withdraw their election if the
paying agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of SFAC 13% Debentures
delivered for purchase, and a statement that such holder is
withdrawing his election to have the SFAC 13% Debentures purchased;
and
(7) that holders whose SFAC 13% Debentures are being purchased only in
part will be issued SFAC 13% Debentures equal in principal amount to
the unpurchased portion of the SFAC 13% Debentures surrendered,
which unpurchased portion must be equal to $1,000 in principal
amount or an integral portion thereof. Specialty Foods Acquisition
Corporation will comply with the requirements of Rule 14e-1 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with
the repurchase of SFAC 13% Debentures in connection with a Change of
Control.
On the Change of Control Payment Date, Specialty Foods Acquisition
Corporation will, to the extent lawful, (1) accept for payment SFAC 13%
Debentures or portions thereof tendered pursuant to the Change of Control Offer,
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all SFAC 13% Debentures or portions thereof so tendered
and (3) deliver or cause to be delivered to the trustee the SFAC 13% Debentures
so accepted together with an Officers' Certificate stating the SFAC 13%
Debentures or portions thereof tendered to Specialty Foods Acquisition
Corporation. The paying agent will promptly mail to each holder of SFAC 13%
Debentures so accepted payment in an amount equal to the purchase price for the
SFAC 13% Debentures, and the trustee shall promptly authenticate and mail to
each holder a SFAC 13% Debenture equal in principal amount to any unpurchased
portion of the SFAC 13% Debentures surrendered by such holder, if any; provided
that each such SFAC 13% Debenture will be in a principal amount of $1,000 or an
integral multiple thereof. Specialty Foods Acquisition Corporation will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Selection and Notice
If less than all of the SFAC 13% Debentures are to be redeemed at any
time, selection of SFAC 13% Debentures for redemption will be made by the
trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the SFAC 13%
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Debentures are listed, or, if the SFAC 13% Debentures are not so listed, on a
pro rata basis, by lot or by such method as the trustee shall deem fair and
appropriate; provided that no SFAC 13% Debenture of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
SFAC 13% Debentures to be redeemed at its registered address. If any SFAC 13%
Debenture is to be redeemed in part only, the notice of redemption that relates
to such SFAC 13% Debenture shall state the portion of the principal amount
thereof to be redeemed. A SFAC 13% Debenture in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original SFAC 13% Debenture. On and after the redemption
date, the SFAC 13% Debentures or portions of them called for redemption will
cease to accrete or accrue interest.
Security
The SFAC 13% Debentures are secured by a pledge of all of the issued and
outstanding Capital Stock and intercompany notes owing to Specialty Foods
Acquisition Corporation (if any) of Specialty Foods.
Specialty Foods Acquisition Corporation has entered into a pledge
agreement (the "Pledge Agreement") providing for the pledge by Specialty Foods
Acquisition Corporation to United States Trust Company of New York, as
collateral agent (in such capacity, the "Collateral Agent"), for the benefit of
the Holders of the SFAC 13% Debentures, of all of the issued and outstanding
Capital Stock of Specialty Foods and all notes representing intercompany
indebtedness owing by Specialty Foods to Specialty Foods Acquisition Corporation
that may from time to time be outstanding (collectively, the "Collateral"). Such
pledge secures the payment and performance when due of all of the Obligations of
Specialty Foods Acquisition Corporation under the SFAC indenture and the SFAC
13% Debentures as provided in the Pledge Agreement.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the SFAC indenture and the Pledge
Agreement, Specialty Foods Acquisition Corporation will be entitled to receive
all cash dividends, interest and other payments made upon or with respect to the
Collateral pledged by them and to exercise any voting and other consensual
rights pertaining to the Collateral. Upon the occurrence and during the
continuance of an Event of Default, (a) all rights of Specialty Foods
Acquisition Corporation to exercise such voting and other consensual rights
shall cease, and all such rights shall become vested in the Collateral Agent,
which to the extent permitted by law, shall have the sole right to exercise such
voting and other consensual rights, (b) all rights of Holding to receive all
cash dividends, interest and other payments shall upon or with respect to the
Collateral shall cease and such cash dividends, interest and other payments
shall be paid to the Collateral Agent and (c) the Collateral Agent may sell the
Collateral or any part thereof in accordance with the terms of the Pledge
Agreement. All funds distributed under the Pledge Agreement and received by the
Collateral Agent for the benefit of the holders of the SFAC 13% Debenture shall
be distributed by the Collateral Agent in accordance with the provisions of the
SFAC indenture.
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Under the terms of the Pledged Agreement, upon an Event of Default, the
Collateral Agent will determine the circumstances and manner in which the
Collateral shall be disposed of, including, but not limited but not limited to,
the determination of whether to sell all or part of the Collateral. Moreover,
upon the full and final payment and performance of all obligations of Specialty
Foods Acquisition Corporation under the SFAC indenture and the SFAC 13%
Debentures, the Pledge Agreement will terminate and the pledged collateral will
be released.
Events of Default and Remedies
The SFAC indenture, provides that each of the following constitutes an
Event of Default:
(i) default for 30 days in the payment when due of interest on the SFAC
13% Debentures;
(ii) default in payment when due, of principal of, or premium, if any, on
the SFAC 13% Debentures when the same becomes due and payable at
maturity, upon redemption (including in connection with an offer to
purchase) or otherwise;
(iii) failure by Specialty Foods Acquisition Corporation for 60 days after
notice to Specialty Foods Acquisition Corporation by the trustee or
the holders of at least 25% in principal amount of the SFAC 13%
Debentures then outstanding to comply with any other agreements in
the SFAC indenture or the SFAC 13% Debentures;
(iv) certain events of bankruptcy or insolvency with respect to Specialty
Foods Acquisition Corporation, any of its Significant Subsidiaries
or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary; and
(v) Specialty Foods Acquisition Corporation breaches certain covenants
in the Pledge Agreement or the Pledge Agreement is held in any
judicial proceeding to be unenforceable or invalid or ceases for any
reason to be in full force and effect.
If any Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal annum of the then outstanding SFAC 13%
Debentures may declare all the SFAC 13% Debentures to be due and payable
immediately. Upon such declaration, the Accreted Value of (if prior to August
15, 1999) or the principal of and accrued interest on (if on or after August 15,
1999) all SFAC 13% Debentures shall be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to Specialty Foods
Acquisition Corporation, any Significant Subsidiary or any group of Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary all
outstanding SFAC 13% Debenture will become due and payable without further
action or notice. Holders of the SFAC 13% Debentures may
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not enforce the SFAC indenture or the SFAC 13% Debentures except as provided in
the SFAC indenture. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding SFAC 13% Debentures may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of the SFAC 13% Debentures notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of an Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of Specialty Foods
Acquisition Corporation with the intention of avoiding payment of the premium,
if any, that Specialty Foods Acquisition Corporation would have had to pay if
Specialty Foods Acquisition Corporation then had elected to redeem the SFAC 13%
Debentures pursuant to the optional redemption provisions of the SFAC indenture,
an equivalent premium shall also become and be immediately due and payable to
the extent permitted by law. If an Event of Default occurs prior to August 15,
1999 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of Specialty Foods Acquisition Corporation with the intention of avoiding
the prohibition on redemption of the SFAC 13% Debentures prior to such date,
then the premium specified in the SFAC indenture shall also become immediately
due and payable to the extent permitted by law.
The holders of not less than a majority in aggregate principal amount of
the SFAC 13% Debentures then outstanding by notice to trustee may on behalf of
the holders of all of the SFAC 13% Debentures waive any existing Default or
Event of Default and its consequences under the SFAC indenture including
annulling a declaration of acceleration of maturity) except a continuing Default
or Event of Default in the payment of interest on, or the principal of, the SFAC
13% Debentures.
Specialty Foods Acquisition Corporation is required to deliver to the
trustee annually a statement regarding Compliance with the SFAC indenture, and
Specialty Foods Acquisition Corporation is required upon becoming aware of any
Default or Event of Default, to deliver to the trustee a statement specifying
such Default or Event of Default.
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No Personal Liability of Directors, Officers, Employees and Stockholders
No post, present or future director, officer, employee, incorporator or
stockholder of Specialty Foods Acquisition Corporation, as such, shall have any
liability for any obligations of Specialty Foods Acquisition Corporation under
the SFAC 13% Debentures or the SFAC indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder of
SFAC 13% Debentures by accepting a SFAC 13% Debenture waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the SFAC 13% Debentures. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver be against public policy.
Legal Defeasance and Covenant Defeasance
Specialty Foods Acquisition Corporation may, at its option and at any time
elect to have its obligations discharged with respect to the outstanding SFAC
13% Debentures ("Legal Defeasance"). Legal defeasance means that Specialty Foods
Acquisition Corporation will be deemed to have paid and discharged the entire
indebtedness represented by the outstanding SFAC 13% Debentures, except for
(i) the rights of holders of the SFAC 13% Debentures to receive
payments, solely from the trust fund described below, in respect of
the principal of, premium, if any, and interest on the SFAC 13%
Debentures when such payments are due,
(ii) Specialty Foods Acquisition Corporation's obligations with respect
to the SFAC 13% Debentures concerning issuing temporary SFAC 13%
Debentures, registration of SFAC 13% Debentures, mutilated,
destroyed, lost or stolen SFAC 13% Debentures and the maintenance of
an office or agency for payment in money for security payments held
in trust,
(iii) the rights, powers, trust, and duties and immunities of the trustee,
and Specialty Foods Acquisition Corporation's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the
SFAC indenture.
In addition, Specialty Foods Acquisition Corporation may, at its option and at
any time, elect to have the obligations of Specialty Foods Acquisition
Corporation released with respect to certain covenants that are described in the
SFAC indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the SFAC 13% Debentures. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the SFAC 13%
Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance,
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(i) Specialty Foods Acquisition Corporation must irrevocably deposit
with the trustee or paying agent, in trust, for the benefit of the
holders of the SFAC 13% Debentures, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the SFAC 13%
Debentures on the stated maturity or on the applicable redemption
date, as the case may be, of such principal or installment of
principal of, premium, if any, or interest on such outstanding SFAC
13% Debentures;
(ii) in the case of Legal Defeasance, Specialty Foods Acquisition
Corporation will have delivered to the trustee an opinion of counsel
in the United States reasonably accepted to the trustee confirming
that (A) Specialty Foods Acquisition Corporation has received from,
or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the SFAC indenture, there has been a
change in the applicable federal income tax law, in either case, to
the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of such outstanding SFAC 13% Debenture
will not recognize income, gain or loss for federal Income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance
had not occurred;
(iii) in the case of Covenant Defeasance, Specialty Foods Acquisition
Corporation shall have delivered to the trustee an opinion of
counsel in the United States reasonably acceptable to the trustee
confirming that the holders of such outstanding SFAC 13% Debentures
will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any of the
indentures, the Term Loan Agreement, the Revolving Credit Agreement
or any other material agreement or instrument to which Specialty
Foods Acquisition Corporation is a party or by which Specialty Foods
Acquisition Corporation is bound;
(vi) Specialty Foods Acquisition Corporation shall have delivered to the
trustee on opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the
affect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
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(vii) Specialty Foods Acquisition Corporation shall have delivered to the
trustee an Officers' Certificate stating that the deposit was not
made by Specialty Foods Acquisition Corporation with the intent of
preferring the holders of the SFAC 13% Debentures over the other
creditors of Specialty Foods Acquisition Corporation or with the
intent of defeating, hindering, delaying or defrauding creditors of
Specialty Foods Acquisition Corporation or others; and
(viii) Specialty Foods Acquisition Corporation shall be delivered to the
trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
Transfer and Exchange
A holder may transfer or exchange SFAC 13% Debentures in accordance with
the SFAC indenture. The Registrar and the trustee may require a holder, among
other things, to furnish appropriate endorsements and transfer documents and
Specialty Foods Acquisition Corporation may require a holder to pay any taxes
and fees required by law or permitted by the SFAC indenture. Specialty Foods
Acquisition Corporation is not required to transfer or exchange any SFAC 13%
Debenture selected for redemption. Also, Specialty Foods Acquisition Corporation
is not required to transfer or exchange any SFAC 13% Debenture for a period of
15 days before a selection of the SFAC 13% Debentures to be redeemed.
The registered holder of a SFAC 13% Debenture will be treated as the owner
of it for all purposes.
Amendment, Supplement and Waiver
Except as provided In the next succeeding paragraphs, the SFAC indenture
and the SFAC 13% Debentures may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the SFAC 13%
Debentures then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the SFAC 13% Debentures), and any existing
default or compliance with any provision of the SFAC indenture or the SFAC 13%
Debentures may be waived with the consent of the holders of a majority in
principal amount of the then outstanding SFAC 13% Debentures (including consents
obtained in connection with a tender offer or exchange offer for the SFAC 13%
Debentures).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any SFAC 13% Debenture held by a non-consenting holder of
SFAC 13% Debentures)
(i) reduce the principal amount of SFAC 13% Debentures whose holders
must consent to an amendment, supplement or waiver,
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(ii) reduce the principal of or change the fixed maturity of any SFAC 13%
Debenture or alter the provisions with respect to the redemption of
the SFAC 13% Debentures,
(iii) reduce the rate of or change the time for payment of interest on any
SFAC 13% Debenture,
(iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the SFAC 13% Debentures (except a
rescission of acceleration of the SFAC 13% Debentures by the holders
of at least a majority in aggregate principal amount thereof and a
waiver of the payment default that resulted from such acceleration),
(v) make any SFAC 13% Debenture payable in money other than that stated
in the SFAC 13% Debentures,
(vi) make any change in the provisions of the SFAC indenture relating to
waivers of past Defaults or the rights of holders of SFAC 13%
Debentures to receive payments of principal of or interest on the
SFAC 13% Debentures,
(vii) waive a redemption payment with respect to any SFAC 13% Debenture or
(vii) make any change in the foregoing amendment and waiver provisions.
Without the consent of at least 75% in principal amount of the SFAC 13%
Debentures then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the SFAC 13% Debentures), no waiver or
amendment to the SFAC indenture may make any change in the provisions described
above under the caption "Change of Control" that adversely affects the rights of
any holder of SFAC 13% Debentures.
Notwithstanding the foregoing, without the consent of any holder of SFAC
13% Debentures, Specialty Foods Acquisition Corporation and the trustee may
amend or supplement the SFAC indenture, or the SFAC 13% Debentures to cure any
ambiguity, defect or inconsistency, to provide for uncertificated SFAC 13%
Debentures in addition to or in place of certificated SFAC 13% Debentures, to
provide for the assumption of Specialty Foods Acquisition Corporation's
obligations to holders of the SFAC 13% Debentures in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of the SFAC 13% Debentures or that does not adversely
affect the legal rights under the SFAC indenture of any such holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the SFAC indenture under the Trust indenture Act.
Concerning the Trustee
The indenture contains certain limitations on the rights of the trustee,
should the trustee become a creditor of Specialty Foods Acquisition Corporation,
to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The trustee is
permitted to engage in other transactions; however,
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if the trustee acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding SFAC
13% Debentures have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The SFAC indenture provides that in case an Event of Default
shall occur (which shall not be cured), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the SFAC indenture at
the request of any holder of SFAC 13% Debentures, unless such holder shall have
offered to the trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Certain Definitions
Set forth below are certain defined terms used in the SFAC indenture.
Reference is made to the SFAC indenture for a full disclosure of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.
"Accounts Receivable Agreements" means the Receivable Transfer and
Servicing Agreement, dated as of August 16, 1993, among the Account Receivable
Subsidiary, Specialty Foods, the Servicers and the Banks party thereto and
Chemical Bank, as agent for the Banks, the Receivable Sale Agreement, dated as
of August 16, 1993, among Specialty Foods, the Sellers party thereto and the
Accounts Receivable Subsidiary and any related instruments and agreements
executed in connection therewith.
"Accounts Receivable Discount" means, with respect to any account
receivable sold by Specialty Foods or any of its Subsidiaries to the Accounts
Receivable Subsidiary, (a) the difference between (i) the face amount of such
account receivable and (ii) the aggregate amount of consideration (after giving
effect to any subsequent adjustments thereto) received upon the sale of such
account receivable (with any Accounts Receivable Subsidiary Notes received in
consideration in such sale being valued at the principal amount thereof for this
purpose), less (b) the amount of such difference that is calculated on the basis
of, or with reference to, (i) the historical bad debt allowance or accounts
receivable write-offs of the seller of such account receivable, (ii) fees and
other operating expenses of the Accounts Receivable Subsidiary payable to
parties other than Specialty Foods Acquisition Corporation and its Subsidiaries
and acquirors of accounts receivable or participation interests therein (in
their capacity as acquirors) to the extent that such fees and expenses do not
exceed such amounts as would be obtained in an arm's-length transaction and
(iii) credits to the obligor of such account receivable applied to the face
amount of such account receivable in respect of discount expense (including
prompt payment and volume discounts), rebates, refunds, promotional allowances,
billing error expense and similar adjustments made by the Seller of such account
receivable so the face amount thereof.
"Accounts Receivable Subsidiary" means a newly created, wholly owned
subsidiary of Specialty Foods Acquisition Corporation designated as such by
Specialty Foods Acquisition Corporation, (a) that has total assets at the time
of such designation with a book value of
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$100,000 or less and (b) with which neither Specialty Foods Acquisition
Corporation nor any other Subsidiary of Specialty Foods Acquisition Corporation
has any obligation (i) to subscribe for additional shares of Capital Stock or
other equity interests therein (other than to finance the purchase of additional
accounts receivable of Specialty Foods and its Subsidiaries) or (ii) to maintain
or preserve such Accounts Receivable Subsidiary's financial condition or to
cause it to achieve certain levels of operating results.
"Accounts Receivable Subsidiary Notes" means the notes to be issued by the
Accounts Receivable Subsidiary for the purchase of accounts receivable.
"Accreted Value" means, as of any date of determination prior to August
15, 1999, the sum of (a) the initial offering price of each SFAC 13% Debenture
and (b) that portion of the excess of the principal amount of each SFAC 13%
Debenture over such initial offering price as shall have been accreted thereon
through such date, such amount to be so accreted on a daily basis at the rate of
13% per annum of the initial offering price of the SFAC 13% Debentures,
compounded semi-annually on each February 15 and August 15 from the date of
issuance of the SFAC 13% Debentures through the date of determination.
"Acquired Debt" means, with respect to any specified person, Indebtedness
of any other person existing at the time such other person merged with or into
or became a Subsidiary of such specified person, including Indebtedness incurred
in connection with, or in contemplation of, such other person merging with or
into or becoming a Subsidiary of such specified person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that (i) beneficial ownership of 20% or more of the voting securities of a
person shall be deemed to be control, (ii) no lender party to the Term Loan
Agreement or the Revolving Credit Agreement (or any of its affiliates) shall be
deemed to be an Affiliate of Specialty Foods Acquisition Corporation or any of
its Subsidiaries solely by virtue of being party to the Term Loan Agreement or
the Revolving Credit Agreement and (iii) an officer of a person shall not be
deemed an Affiliate of such person unless such officer directly or indirectly
controls such person.
"Business Day" means each day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the liability in respect of a capital lease that would at such time
be required to be capitalized on the balance sheet in accordance with GAAP.
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"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, partnership interests.
"Cash Equivalents" means
(i) cash,
(ii) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of
acquisition,
(iii) certificates of deposit and Eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight
bank deposits, in each case, with any lender party to the Term Loan
Agreement or the Revolving Credit Agreement or with any domestic
commercial bank having capital and surplus in excess of
$500,000,000,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and
(iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above and
(v) commercial paper issued by any lender party to the Term Loan
Agreement or the Revolving Credit Agreement (or the parent company
of any such lender) and commercial paper rated A-1 or the equivalent
thereof by Moody's Investors Service, Inc. and in each case maturing
within six months after the date of acquisition.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of Specialty Foods
Acquisition Corporation's assets to any person or group (as such
term is used in Section 13(d)(3) of the Exchange Act) (other than
the Principals or their Related Parties (as defined below)),
(ii) the adoption of a plan relating to the liquidation or dissolution of
Specialty Foods Acquisition Corporation,
(iii) the consummation of any transaction the result of which is that any
person or group (as defined above) (other than the Principals and
their Related Parties) owns, directly or indirectly, more of the
voting power of the voting stock of Specialty Foods Acquisition
Corporation than the Principals and their Related Parties,
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(iv) the first day on which a majority of the members of the Board of
Directors of Specialty Foods Acquisition Corporation are not
Continuing Directors and
(v) Specialty Foods Acquisition Corporation ceases to own 100% of the
outstanding Equity Interests of Specialty Foods. For the purposes of
the foregoing sentence, any shares of voting stock that are required
to be voted for a nominee of any Principal or Related Party pursuant
to a binding agreement between the holder thereof and such Principal
or Related Party shall be deemed to be held by such Principal or
Related Party, as the case may be, for purposes of determining the
percentage of voting power held by any person.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of such person for such period plus (a) an amount
equal to any extraordinary loss, plus (b) provision for taxes based on income or
profits to the extent such provision for taxes was included in computing
Consolidated Net Income, plus (c) consolidated interest expense of such person
for such period, whether paid or accrued (including amortization of original
issue discount, non-cash interest payments and the interest component of any
payments associated with Capital Lease Obligations), to the extent such expense
was deducted in computing Consolidated Net Income, plus (d) all depreciation,
amortization (including amortization of goodwill and other intangibles) and
other non-cash charges (excluding any non-cash charge constituting an
extraordinary item of loss or expense and any non-cash charge that requires an
accrual of or a reserve for cash charges for any future period) of such person
for such period to the extent such depreciation, amortization and other non-cash
charges were deducted in computing Consolidated Net Income, plus (e) one-third
of all operating lease payments of such person paid or accrued during such
period, in each case, on a consolidated basis and determined in accordance with
GAAP, plus (f) without duplication, the amount of Accounts Receivable Discount
attributable to sales of accounts receivable by such person and its Subsidiaries
to the Accounts Receivable Subsidiary during such period to the extent such
Account Receivable Discount was deducted in computing Consolidated Net Income
for such period.
"Consolidated Net Income" means, with respect to any person for any
period, the aggregate of the Net Income of such person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, that (i) the Net Income of any person (other than the Accounts
Receivable Subsidiary) that is not a Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid to the referent person or a Wholly Owned
Subsidiary of the referent person, (ii) the Net Income of any Subsidiary of the
referent person (or the Accounts Receivable Subsidiary) shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary (or the Accounts Receivable Subsidiary)
or its stockholders, (iii) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
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"Consolidated Net Worth" means, with respect to any person, the sum of (i)
the consolidated equity of the common stockholders of such person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
person's most recent balance sheet with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of any cash received by such person upon issuance of such preferred
stock, less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the date of the SFAC indenture in the book value of any asset
owned by such person or a consolidated Subsidiary of such person, (y) all
investments in unconsolidated Subsidiaries and in persons that are not
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges, all of
the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Specialty Foods Acquisition Corporation who (i) was
a member of such Board of Directors on the date of the SFAC indenture or (ii)
was nominated for election or elected to such Board of Directors with the
affirmative vote of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means, with respect to the SFAC 13% Debentures, any
Capital Stock which, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or its mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date on which the SFAC 13% Debentures
mature.
"85% Owned Subsidiary" of a person means any Subsidiary of such person at
least 85% of the outstanding Capital Stock or other ownership interests
(including at least 51% of the outstanding voting Capital Stock or other voting
ownership interests) of which are owned directly or indirectly by such person.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of Specialty Foods Acquisition
Corporation and its Subsidiaries (other than under the Term Loan Agreement, the
Revolving Credit Agreement and the Note indentures) in existence on the date of
the SFAC indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of such person for such period
to the Fixed Charges of
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such person for such period. In the event that Specialty Foods Acquisition
Corporation or any of its Subsidiaries incurs or redeems any Indebtedness (other
than revolving credit borrowings) or issues or redeems preferred stock or
consummates any Material Acquisition subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the event for which the calculation of the Fixed Charge Ratio is made, then
the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, or the consummation of such Material Acquisition,
as if the same had occurred at the beginning of the applicable period. For
purposes of calculating the Fixed Charge Coverage Ratio of Specialty Foods
Acquisition Corporation for any period commencing prior to the date of the
private exchange transactions we completed on June 11, 1999, pro forma effect
shall be given to the private exchange transactions we completed on June 11,
1999 and the financing thereof as if the same had occurred at the beginning of
such period.
"Fixed Charges" means, with respect to any person for any period, the sum
of
(a) consolidated interest expense of such person for such period, whether paid
or accrued, to the extent such expense was deducted in computing Consolidated
Net Income (including amortization of original issue discount, non-cash interest
payments and the interest component of any payments associated with Capital
Lease Obligations but excluding amortization of deferred financing fees),
excluding, in the case of Specialty Foods Acquisition Corporation, the interest
expense of the Accounts Receivable Subsidiary with respect to Non-Recourse
Indebtedness, plus
(b) the interest expense of any other person for such period with respect to
Indebtedness that is guaranteed by the referent person, plus
(c) the product of
(i) all cash dividend payments (and non-cash dividend payments in the case
of a person that is a Subsidiary) on any series of preferred stock of such
person, times
(ii) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such person, expressed as a decimal, plus
(d) one-third of all operating lease payments of such person paid or accrued
during such period, in each case, on a consolidated basis and in accordance with
GAAP, plus
(e) the amount of Accounts Receivable Discount attributable to sales of accounts
receivable by such person and its Subsidiaries to the Accounts Receivable
Subsidiary during such period.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards
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Board or in such other statements by such other entity as approved by a
significant segment of the accounting profession, which are in effect on the
date of the SFAC indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Hedging Obligations" means, with respect to any person, the obligations
of such person under
(i) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements and
(ii) other agreements or arrangements designed to protect such person against
fluctuations in interest rates.
"Indebtedness" means, with respect to any person, the principal amount of
any indebtedness of such person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property (including pursuant to capital leases) or
representing any Hedging Obligations, except any such balance that constitutes
an accrued expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such person prepared in accordance with
GAAP, and also includes, to the extent not otherwise included, the guarantee of
items that would be included within this definition.
"Investments" means, with respect to any person, all investments by such
person in other persons (including Affiliates) in the forms of loans (including
guarantees), advances or capital contributions (excluding commission, travel,
relocation and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in New York City or at a place of payment are authorized by law or
executive order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or
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give a security interest in and any filing of or agreement to give any financial
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Material Acquisition" means any material acquisition of a business,
Capital Stock, property or assets or any other material transaction as a result
of which a person becomes a Subsidiary of Specialty Foods Acquisition
Corporation. For purposes of this definition, an acquisition or other
transaction shall be deemed "material" if it has an aggregate value of $5
million or more.
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with any sale of assets (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Non-Recourse Indebtedness" of any person means Indebtedness of such
person that
(i) is not guaranteed by any other person (except a Wholly Owned
Subsidiary of the referent person),
(ii) is not recourse to and does not obligate any other person (except a
Wholly Owned Subsidiary of the referent person) in any way,
(iii) does not subject any property or assets of any other person (except
a Wholly Owned Subsidiary of the referent person), directly or
indirectly, contingently or otherwise, to the satisfaction thereof
and
(iv) is not required by GAAP to be reflected on the financial statements
of any other person (other than a Subsidiary of the referent person)
prepared in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Investments" means
(a) any Investments in Specialty Foods Acquisition Corporation or in an
85% Owned Subsidiary of Specialty Foods Acquisition Corporation that
is engaged in the same or a similar or related line of business as
Specialty Foods Acquisition Corporation or any of its Subsidiaries
were engaged in on the date of the SFAC indenture;
(b) any Investments in Cash Equivalents;
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(c) Investments by Specialty Foods Acquisition Corporation or any
Subsidiary of Specialty Foods Acquisition Corporation in a person
that is engaged in the same or a similar or related line of business
as Specialty Foods Acquisition Corporation or any of its
Subsidiaries were engaged in on the date of the SFAC indenture, if
as a result of such Investment (i) such person becomes an 85% Owned
Subsidiary of Specialty Foods Acquisition Corporation or (ii) such
person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Specialty Foods Acquisition Corporation or an 85%
Owned Subsidiary of Specialty Foods Acquisition Corporation;
(d) Investments in agricultural commodities futures, options and other
hedging obligations in the ordinary course of business; and
(e) Investments (in addition to Investments permitted by the foregoing
clauses (a) through (d)) that, in the aggregate, do not exceed $25
million at any one time outstanding.
"Permitted Liens" means
(a) Liens in favor of Specialty Foods Acquisition Corporation and its
Wholly Owned Subsidiaries;
(b) Liens on property of a person existing at the time such person is
merged into or consolidated with Specialty Foods Acquisition
Corporation or any Subsidiary of Specialty Foods Acquisition
Corporation; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation;
(c) Liens on property existing at the time of acquisition thereof by
Specialty Foods Acquisition Corporation or any Subsidiary of
Specialty Foods Acquisition Corporation; provided, that such Liens
were in existence prior to the contemplation of such acquisition;
(d) Liens existing on the date of the SFAC indenture and renewals,
extensions and replacements thereof; provided, that such renewals,
extensions or replacements shall not apply to any property or assets
not previously subject to such Liens or increase the principal
amount of Obligations secured thereby;
(e) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently pursued;
provided, that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made therefor;
(f) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlords' or other like Liens arising in the ordinary course of
business;
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(g) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and
deposits securing liability to insurance carriers under insurance or
self-insurance arrangements;
(h) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business;
(i) easements, rights-of-way, encroachments and other survey defects,
restrictions and other similar encumbrances and title defects which,
in the aggregate, do not in any case materially detract from the
value of the property subject thereto or materially interfere with
the ordinary conduct of the business of Specialty Foods Acquisition
Corporation and its Subsidiaries;
(j) any Lien arising pursuant to any order of attachment, distraint or
other legal process arising in connection with court or arbitration
proceedings so long as the execution or other enforcement thereof is
effectively stayed, the claims secured thereby are being contested
in good faith by appropriate proceedings, adequate reserves have
been established with respect to such claims in accordance with GAAP
and no Default or Event of Default would result thereby;
(k) licenses for the use of intellectual property rights or like
intangible assets; and
(l) Liens incurred in the ordinary course of business of Specialty Foods
Acquisition Corporation or any Subsidiary of Specialty Foods
Acquisition Corporation with respect to obligations that do not
exceed $5 million at any one time outstanding and that are not
incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit).
"Principals" means Haas Wheat & Partners Incorporated, Acadia Partners,
L.P. and Keystone, Inc.
"Receivables Trust" means a trust organized solely for the purpose of
securitizing the accounts receivable held by the Accounts Receivable Subsidiary
that
(a) shall not engage in any business other than (i) the purchase of
accounts receivable or participation interests therein from the
Accounts Receivable Subsidiary and the servicing thereof, (ii) the
issuance of and distribution of payments with respect to the
securities permitted to be issued under clause (b) below and (iii)
other activities incidental to the foregoing,
(b) shall not at any time incur Indebtedness or issue any securities,
except (i) certificates representing undivided interests in the
Trust issued to the Accounts Receivable Subsidiary and (ii) debt
securities issued in an arm's
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length transaction for consideration solely in the form of cash and
Cash Equivalents, all of which (net of any issuance fees and
expenses) shall promptly be paid to the Accounts Receivable
Subsidiary, and
(c) shall distribute to the Accounts Receivable Subsidiary as a
distribution on the Accounts Receivable Subsidiary's beneficial
interest in the Receivables Trust no less frequently than once every
six months all available cash and Cash Equivalents held by it, to
the extent not required for reasonable operating expenses or
reserves therefor or to service any securities issued pursuant to
clause (b) above that are not held by the Accounts Receivable
Subsidiary.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Revolving Credit Agreement" means that certain Revolving Credit
Agreement, dated as of August 16, 1993 by and among certain Subsidiaries of
Specialty Foods, the lenders party thereto and Chemical Bank, as administrative
agent, providing for up to $125 million in aggregate principal amount of
revolving loans and letters of credit, together with any replacement or
additional loan agreement or agreements, and including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, supplemented, extended,
modified, renewed, refunded, replaced or refinanced from time to time, whether
or not with the same lenders.
"Senior Revolving Debt" means all Obligations from time to time
outstanding under the Revolving Credit Agreement.
"Senior Term Debt" means all Obligations from time to time outstanding
under the Term Loan Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulations S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Specified Party" with respect to any Principal means (A) any controlling
stockholder or partner, a direct or indirect 80% (or more) owned Subsidiary, or
spouse or immediate family member (in the case of an individual) of such
Principal, (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding an
80% or more controlling interest of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (A) or the
succeeding clauses (D) or (E), (C) any partner or stockholder of any Principal
as of the date of the SFAC indenture who acquires any assets or voting stock of
Specialty Foods Acquisition Corporation pursuant to a general distribution by
such Principal to each of its partners or stockholders, (D) any officer or
director of any Principal as of the date of the SFAC indenture or (E)
co-investment entities established by any Principal within 90 days of the date
of the SFAC indenture and controlled by such Principal, any affiliated party
(including any officer or director) of such Principal or of the general partner
of such Principal (or of the general partner of any general partner of such
Principal) or any combination of the foregoing; provided, however, that (x) each
of Douglas D. Wheat, Mark W. Stephens, Thomas L.
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Harrison and HWP Specialty Partners, L.P. shall be deemed a Related Party of
Haas Wheat & Partners Incorporated and (y) any officer or director of Oak Hill
Partners, Inc. as of the date of the SFAC indenture shall be deemed a Related
Party of Acadia Partners, L.P. and Keystone, Inc.
"Subordinated Debentures" means Specialty Foods Acquisition Corporation's
11.0% Senior Subordinated Debentures due 2006.
"Subsidiary" of any person means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such person or one or more of
the other Subsidiaries of that person or a combination thereof; provided,
however, that the Accounts Receivable Subsidiary and its Subsidiaries shall not
be deemed Subsidiaries of Specialty Foods Acquisition Corporation or of any of
its Subsidiaries.
"Tax Sharing Agreement" means that certain tax sharing agreement, dated as
of the date of the SFAC indenture, by and among Specialty Foods, Specialty Foods
Acquisition Corporation and each of their Subsidiaries, as in effect on the date
of the SFAC indenture.
"Term Loan Agreement" means that certain Term Loan Agreement, dated as of
August 16, 1993, by and among Specialty Foods, the lenders party thereto and
Chemical Bank, as administrative agent, providing for up to $315 million in
aggregate principal amount of term loans, together with any replacement or
additional credit agreement or agreements, and including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, supplemented, extended,
modified, renewed, refunded, replaced or refinanced from time to time, whether
or not with the same lenders.
"Wholly Owned Subsidiary" of any person means a Subsidiary of such person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
person or by one or more Wholly Owned Subsidiaries of such person or by such
person and one or more Wholly Owned Subsidiaries of such person.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New 13% Debentures for its own account
pursuant to the exchange offers in exchange for Old 13% Debentures acquired by
it as a result of market-making or other trading activities may be deemed to be
an underwriter within the meaning of the Securities Act and, therefore, must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales, offers to resell or other transfers of New 13%
Debentures received by it in the exchange offers. Accordingly, each such
broker-dealer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of these New
13% Debentures. The letter of transmittal states that by acknowledging that it
will delver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an underwriter within the meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New 13% Debentures
received in exchange for Old 13% Debentures where these Old 13% Debentures were
acquired as a result of market-making activities or other trading activities. We
have agreed that, starting on the consummation of the exchange offers, and
ending on the close of business 180 days after the completion of the exchange
offers, we will make this prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any resale.
We will not receive any proceeds from any sale of New 13% Debentures by
broker-dealers. New 13% Debentures received by broker-dealers for their own
account pursuant to the exchange offers may be sold from time to time in one or
more transactions in the over-the-counter markets, in negotiated transactions,
through the writing of options on the New 13% Debentures or a combination of
these methods of resale, at market prices prevailing at the time of resale, at
prices related to these prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through such broker-dealer
and/or the purchasers of any such New 13% Debentures. Any broker-dealer that
resells New 13% Debentures that were received by it for its own account pursuant
to the exchange offers and any broker or dealer that participates in a
distribution of these New 13% Debentures may be deemed to be an underwriter
within the meaning of the Securities Act and any profit of any such resale of
New 13% Debentures and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the Securities Act.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of our counsel, Paul, Weiss, Rifkind, Wharton & Garrison,
the following discussion is an accurate general description of certain of the
material anticipated United States Federal income tax consequences of the
acquisition, ownership, and disposition of New 13% Debentures by U.S. holders
(as defined below). This summary is based upon current laws, regulations,
rulings, and judicial decisions all of which are subject to change, possibly
retroactively. This summary deals only with holders that hold initial 13%
Debentures or SFAC 13% Debentures and will hold New 13% Debentures as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code"), and does not address tax considerations applicable to
investors that may be subject to special tax rules such as banks, insurance
companies, tax-exempt organizations, persons that will hold such debentures as
part of an integrated investment (including a "straddle") comprised of such
debentures and one or more other positions, dealers in securities or holders of
initial 13% Debentures, SFAC 13% Debentures, or New 13% Debentures that are not
U.S. holders (as defined below). In addition, this discussion does not consider
the effect of any state, local, foreign, estate, gift or other tax laws.
Investors considering acquiring New 13% Debentures pursuant to the exchange
offer should consult their own tax advisors with respect to the application of
the Federal income tax laws to their particular situations, as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used in this prospectus, the term U.S. holder means a beneficial owner
of debentures that is, for United States Federal income tax purposes, (1) a
citizen or resident of the United States, (2) a domestic corporation or other
entity taxable as a corporation, (3) an estate the income of which is subject to
United States Federal income taxation regardless of its source, (4) a trust if
(A) a United States court is able to exercise supervision over the
administration of the trust and (B) one or more United States persons have
authority to control all substantial decisions of the trust, or (5) otherwise
subject to United States Federal income taxation with respect to its worldwide
income on a net income basis.
Taxation of Holders of Private 13% Debentures on the Exchange
In the opinion of our counsel, Paul, Weiss, Rifkind, Wharton & Garrison,
the exchange of a initial 13% Debenture for a New 13% Debenture will not be a
taxable event to a holder of our initial 13% Debenture, and a holder will not
recognize any taxable gain or loss as a result of such an exchange. Accordingly,
a holder will have the same adjusted basis and holding period in a New 13%
Debenture that was received in exchange for our initial 13% Debenture as it had
in our outstanding initial 13% Debenture immediately before such exchange.
Further, the tax consequences of ownership and disposition of such a New 13%
Debenture will be the same as the tax consequences of ownership and disposition
of our outstanding initial 13% Debenture.
Taxation of Holders of SFAC 13% Debentures on the Exchange
In the opinion of our counsel, Paul, Weiss, Rifkind, Wharton & Garrison,
the exchange of an outstanding SFAC 13% Debenture for an New 13% Debenture
should be a taxable event to a holder of an outstanding SFAC 13% Debenture.
Tendering holders should
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recognize gain or loss equal to the difference between (i) the issue price of
any New 13% Debentures received in the exchange offer and (ii) such holder's
adjusted tax basis in its SFAC 13% Debentures exchanged therefor. Because the
SFAC 13% Debentures are not, and the New 13% Debentures will not be, traded on
an established securities market, the issue price of a New 13% Debenture will be
its stated principal amount. A holder's adjusted tax basis in its SFAC 13%
Debentures will generally be equal to the amount paid for the SFAC 13%
Debentures and, in the case of a holder that purchased the SFAC 13% Debentures
after their original issuance at a discount to their initial issue price, market
discount which such holder may have elected to include in income and reduced by,
in the case of a holder that purchased the SFAC 13% Debentures after their
original issuance at a premium, any such acquisition premium which the holder
may have elected to deduct from income. The gain or loss recognized on such an
exchange, if any, will be capital gain or loss, except to the extent that such
gain is attributable to accrued market discount that the holder has not elected
to include in income. The portion representing capital gain or loss will be
long-term capital gain or loss if such SFAC 13% Debenture was held for more than
one year. The deductibility of capital losses is subject to limitation. A
holder's initial tax basis in a New 13% Debenture that was received in exchange
for an SFAC 13%Debenture will be equal to the stated principal amount of such
New 13% Debenture.
The Treatment of the New 13% Debentures
Original Issue Discount on 13% Debentures Received in Exchange for Private
13% Debentures
New 13% Debentures that are received in exchange for our initial 13%
Debentures will have original issue discount for Federal income tax purposes.
Consequently, holders of such New 13% Debentures will be required to include
original issue discount in ordinary income over the period that they hold such
debentures on the basis of a constant yield method.
Because such New 13% Debentures are treated for Federal income tax
purposes as the same as our initial 13% Debentures, the amount of original issue
discount on such New 13% Debentures will be calculated as if the New 13%
Debentures and initial 13% Debentures were a single debenture that was issued at
the time such initial 13% Debenture was issued, for an issue price equal to the
issue price of the initial 13% Debenture, and any accrued original issue
discount on the initial 13% Debenture at the time of the exchange will carry
over and be treated as accrued original issue discount on the New 13% Debenture.
The issue price of a initial 13% Debenture is its stated principal amount less
the amount allocated to any of our common stock received in exchange for such
initial 13% Debenture and such common stock pursuant to the "investment unit"
rules. Pursuant to these rules, when a debenture is issued together with certain
property, the issue price of the debenture should be allocated to each of the
debenture and property in proportion to their relative fair market values.
Except as set forth below under "--Acquisition Premium" and "--Bond
Premium," the amount of original issue discount on such a New 13% Debenture is
equal to the excess of (i) its "stated redemption price at maturity" (the sum of
all payments to be made on the
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debenture, whether denominated as interest or principal, other than payments of
"qualified stated interest") over (ii) its issue price. "Qualified stated
interest" on a debenture is the stated interest that is unconditionally payable
in cash or property (other than debt instruments of New SFAC Holdings) at least
annually at a single fixed rate. Any amount of original issue discount included
in income will increase a holder's adjusted tax basis in such New 13%
Debentures, and any payments (other than payments of qualified stated interest)
will decrease a holder's adjusted tax basis in such exchange notes. Such
payments will not be subject to Federal income tax.
Original Issue Discount on 13% Debentures Received in Exchange for SFAC
13% Debentures
New 13% Debentures that are received in exchange for SFAC 13% Debentures
will have original issue discount for Federal income tax purposes. Consequently,
holders of such Senior Subordinated Debentures will be required to include
original issue discount in ordinary income over the period that they hold such
debentures on the basis of a constant yield method.
Except as set forth below under "--Acquisition Premium" and "--Bond
Premium," the amount of original issue discount on such a New 13% Debenture will
be equal to the excess of (i) its "stated redemption price at maturity" (the sum
of all payments to be made on the debenture, whether denominated as interest or
principal, other than payments of "qualified stated interest") over (ii) its
issue price. "Qualified stated interest" on a debenture is the stated interest
that is unconditionally payable in cash or property (other than debt instruments
of New SFAC Holdings) at least annually at a single fixed rate.
Any amount of original issue discount included in income will increase a
holder's adjusted tax basis in such debentures, and any payments (other than
payments of qualified stated interest) will decrease a holder's adjusted tax
basis in such debentures. Such payments will not be subject to Federal income
tax.
Optional Right of Redemption
During certain times, we have the right to redeem the New 13% Debentures
at increasing percentages of less than their total accreted value at such times.
See "Description of the New 13% Debentures -- Optional Redemption." Because the
rules governing the calculation of original issue discount require us to presume
that such an option will be exercised by us if it minimizes the yield to the
holder, we intend to take the position that, solely for the purposes of
calculating original issue discount, we will be deemed to exercise such options
to redeem at the times such redemptions are possible. If such optional
redemptions do not actually occur contrary to the assumption set forth in the
preceeding sentence, then pursuant to the original issue discount rules, at the
each time such a redemption was deemed to occur yet does not actually ocur, the
New 13% Debenture will be considered retired and reissued for an amount equal to
its then adjusted issue price.
Applicable High Yield Debt Obligations
The New 13% Debentures will constitute "applicable high yield debt
obligations" ("AHYDOs") for Federal income tax purposes if their yield to
maturity is equal to or greater than the sum of the applicable Federal rate (the
"AFR") plus five percentage points. If the
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New 13% Debentures are AHYDOs, New SFAC Holdings will not be entitled to deduct
original issue discount that accrues with respect to such debentures until
amounts attributed to such original issue discount are paid in cash. In
addition, to the extent the yield to maturity of such debentures exceeds the sum
of the AFR plus six percentage points, New SFAC Holdings will not be entitled to
claim a deduction for interest expense, for Federal income tax purposes, that is
attributable to such excess yield.
Market Discount
The market discount rules generally provide that if a holder of a New 13%
Debenture purchased the debenture, subsequent to the original offering, for an
amount that is less than the "revised issue price" (the sum of the issue price
of the New 13% Debenture and the aggregate amount of original interest discount
includible in the gross income of all holders for periods before the acquisition
of the New 13% Debenture by such holder, which probably should be reduced by,
although it is not expressly stated in the Code, the amount of all payments
previously received on the New 13% Debenture) of the New 13% Debenture, the
amount of the difference will be treated as "market discount" for Federal income
tax purposes, unless such difference is less than a specified de minimis amount.
Such a holder will be required to treat any principal payment on, or any gain on
the sale, exchange, retirement or other disposition of, a New 13% Debenture as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such New 13%
Debenture at the time of such payment or disposition. In addition, the holder
may be required to defer, until the maturity of the New 13% Debenture or its
earlier disposition in a taxable transaction, the deduction of all or a portion
of the interest expense on any indebtedness incurred or continued to purchase or
carry such New 13% Debenture.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the New 13% Debenture,
unless the holder elects to accrue on a constant interest method. A holder of a
New 13% Debenture may elect to include market discount in income currently as it
accrues (on either a ratable or constant interest method), in which case the
rule described above regarding deferral of interest deductions will not apply.
This election to include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies and may not be revoked without the consent of the
Internal Revenue Service.
Acquisition Premium
The acquisition premium rules generally provide that if a holder of a New
13% Debenture purchased the debenture, subsequent to the original offering, for
an amount that is greater than the "adjusted issue price" (the sum of the issue
price of the New 13% Debenture and the aggregate amount of original interest
discount includible in the gross income of all holders for periods before the
acquisition of the New 13% Debenture by such holder, reduced by the amount
(other than qualified stated interest) of all payments previously received on
the New 13% Debenture) of the New 13% Debenture, the amount of such excess will
be treated as "acquisition premium" for Federal income tax purposes, and the
amount of original issue discount that the holder includes in gross income is
reduced to reflect such acquisition premium. Acquisition premium is allocated on
a pro rata basis to each accrual of original issue discount reducing original
issue discount by a constant fraction, the
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numerator of which is the excess of the adjusted basis of the New 13% Debenture
over its adjusted issue price, and the denominator of which is the excess of the
sum of all amounts (other than qualified stated interest) payable on the New 13%
Debenture after the purchase date over its adjusted issue price. Alternatively,
a holder may elect to amortize acquisition premium on a constant yield basis,
treating the holder's basis in the New 13% Debenture as the New 13% Debenture's
issue price.
Bond Premium
If a subsequent holder's tax basis in a New 13% Debenture exceeds the sum
of all amounts (other than qualified stated interest) payable on such debenture
after the acquisition date, such excess would be treated as "amortizable bond
premium." The Holder may elect to amortize such excess over the period from the
acquisition date of the debenture to the maturity date. Amortizable bond premium
allocable to a period may be offset against qualified stated interest on the
related security to the extent such qualified stated interest for the period
exceeds the holder's yield for the period (the yield being the discount rate
that, when used in computing the present value of all remaining payments to be
made (including qualified stated interest) produces an amount equal to the
holder's basis in the debenture. Additional amortizable premium for a period may
be treated as a bond premium deduction to the extent that the holder's total
interest inclusions on the debenture in prior periods exceed the total amount
treated by the holder as a bond premium deduction on the debenture in prior
periods. Any excess over such total interest inclusions is carried forward to
the next accrual period. A holder that elects to amortize bond premium must
reduce its adjusted basis in the debenture by the amount of allowable
amortization. An election to amortize bond premium applies to the amortizable
bond premium on all taxable bonds held during or after the holder's taxable year
for which the election is made and may be revoked only with the consent of the
Internal Revenue Service.
Sale, Exchange or Retirement of New 13% Debentures
If a New 13% Debenture is redeemed, sold or otherwise disposed of, a
holder generally will recognize gain or loss equal to the difference between the
amount realized on the sale or other disposition of such New 13% Debenture (to
the extent such amount does not represent accrued but unpaid interest) and such
holder's adjusted tax basis in such debenture. Except as set forth in the
discussion of market discount set forth above, such gain or loss will be capital
gain or loss and will be long-term if the holder has held the New 13% Debenture
for more than one year at the time of the disposition. The deductibility of
capital losses is subject to limitations.
Reporting Requirements
New SFAC Holdings will provide annual information statements to holders of
New 13% Debentures and to the Internal Revenue Service setting forth the amount
of original issue discount determined to be attributable to each of the New 13%
Debentures for that year.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NEW 13% DEBENTURES IN
LIGHT OF HIS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF
NEW 13%
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DEBENTURES SHOULD CONSULT HIS OWN ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO
SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF NEW 13% DEBENTURES,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS, OR SUBSEQUENT VERSIONS THEREOF.
LEGAL MATTERS
The validity of the New 13% Debentures will be passed upon for us by Paul,
Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The financial statements of Specialty Foods Acquisition Corporation and
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, have been included in this prospectus
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere in this
prospectus, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
We are not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934. However, we
will be subject to those requirements upon the completion of the exchange
offers. In addition, the indenture for the New 13% Debentures requires that we
file reports under the Securities Exchange Act of 1934 with the Securities and
Exchange Commission and provide those reports to the trustee and holders of the
notes. You can inspect and copy at prescribed rates the reports and other
information that we file with the Securities and Exchange Commission at the
public reference facilities maintained by the Securities and Exchange Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and also at the regional offices of the Securities and Exchange Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and the
Citicorp Center at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. You may obtain information on the operation of the public reference
facilities by calling the Securities and Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission also maintains an internet web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information. You can also obtain copies of such materials from us upon
request.
We have filed a registration statement on Form S-4 with the Securities and
Exchange Commission covering the New 13% Debentures, and this prospectus is part
of our registration statement. For further information on us and the New 13%
Debentures, you should refer to our registration statement and its exhibits.
This prospectus summarizes material provisions of contracts and other documents
to which we refer you. Since the prospectus may not contain all the information
that you may find important, you should review the full text of these documents.
We have included copies of these documents as exhibits to our registration
statement.
We have agreed that, whether or not we are required to do so by the
rules and regulations of the Securities and Exchange Commission, for so long as
any of the New 13%
151
<PAGE>
Debentures remain outstanding, we will furnish you as a holder of the New 13%
Debentures and will, if permitted, file with the Securities and Exchange
Commission (1) all quarterly and annual financial information that would be
required to be contained in a filing with the Securities and Exchange Commission
on Forms 10-Q and 10-K if we were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by our certified independent accountants, and (2) all reports that would be
required to be filed with the Securities and Exchange Commission on Form 8-K if
we were required to file such reports. In addition, for so long as any of the
New 13% Debentures remain outstanding, we have agreed to make available to any
prospective purchaser of the New 13% Debentures or beneficial owner of the notes
in connection with any sale of these notes the information required by Rule 144
under the Securities Act.
152
<PAGE>
INDEX TO FINANCIAL INFORMATION
Page
Annual Information - Specialty Foods Acquisiton Corporation
Independent Auditors' Report ........................................... F-2
Consolidated Balance Sheets -
December 31, 1998 and 1997 ........................................... F-3
Consolidated Statements of Operations
Years ended December 31, 1998, 1997, and 1996 ........................ F-5
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 1998, 1997, and 1996 ........................ F-7
Consolidated Statements of Cash Flows -
Years ended December 31, 1998, 1997, and 1996 ........................ F-8
Notes to Financial Statements .......................................... F-10
Financial Statement Schedule:
Condensed Financial Information of Specialty Foods Acquisition
Corporation ......................................................... F-31
Interim Information - Specialty Foods Acqusition Corporation
Condensed Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 .................................................... F-34
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1999 and 1998 ................................. F-35
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 ........................................ F-36
Notes to Financial Statements .......................................... F-37
All other financial statement schedules are omitted as not applicable or because
the required information is presented in the consolidated financial statements
or related notes.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Specialty Foods Acquisition Corporation:
We have audited the accompanying consolidated balance sheets of Specialty Foods
Acquisition Corporation and Subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. In connection with our audits of the financial statements, we
also have audited the related financial statements schedule. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Specialty Foods
Acquisition Corporation and Subsidiaries as of December 31, 1998 and 1997 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Chicago, Illinois
March 19, 1999
F-2
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
----------- -----------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,881 $ 234,267
Accounts receivable, net 19,327 15,504
Inventories 23,366 20,188
Net assets of discontinued operations 86,632 65,192
7,234 7,157
----------- -----------
Total current assets 142,440 342,308
Property, plant, and equipment, net 234,944 146,023
Intangible assets, net 113,438 842
Other noncurrent assets 43,573 28,334
----------- -----------
Total assets $ 534,395 $ 517,507
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 3,450 $ 2,561
Accounts payable 37,779 41,925
Accrued expenses 80,741 80,906
----------- -----------
Total current liabilities 121,970 125,392
Long-term debt 1,250,198 1,134,355
Other noncurrent liabilities 31,355 30,645
----------- -----------
Total liabilities 1,403,523 1,290,392
----------- -----------
Redeemable preferred stock 19,500 19,500
Stockholders' equity:
Common stock: par value $0.01; authorized 100,000 shares;
issued 64,648 shares 646 646
Additional paid-in capital 42,750 42,750
Accumulated deficit (930,659) (834,416)
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cost of common shares in treasury (1,365) (1,365)
----------- -----------
Total stockholders' equity (888,628) (792,385)
----------- -----------
Total liabilities and stockholders' equity $ 534,395 $ 517,507
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 742,315 $ 718,105 $ 705,996
Cost of sales 329,567 321,851 328,422
--------- --------- ---------
Gross profit 412,748 396,254 377,574
--------- --------- ---------
Operating expenses:
Selling, distribution, general and
administrative expenses 380,766 367,996 350,431
Amortization of intangibles 1,471 900 7,032
Goodwill write-down -- -- 203,304
--------- --------- ---------
Operating profit (loss) 382,237 368,896 560,767
--------- --------- ---------
30,511 27,358 (183,193)
Other:
Interest expense, net 133,961 134,546 132,373
Other expense, net 3,129 4,729 9,132
--------- --------- ---------
Loss before income taxes (106,579) (111,917) (324,698)
Provision (benefit) for income taxes (613) 380 1,093
--------- --------- ---------
Loss from continuing operations (105,966) (112,297) (325,791)
Discontinued operations:
Earnings (loss) 10,324 31,404 (146,273)
Gain (loss) on disposal (601) 133,130 (14,514)
--------- --------- ---------
Income (loss) before extraordinary items 9,723 164,534 (160,787)
--------- --------- ---------
(96,243) 52,237 (486,578)
Extraordinary items -- (5,714) --
--------- --------- ---------
</TABLE>
F-5
<PAGE>
<TABLE>
<S> <C> <C> <C>
Net income (loss) $ (96,243) $ 46,523 $(486,578)
========= ========= =========
Earnings (loss) per basic and diluted share:
From continuing operations $ (1.69) $ (1.78) $ (5.12)
From discontinued operations 0.16 2.61 (2.53)
Extraordinary items -- (0.09) --
--------- --------- ---------
Net income (loss) $ (1.53) $ 0.74 $ (7.65)
========= ========= =========
Weighted average shares outstanding
basic and diluted 62,768 63,097 63,638
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Treasury stock
------------------ paid-in Accumulated translation -------------------
Shares Amount Capital deficit adjustment Shares Amount
------ ------ ------- ------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 64,648 $ 646 $ 42,750 $(394,361) $ (837) 174 $ (126)
Shares issued -- -- -- -- -- (159) 116
Purchase of treasury stock, net -- -- -- -- -- 1,144 (836)
Cumulative translation adjustment -- -- -- -- 837 -- --
Net loss -- -- -- (486,578) -- -- --
------ --------- --------- --------- --------- ----- ---------
Balance at December 31, 1996 64,648 $ 646 $ 42,750 $(880,939) $ -- 1,159 $ (846)
Purchase of treasury stock, net -- -- -- -- -- 721 (519)
Net income -- -- -- 46,523 -- -- --
------ --------- --------- --------- --------- ----- ---------
Balance at December 31, 1997 64,648 646 42,750 (834,416) -- 1,880 (1,365)
Net loss -- -- -- (96,243) -- -- --
------ --------- --------- --------- --------- ----- ---------
Balance at December 31, 1998 64,648 $ 646 $ 42,750 $(930,659) $ -- 1,880 $ (1,365)
====== ========= ========= ========= ========= ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $(105,966) $(112,297) $(325,791)
Adjustments to reconcile to net cash from
continuing operating activities:
Depreciation and amortization 27,204 21,087 27,868
Debt issuance cost amortization 10,109 6,120 6,081
Accretion of interest 48,601 43,148 38,285
Write-down of goodwill -- -- 203,304
Loss on disposal of property, plant
equipment, net, and 436 1,521 5,747
Changes in assets and liabilities, net of
effects from acquisitions of
businesses:
Accounts receivable 8,916 6,241 14,612
Inventories 1,338 398 214
Prepaid expenses and other assets 274 1,576 (5,987)
Accounts payable (8,478) (9,093) 2,064
Accrued expenses and other (15,551) 14,785) (1,756)
--------- --------- ---------
Net cash used by continuing operating activities (33,117) (56,084) (35,359)
Net cash provided (used) by discontinued
operations (11,717) (41,564) 27,055
--------- --------- ---------
Net cash used by operating activities (44,834) (97,648) (8,304)
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (135,035) -- --
Net proceeds from divestitures of businesses -- 384,096 69,333
Capital expenditures (91,445) (36,071) (25,218)
Cash restricted for the purchase of property,
plant and equipment (8,017) -- --
Proceeds from sale leaseback, net -- -- 13,370
Other (5,061) (3,281) (727)
--------- --------- ---------
Net cash provided (used) by investing activities (239,558) 344,744 56,758
Cash flows from financing activities:
Increase (decrease) in revolving credit 75,000 (78,300) 5,700
Payments on long-term debt (6,115) (3,529) (2,303)
Payments of debt issuance costs (12,879) -- (3,738)
Issuance of redeemable preferred stock -- 19,500 --
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Other -- 1,319 (1,574)
--------- --------- ---------
Net cash provided (used) by financing activities 56,006 (61,010) (1,915)
Increase (decrease) in cash and cash equivalents (228,386) 186,086 46,539
Balance - beginning of year 24,267 48,181 1,642
--------- --------- ---------
Balance - end of year $ 5,881 $ 234,267 $ 48,181
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
(1) Company Background
Specialty Foods Acquisition Corporation ("SFAC") through its direct,
wholly-owned subsidiary, Specialty Foods Corporation ("SFC"), is a leading
producer, marketer and distributor of bakery products, including retail
bread, cookies and other baked goods. The continuing operations of SFC
consist of the following operating companies:
o Metz Baking Company ("Metz") - Metz is a leading retail bread
company serving a sixteen state area of the Midwestern United
States. Metz's product line includes breads, buns, rolls and sweet
goods.
o Mother's Cake & Cookie Co. ("Mother's") - Mother's is the second
largest retail cookie producer and distributor in the Western United
States. Mother's sells its branded cookie products primarily to
retail grocers.
o Archway Cookies, Inc. ("Archway") - Acquired in 1998, Archway is one
of the nation's leading cookie makers, producing more than one
billion cookies annually. Archway sells its branded cookie products
through a network of independent distributors who resell to retail
food outlets and chain stores throughout the U.S. and Canada.
o Andre-Boudin Bakeries, Inc. ("Boudin") - Boudin is a leading
marketer of premium branded specialty breads and bread-related
products. Boudin sells most of its products through a chain of 46
bakery cafes and kiosks located in California and the greater
Chicago area.
The Company's discontinued operations are described in Note 3.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The Company's financial statements are presented on a consolidated basis.
All significant intercompany accounts and transactions have been
eliminated. Acquisitions recorded as purchases are included in the
Consolidated Statement of Operations from the date of acquisition.
Divestitures reported as discontinued operations have been removed from
continuing operations and reclassified to discontinued operations in
accordance with Accounting Principles Board Opinion No. 30.
F-10
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
related disclosures at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain amounts included in the 1997 and 1996 financial statements have
been reclassified to conform to the manner in which the 1998 financial
statements have been presented.
Cash Equivalents
Cash equivalents represent investments in overnight bank deposits and
commercial paper with a maturity of less than three months.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally by the first-in, first-out (FIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
provided by the straight-line method over the assets' estimated useful
lives or, in the case of leasehold improvements, over the terms of the
leases, if shorter, as follows:
Years
-----
Buildings and improvements 7-40
Machinery and equipment 3-20
Office furniture and vehicles 3-10
Expenditures for maintenance, repairs, and minor replacements are charged
to current operations. Expenditures for major replacements and betterment
are capitalized.
The cost and related accumulated depreciation of property and equipment
retired or sold is eliminated from the property and equipment accounts at
the time of retirement or sale, and the resulting gain or loss is reported
in the Consolidated Statement of Operations.
F-11
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
Intangible Assets
Intangible assets, which consist primarily of the excess of cost over fair
value of net assets acquired, are amortized on a straight-line basis over
the periods of expected benefit, which range from five to forty years. The
Company annually evaluates whether events and circumstances have occurred
that indicate that the remaining estimated useful life of intangible
assets may warrant revision or that the remaining balance of intangible
assets may not be recoverable. When factors indicate that intangible
assets should be evaluated for possible impairment, the Company assesses
recoverability of intangible assets based on its expectations concerning
operating cash flows after interest and capital expenditures. An
impairment is recorded if the discounted value of such cash flows is less
than the recorded value of the intangible assets. The Company utilizes a
discount rate which reflects its weighted average cost of capital. Based
on application of this methodology, an impairment was recorded in 1996
(see Note 5).
Deferred Debt Issuance Costs
Deferred debt issuance costs are being amortized by the straight-line
method over the terms of the related debt agreements and are classified as
other noncurrent assets.
Advertising Costs
Advertising costs are expended as incurred.
(3) Discontinued Operations
In March 1999, SFC signed a definitive agreement to sell its subsidiary,
H&M Food Systems Company, Inc. ("H&M"), for $132 million. H&M is a
producer of custom formulated, pre-cooked meat products that are sold
primarily to national restaurant chains and prepared-food producers. SFC
will realize net cash proceeds of approximately $110 million after it has
repurchased H&M's financed accounts receivable, established a $5 million
one-year escrow and paid transaction costs. Upon the closing of this
transaction, expected in the second quarter of 1999, SFC will report a
gain on the sale of H&M.
In addition, during 1997 and 1996 the Company divested of:
o Stella Foods, Inc. ("Stella") - One of the largest specialty
cheese producers in the United States with distribution to
retail grocers, foodservice accounts, and commercial food
processors. The sale of Stella was completed on December 5,
1997 for $405 million.
F-12
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
o Gai's Seattle French Baking Company ("Gai's") - A restaurant
and institutional bakery operation serving the northwestern
United States. The sale of Gai's was completed on February 24,
1997.
o San Francisco French Bread ("SFFB") - A sourdough hearth bread
operation located in California. The sale of SFFB was
completed on March 31, 1997.
o A restaurant and institutional bakery operated by Metz located
in Illinois. The sale of this bakery was completed on August
23, 1997.
o Bloch and Guggenheimer, Inc. ("B&G")/Burns & Ricker, Inc.
("B&R") - Pickle, pepper, and specialty snack food businesses
operated under common management. The sale of the combined
business of B&G/B&R was completed on December 27, 1996.
These divestitures have been reported as discontinued operations in the
accompanying financial statements in accordance with Accounting Principles
Board Opinion No. 30. Operating results for these businesses, including
revenues of $181,038, $935,424, and $1,333,194 for 1998, 1997, and 1996,
respectively, as well as the applicable goodwill write-down of $152,360 in
1996, have been reclassified to discontinued operations. No interest
expense has been allocated to discontinued operations.
In 1998, the earnings from discontinued operations relate solely to H&M.
The net loss on disposal of discontinued operations for 1998 consists of
adjustments to the estimated losses on the sale of Gai's, SFFB, and the
Illinois restaurant and institutional bakery. The net gain on disposal of
discontinued operations for 1997 consisted of the gain realized on the
sale of Stella and Gai's, an adjustment to the estimated loss on the
disposal of SFFB, and the loss realized on disposal of the Illinois
restaurant and institutional bakery. The net loss on disposal of
discontinued operations for 1996 consisted of the realized loss on the
sale of B&G/B&R, estimated loss on the sale of SFFB, and the 1996
operating losses from the measurement date through the disposal date of
B&G/B&R, SFFB and of Gai's.
Net assets of the discontinued operations as of December 31, 1998 and 1997
related to H&M and consisted of the following:
F-13
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
1998 1997
-------- --------
Accounts receivable, net of allowance $ 3,587 $ 3,658
Inventories 16,824 15,388
Plant and equipment, net 53,205 41,852
Other assets 4,852 1,011
Goodwill, net 18,069 18,592
Accounts payable (6,727) (10,058)
Accrued expenses and other liabilities (3,178) (5,251)
-------- --------
$ 86,632 $ 65,192
======== ========
(4) Acquisitions
On October 26, 1998, SFC acquired all of the outstanding capital stock of
Archway, a privately held Michigan corporation, from the previous
stockholders. The purchase price totaled approximately $90,000 plus
$26,000 to repay certain indebtedness of Archway.
Additionally, in 1998, SFC also acquired four retail bakeries in separate
transactions for a total aggregate consideration of $19,600.
All of the acquisitions have been accounted for as purchases and,
accordingly, the respective purchase prices have been allocated to the
applicable assets and liabilities based upon their estimated fair values
as of the acquisition date. On a combined basis, the excess of the
purchase price over the fair values of the net assets acquired was
approximately $110,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 40 years. The acquisitions were
funded by a combination of cash and borrowings under SFC's existing
revolving credit facility. Operating results of acquired businesses have
been included in the Consolidated Statements of Operations since their
respective acquisition dates.
The following unaudited pro forma consolidated results of operations are
presented as if the above acquisitions had been made at the beginning of
the periods presented.
1998 1997
--------- ---------
Net sales $ 831,533 $ 828,243
Net earnings (loss) from continuing
operations $(110,590) $(115,026)
Net earnings (loss) per share from
continuing operation $ (1.76) $ (1.82)
The consolidated pro forma information is not necessarily indicative of
the combined results that would have occurred had the acquisitions been
made at the beginning of the periods
F-14
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
presented or the future results of the combined operations and do not
include projected cost reductions and revenue increases of the combined
operations. Additionally, pro forma net sales exclude sales of Archway's
franchisees and third party distributor mark-up.
(5) Goodwill Write-Down
As described under "Intangible Assets" in Note 2, "Summary of Significant
Accounting Policies", the Company annually evaluates its intangible
assets. Based on the Company's goodwill assessment, a write-down of
goodwill was recorded in the fourth quarter of 1996, which is presented in
the accompanying Consolidated Statements of Operations as follows:
Continuing operations $203,304
Discontinued operations 152,360
--------
$355,664
========
In determining the amounts of the goodwill write-down, the Company
developed its best estimate of future operating cash flows, after interest
and capital expenditures, over the remaining useful life of the goodwill.
The Company's estimates were based on recent historic financial trends and
then current market conditions. The goodwill of each business was
evaluated separately for impairment. Individual business unit sales growth
projections ranged from two to five percent. Interest costs were allocated
based on the relative level of investment in each business. Each of the
Company's fixed-rate debt obligations were assumed to be refinanced at
existing interest rates. The Company calculated the present value of
estimated future cash flows using a discount rate which represented its
weighted average cost of capital of 11.8% in 1996.
As of December 31, 1998, there was $109,745 of goodwill on the Company's
balance sheet resulting from acquisitions made during 1998. Management
believes the Company's remaining goodwill will be recovered over its
useful life.
(6) Acquisition Liabilities
In connection with the formation of the Company and subsequent
acquisitions, estimated liabilities were recorded for the expected cash
expenditures to consolidate facilities, streamline operations, and settle
environmental, legal and tax matters. In 1998, $4,450 of additional
estimated acquisition liabilities were recorded as a result of current
year acquisitions. Cash expenditures associated with acquisition
liabilities were $4,440, $14,043, and $10,593 for 1998, 1997, and 1996,
respectively. As of December 31, 1998, there are $15,797 of remaining
acquisition liabilities, of which $4,899 is classified as current.
F-15
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
(7) Extraordinary Items
In the first quarter of 1998, the Company refinanced its accounts
receivable, revolver, and term loan financing facilities. Due to this
early extinguishment of debt, the Company wrote-off deferred debt issuance
costs related to these facilities of $5,714 and has recorded them as
extraordinary items in 1997.
(8) Accounts Receivable
Specialty Foods Finance Corporation ("SFFC"), a wholly-owned subsidiary of
SFC, was established for the purpose of acquiring substantially all of the
trade accounts receivable generated by the operating subsidiaries of SFC.
Under the terms of the Accounts Receivable Facility ("Facility"), SFFC
sells for cash an undivided interest in eligible accounts receivable.
Under the terms of the Facility, the maximum amount of eligible
receivables that can be sold to the Facility is $75,000. The amount
outstanding under the Facility varies based upon the level of eligible
receivables and advance rate factors. As of December 31, 1998, the amount
outstanding under the Facility was $50,000. The discount on receivables
sold is included in other expense and totaled $2,445, $1,933, and $1,846
in 1998, 1997, and 1996, respectively.
Trade accounts receivable are reported net of the allowance for doubtful
accounts of $1,149 and $1,099 in 1998 and 1997, respectively.
(9) Inventories
The components of inventories are as follows:
1998 1997
-------- --------
Raw materials and packaging $ 12,244 $ 9,477
Work in progress 264 452
Finished goods 8,593 7,662
Other 3,209 2,681
-------- --------
24,310 20,272
Less obsolescence and other allowances (944) (84)
-------- --------
$ 23,366 $ 20,188
======== ========
F-16
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
(10) Property, Plant, and Equipment
The components of property, plant and equipment are as follows:
1998 1997
-------- --------
Land $ 11,586 $ 10,898
Buildings and improvements 90,963 72,130
Machinery and equipment 136,732 104,676
Office furniture and vehicles 63,320 29,248
Construction in progress 36,734 8,639
339,335 225,591
Less accumulated depreciation (104,391) (79,568)
-------- --------
$234,944 $146,023
======== ========
Depreciation expense was $25,733, $20,187, and $20,836 in 1998, 1997, and
1996, respectively.
(11) Restricted Cash
In 1998, the Company entered into various agreements to purchase certain
machinery, equipment and building improvements. Funds were designated for
these purchases and deposited in an escrow account which amounted to
$7,915 as of December 31, 1998. The escrow account is classified as a
noncurrent asset.
(12) Accrued Expenses
The components of accrued expenses are as follows:
1998 1997
-------- --------
Accrued payroll $ 8,782 $ 6,229
Other taxes payable 4,087 3,085
Workers' compensation 11,896 9,768
Compensated absences 7,491 6,236
Accrued interest 21,869 21,518
Acquisition liabilities 4,899 7,582
Other 21,717 26,488
--------- --------
$ 80,741 $ 80,906
========= ========
F-17
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
(13) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revolving Credit Facility $ 75,000 $ --
Term Loan Facility 169,080 173,750
10% Senior Notes due 2001 225,000 225,000
11 1/8% Senior Notes due 2002 150,000 150,000
11 1/4% Senior Subordinated Notes due 2003 200,000 200,000
13% Senior Secured Discount Debentures due 2005 295,191 260,258
11% Senior Subordinated Discount Debentures due
2006, payable to related parties 134,698 121,043
Other
4,679 6,865
----------- -----------
1,253,648 1,136,916
Less current portion (3,450) (2,561)
----------- -----------
$ 1,250,198 $ 1,134,355
=========== ===========
</TABLE>
During March 1998, the Company refinanced its Revolving Credit Facility
("Revolver") and Term Loan Facility ("Term Loan") with a new syndicate of
financial institutions. Both facilities mature on January 31, 2000.
Proceeds from these facilities can be used to finance working capital
requirements and are available for other corporate purposes, including
acquisitions.
As required under the terms of the Revolver and Term Loan Agreements, the
Company reduced the commitment amount available under the Revolver from
$125,000 to $122,801 and the Term Loan was reduced to $169,080 with excess
asset sale proceeds during 1998. The Company is required to make quarterly
payments on the Term Loan in the amount of $434.
The Revolver bears an interest rate of LIBOR plus 250 basis points. The
Revolver is secured by the assets of the operating companies. Amounts
outstanding under the Revolver totaled
F-18
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
$75,000 as of December 31, 1998. In addition to amounts outstanding under
the Revolver, letters of credit commitments totaling $10,200 as of
December 31, 1998 reduce available funds under the Revolver.
The Term Loan bears an interest rate of LIBOR plus 375 basis points. The
Term Loan is secured by the assets of SFC and a pledge of the stock of
each of the direct subsidiaries of SFC.
Semi-annual interest payments are required through maturity on the 10 1/4%
Senior Notes and the 11 1/4% Senior Subordinated Notes on February 15 and
August 15 each year. Semi-annual interest payments are required through
maturity on the 11 1/8% Senior Notes on April 1 and October 1 each year.
The Senior Secured Discount Debentures accrete at an interest rate of 13%
up to the maturity amount of $319,250 on August 15, 1999. Beginning
February 15, 2000, semi-annual interest payments are required through the
maturity date on August 15, 2005. The Senior Subordinated Discount
Debentures are held by stockholders of the Company and accrete at an
interest rate of 11% up to the maturity amount of $185,067 on August 15,
2001. Beginning February 15, 2002, semi-annual interest payments are
required through the maturity date on August 15, 2006.
The 10 1/4% and 11 1/8% Senior Notes, the 11 1/4% Senior Subordinated
Notes and the 11% Senior Subordinated Discount Debentures are unsecured.
The 13% Senior Secured Discount Debentures are secured by a first priority
lien on and a security interest in all of the outstanding capital stock of
SFC and all intercompany notes, if any, owing to the Company.
During the fourth quarter of 1998, the Company commenced private exchange
offers for its publicly held debt. Under the offers, existing debt of SFC
and SFAC held by certain holders would be exchanged for the debt of two
new intermediate holding companies. SFAC is offering certain holders of
its Senior Debentures the opportunity to exchange their existing debt for
new 13% Senior Secured Discount Debentures (the "New Senior Debentures")
of a new intermediate holding company. The New Senior Debentures include
provisions which extend the cash pay interest and maturity dates, give
SFAC a call option at prescribed discounts of accreted value and provide
consenting holders of its Senior Debentures up to an aggregate of ten
percent of the equity interest of the new intermediate holding company.
SFC is offering certain holders of its existing notes the opportunity to
exchange their existing debt for new notes (the "New Notes") of another
intermediate holding company. The New Notes have substantially the same
terms and covenants as the existing notes and will remain structurally
senior to the New Senior Debentures. In addition, SFC is seeking the
consent of its Term Loan and Revolver lenders to amend existing agreements
to conform to the new holding company structure. The proposed exchange
offer has not been consummated. Remaining on the Company's balance sheet
are unamortized deferred financing fees of approximately $18,000 related
to the existing debt that is subject to the exchange offer. Upon
F-19
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
the completion of the exchange offer, this amount would be written off as
an extraordinary item.
Other long-term debt consists primarily of miscellaneous notes payable
with interest rates ranging from 7.9% to 10.5% at December 31, 1998.
The provisions of the Term Loan and the Revolver contain covenants which
require the Company to maintain specified leverage and interest coverage
ratios. The Company also has other limitations regarding capital
expenditures, sales of assets, loans and investments, encumbrances of
assets and assumption of additional indebtedness. In addition, the
agreements governing the Term Loan and the Revolver and the indentures
governing the Senior Notes and the Senior Subordinated Notes contain
certain restrictive covenants, including, to the detriment of the holders
of the Senior Debentures and the Senior Subordinated Debentures, certain
covenants that restrict or prohibit (with de minimis exceptions) SFC's
ability to pay dividends or make other distributions to SFAC.
Specifically, as a result of the Company's net losses and accumulated
deficit, SFC's ability to make distributions to SFAC under the indentures
of the Senior Notes and the Senior Subordinated Notes has been impaired
and these indentures will require modification before any such
distribution to SFAC can be made.
Aggregate maturities of debt are as follows:
1999 $ 3,450
2000 243,308
2001 225,234
2002 150,259
2003 200,277
Thereafter 431,120
----------
Total aggregate maturities $1,253,648
==========
Cash paid for interest was $82,508, $85,603, and $90,533 for the years
ended December 31, 1998, 1997, and 1996, respectively.
(14) Financial Instruments
Concentration of Credit Risk
The Company's exposure to credit loss in the event of nonpayment of
accounts receivable by customers is represented in the amount of those
receivables. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral
F-20
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
from those customers. As of December 31, 1998, the Company does not
believe it has any significant concentration of credit risk with respect
to its trade accounts receivable.
Financial Instruments With Off-Balance-Sheet Risk
During 1998, the Company entered into interest rate swap agreements to
reduce its exposure to changes in the cost of its variable rate borrowings
as required by its Term Loan Agreement. Under the interest rate swap
agreements, which expire in January 2000, the Company receives floating
rate payments from the counterparties based upon the three-month LIBOR and
makes fixed rate payments at 5.753% and 5.765% to the respective
counterparties. The payments are calculated based upon a notional
principal amount of $100,000. The net differential of interest to be paid
or received under the remaining agreements is recognized as incurred. In
1998, net payments totaling $30 were made to the counterparties.
Off-balance-sheet risk from the interest rate swap agreements at December
31, 1998 includes the risk associated with changes in market values and
interest rates. The counterparties to the agreements are major financial
institutions.
Fair Value of Financial Instruments
The Company's financial instruments include long-term debt and the
interest rate swap agreements. The estimated fair value and carrying
amount of long term debt including current maturities but excluding
related party Senior Subordinated Discount Debentures at December 31, 1998
are as follows:
Carrying Estimated
Amounts Fair Values
---------- -----------
Financial liabilities:
Long-term debt, including current
maturities $1,118,950 $ 728,184
Interest rate swap agreements $ -- $ (906)
The fair value of long-term debt and the interest rate swap
agreements have been determined based on quoted market prices and
market interest rates at December 31, 1998.
(15) Lease Commitments
The Company leases equipment and facilities under various noncancelable
operating leases. Future minimum lease payments under all noncancelable
operating leases are as follows:
1999 $11,668
2000 10,879
F-21
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
2001 9,530
2002 8,337
2003 6,406
Thereafter 24,443
-------
Total minimum lease payments $71,263
=======
Total rental expense for 1998, 1997, and 1996 was $17,318, $19,557, and
$17,018 respectively.
In 1998, the Company purchased certain transportation and production
equipment which had been subject to operating lease arrangements. The cost
of purchasing these leased assets was approximately $35,400.
(16) Income Taxes
The provision (benefit) for income taxes for 1998, 1997, and 1996 relates
to state and Canadian income taxes payable (refundable).An effective tax
rate reconciliation is not presented because the Company has no federal
tax currently payable or deferred income tax expense due to its net
operating loss position.
The components of net deferred taxes are as follows:
1998 1997
-------- --------
Deferred tax assets related to:
Accrued expenses and other liabilities $ 72,570 $ 57,518
Net operating losses and credits 90,799 65,197
Other 3,351 6,538
-------- --------
Total deferred tax assets 166,720 129,253
Valuation allowance 149,552 113,357
-------- --------
Total net deferred tax assets 17,168 15,896
Deferred tax liabilities related to:
Depreciation 17,168 15,541
Inventories -- 355
-------- --------
F-22
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
Total deferred tax liabilities 17,168 15,896
------- -------
Net deferred tax asset (liability) $ -- $ --
======= =======
At December 31, 1998, the Company has federal net operating loss
carryforwards of $235,000 including $9,000 of loss carryforwards from
predecessor companies, which are subject to limitations that may
substantially limit future utilization. Also at December 31, 1998, the
Company has $127,000 of state net operating loss carryforwards and $3,000
of state tax credit carryforwards. The net operating loss carryforwards
and state tax credits exclude H&M's allocable portions. Net operating loss
and credit carryforwards expire in varying amounts through the year 2018.
Cash paid (received) for income taxes was $(613), $123 and $432 for 1998,
1997, and 1996, respectively.
(17) Litigation and Other Contingencies
Litigation
The Company has retained liability with respect to a proceeding against
Stella. In 1993, Stella was alleged to have misappropriated confidential
and proprietary trade secrets of a competitor and infringed upon the
competitor's purported trademark. Stella has filed a cross complaint
against the competitor for predatory pricing practices. The proceeding is
scheduled for trial during the second quarter of 1999. The Company
continues to vigorously defend against the allegations and pursue its
claim. Although any litigation has an element of uncertainty, management
believes the ultimate resolution of this matter will not have a material
adverse effect on the Company's financial condition or results of
operations.
In the normal course of business activities, the Company is a party to
certain legal proceedings and claims. Although the outcome of such matters
cannot be determined with certainty, it is management's opinion that the
final outcome will not have a material adverse effect on the Company's
financial position or results of operations.
Other
Various operating subsidiaries are self-insured or retain a portion of
losses with the respect to workers' compensation claims. Accordingly, the
Company provides irrevocable letters of credit or surety bonds which total
$10,200 at December 31, 1998 to state regulatory agencies or insurance
companies.
F-23
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
(18) Employee Benefits
Pension and Other Post-retirement Benefits
Certain of the operating subsidiaries sponsor single-employer,
non-contributory, defined benefit pension plans. The operating
subsidiaries also participate in numerous multi-employer,
non-contributory, defined benefit pension plans. Substantially all of the
Company's employees are covered by the defined benefit or multi-employer
plans. Certain of the subsidiaries also sponsor post-retirement health
care benefit plans.
F-24
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
Benefits for employees are based on various factors including length of
service and average compensation. Contributions are funded to the extent
deductible for federal income tax purposes. The following table provides a
reconciliation of the changes in the plans' benefit obligations and fair
value of assets during the years ended December 31, 1998 and December 31,
1997 and a summary of the funded status as of December 31, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
Pension Plans Post-retirement Medical
---------------------- -----------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year 61,072 54,218 8,226 9,886
Service cost 2,248 1,914 393 345
Interest cost 4,111 3,956 542 602
Participant Contributions -- -- 29 --
Plan amendments 35 1,220 -- --
Settlement (gain) or loss -- -- -- (1,295)
Benefits paid (3,609) (2,527) (591) (339)
Actuarial (gain) or loss 1,371 2,291 111 (973)
-------- -------- -------- --------
Benefit obligation at end of year $ 65,228 $ 61,072 $ 8,710 $ 8,226
======== ======== ======== ========
Change in Plan Assets
Fair value of plan assets at
Beginning of year $ 62,167 $ 57,854 $ -- $ --
Actual return on plan assets 7,368 6,840 -- --
Benefits paid (3,609) (2,527) -- --
Other 1,028 -- -- --
-------- -------- -------- --------
Fair value of plan assets at end of year $ 66,954 $ 62,167 $ -- $ --
======== ======== ======== ========
Summary of Funded Status
Funded status 1,726 1,095 (8,710) (8,226)
Unrecognized transition amount (274) (381) -- --
Unrecognized prior service cost 1,447 1,561 -- --
Unrecognized net (gain) or loss (11,593) (11,241) (3,243) (4,816)
-------- -------- -------- --------
Accrued benefit cost $ (8,694) $ (8,966) $(11,953) $(13,042)
======== ======== ======== ========
</TABLE>
F-25
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
Amounts Recognized in Consolidated
Balance Sheets
Accrued expenses $ 2,842 $ 2,464 $ -- $ 251
Other non-current liabilities 5,852 6,502 11,953 12,791
-------- -------- -------- --------
$ 8,694 $ 8,966 $ 11,953 $ 13,042
======== ======== ======== ========
</TABLE>
One of the Company's qualified pension plans had a projected benefit
obligation in excess of plan assets as of December 31, 1998 and 1997. The
projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for this plan was $13,815, $13,815, and $12,675,
respectively, as of December 31, 1998 and $12,669, $12,669, and $11,616,
respectively, as of December 31, 1997.
The following table provides the components of net periodic benefit cost
for the plans for the fiscal years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Pension Plans Post-retirement Medical
--------------------------------- ---------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned
during the period $ 2,248 $ 1,914 $ 2,116 $ 393 $ 345 $ 446
Interest cost on the benefit
obligation 4,111 3,956 3,658 542 602 661
Expected return on plan assets (6,175) (5,087) (6,290) -- -- --
Net amortization and deferral 1,583 (832)
Transition amount (107) (107) -- -- -- --
Prior service costs 149 146 -- -- -- --
(Gain)/loss (498) (607) -- (805) (292) --
------- ------- ------- ------- ------- -------
Net periodic benefit cost $ (272) $ 215 $ 1,067 $ 130 $ 655 $ 275
======= ======= ======= ======= ======= =======
</TABLE>
Gains and losses in excess of 10% of the greater of the benefit obligation
or the market-related value of assets are amortized over the average
remaining service period of active participants
F-26
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
for pension plans. Gains and losses in excess of 10% of the benefit
obligation are amortized over five years for the post-retirement plan.
The Company sponsors defined benefit health care plans that provide
post-retirement medical and life benefits to certain full-time employees
who meet minimum age and service requirements. The plans are contributory,
with retiree contributions adjusted annually, and contain other
cost-sharing features such as deductibles and co-insurance. The accounting
for these plans anticipates future cost-sharing changes to the written
plans that are consistent with the Company's expressed intent to increase
the retiree contribution rate annually for the expected general inflation
rate for the year.
The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table:
<TABLE>
<CAPTION>
Pension Plans Post-retirement Medical
--------------- -----------------------
1998 1997 1998 1997
------ ---- ---------- ----------
<S> <C> <C> <C> <C>
Discount Rate (Y/E Disclosures) 6.75% 7.00% 6.50% to 7.00%
6.75%
Salary Scale 4.00% 4.00% N/A N/A
Long Term Rate of Return on Assets 10.00% 9.00% N/A N/A
</TABLE>
For measurement purposes, a 9.5% annual rate of increase in the per capita
cost of covered health care benefit was assumed for 1998. The rate is
assumed to decrease gradually to 5.5% for 2002 and remain at that level
thereafter.
The health care trend rate used to determine the pre-age 65 accumulated
post-retirement benefit obligation was 14% for 1998, decreasing to 6% by
the year 2002 and beyond. A flat 16 % rate per year is used for the
post-age 65 obligation. Increasing the assumed health care trend rate by
1% each year would increase the accumulated post-retirement benefit
obligation as of December 31, 1998 and 1997 approximately $664 and $658,
respectively, and the aggregate of the service and interest cost
components of 1998, 1997, and 1996 net retiree healthcare expense
approximately $97, $98, and $134 respectively. Decreasing the assumed
health care trend rate by 1% each year would decrease the accumulated
post-retirement benefit obligation as of December 31, 1998 approximately
$547, and the aggregate of the service and interest cost components for
1998 net retiree healthcare expense approximately $79.
Certain of the operating subsidiaries also participate in various
multi-employer defined benefit pension plans on behalf of employees
pursuant to various collective bargaining agreements. Contributions to
these plans included in continuing operations amounted to approximately
F-27
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
$15,441, $14,822, and $14,535 for the years ended December 31, 1998, 1997,
and 1996, respectively.
The Company has various defined contribution plans which cover
non-bargaining unit employees meeting eligibility requirements.
Contributions to these plans were approximately $1,915, $1,444, and $1,296
for the years ended December 31, 1998, 1997, and 1996, respectively.
Long Term Incentive Compensation Plans
The Company has adopted long-term incentive compensation plans for several
of its businesses which provide for cash awards upon the achievement of
specified earnings or enterprise values. Amounts related to long-term
incentive plans will be accrued when amounts due participants vest. As of
December 31, 1998, no amounts have been accrued.
(19) Stock-Based Compensation Plans
The Company's stock option plans provide for the granting of non-qualified
stock options and incentive stock options to certain key employees,
directors and consultants of the Company. Generally, options outstanding
under the Company's stock option plans (i) are granted at prices which
equate to the fair value of the stock at the date of grant, (ii) vest
ratably over a four year service vesting period, and (iii) expire ten
years subsequent to award.
The exercise price per share is $.02 for current employees and $.73 for
former employees. A summary of the status of the Company's stock options
as of December 31, 1998, 1997, and 1996 and changes during the years ended
on those dates is presented below:
Number of Shares
----------------------------
1998 1997 1996
------ ------ ------
Outstanding at beginning of year 3,632 3,436 4,589
Granted 500 1,400 933
Exercised -- -- --
Terminated (236) (1,204) (2,086)
------ ------ ------
Outstanding at year-end 3,896 3,632 3,436
====== ====== ======
Options exercisable at year-end 2,013 1,376 1,819
====== ====== ======
F-28
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
Options available for future grant 1,957 2,221 2,417
====== ====== ======
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock compensation plans.
Accordingly, no compensation cost has been recognized for its stock
compensation plans. The Company has evaluated the requirements of FASB
Statement No. 123 and has determined that it does not have a material
impact on the Company's financial position or results of operations.
(20) Related Party Transactions
Certain Transactions with Stockholders of and Affiliates of Stockholders
of SFAC
Certain of SFAC's stockholders and their affiliates previously entered
into financial advisory arrangements (the "Financial Advisory Agreements")
with SFAC's subsidiary, SFC. Haas Wheat & Partners ("Haas Wheat"),
Penobscot ("Penobscot"), an affiliate of Acadia Partners, L.P. ("Acadia"),
and Keystone, Inc. ("Keystone") each entered into such Financial Advisory
Agreements. In August 1998, the Board of Directors approved a one-year
extension of the financial advisory arrangements. Under the terms of the
Financial Advisory Agreements, SFC pays Haas Wheat an annual fee of $700 (
a portion of which Haas Wheat is obligated by agreement to remit to
Acadia), Penobscot an annual fee of $200, and Keystone an annual fee of
$100.
In June 1997, pursuant to an agreement among the Company, Acadia,
Keystone, and Haas Wheat ("the signing stockholders"), the signing
stockholders purchased a total of 19,500 units of equity for an aggregate
purchase price of $19,500. Each unit was comprised of one share of
cumulative preferred stock of the Company and one warrant to purchase
395.1 shares of common stock of the Company, at an exercise price of $0.02
per share.
The shares of preferred stock are in the aggregate face amount of $19,500
and have a par value of $1 per share. The shares of preferred stock have a
liquidation value of $1 per share and are entitled to a dividend rate of
16% per annum. As of December 31, 1998, the preferred stock had dividends
in arrears of $4,706. Presently, no dividends can be declared or paid
since such declaration or payment would cause or result in default of
outstanding debt instruments of the Company. The preferred stock is
cumulative, non-convertible, non-participating, and non-redeemable by the
holder or the Company prior to August 16, 2006. Thereafter, any holder or
the Company may redeem all or a portion of the preferred stock provided
that such redemption would not cause or result in a default in any
outstanding debt instrument of the Company or its subsidiaries at such
time.
In 1996, SF Leasing L.L.C. (of which Acadia and Keystone each owns a 45%
interest and Haas Wheat owns a 10% interest) purchased from Metz all of
the equipment at a manufacturing facility for $3,222 (which was based on
the appraised value of such equipment)
F-29
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
(In thousands)
and leased such equipment back to Metz. During 1998, the Company made
rental payments totaling $614 to SF Leasing L.L.C. for equipment that was
leased by the Company. In September 1998, the Company repurchased from SF
Leasing L.L.C. this equipment for an aggregate amount of $3,013.
In June 1997, the Company retained Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ", an affiliate of DLJMBP, which is a stockholder of the
Company), to serve as the Company's financial advisor in connection with
its sale of Stella. The Company paid DLJ approximately $5,400 as
compensation for such financial advisory services. In December 1998, DLJ
was retained as the financial advisor for the sale of H&M. Upon the
completion of the H&M sale, the Company will pay DLJ approximately $1,600.
In March 1998, the Company paid DLJ $5,092 in connection with the
Company's refinancing of its Revolving Credit Facility and Term Loan
Facility. DLJ served as the Syndication Agent and Collateral Agent under
both Loan Agreements.
(21) Other Expense (Income)
Other expense (income) is comprised of the following:
1998 1997 1996
Loss on disposal of property, plant and
equipment $ 436 $1,521 $5,747
Discount on receivables sold 2,445 1,933 1,846
Other 248 1,275 1,539
------ ------ ------
$3,129 $4,729 $9,132
====== ====== ======
F-30
<PAGE>
Schedule I
Page 1
SPECIALTY FOODS ACQUISITION CORPORATION
Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
--------- ---------
Assets
<S> <C> <C>
Cash $ 1 $ 1
Investment in SFC (450,974) (403,804)
Deferred debt issuance costs 4,235 4,843
Due from SFC 7,499 7,376
Other assets -- --
--------- ---------
Total assets $(439,239) $(391,584)
========= =========
Liabilities and Stockholders' Equity
Senior secured discount debentures $ 295,191 $ 260,258
Senior subordinated discount debentures 134,698 121,043
--------- ---------
Total liabilities 429,889 381,301
Redeemable preferred stock 19,500 19,500
Stockholders' equity:
Common stock 646 646
Additional paid-in capital 42,750 42,750
Accumulated deficit (930,659) (834,416)
Cost of common shares in treasury (1,365) (1,365)
--------- ---------
Total stockholders' equity (888,628) (792,385)
--------- ---------
Total liabilities and stockholders' equity $(439,239) $(391,584)
========= =========
</TABLE>
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements of the Company.
F-31
<PAGE>
Schedule I Cont.
Page 2
SPECIALTY FOODS ACQUISITION CORPORATION
Condensed Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Equity in earnings (loss) of SFC $ (46,166) $ 91,361 $(446,550)
Operating expenses 972 945 968
--------- --------- ---------
Income (loss) from operations (47,138) 90,416 (447,518)
--------- --------- ---------
Nonoperating expense:
Interest expense (48,601) (43,148) (38,285)
Amortization of deferred debt issuance costs (609) (609) (609)
--------- --------- ---------
Total nonoperating expense (49,210) (43,757) (38,894)
--------- --------- ---------
Income (loss) before income taxes (96,348) 46,659 (486,412)
Income taxes (105) 136 166
--------- --------- ---------
Net income (loss) $ (96,243) $ 46,523 $(486,578)
========= ========= =========
</TABLE>
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements of the Company.
F-32
<PAGE>
Schedule I Cont.
Page 3
SPECIALTY FOODS ACQUISITION CORPORATION
Condensed Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (96,243) $ 46,523 $(486,578)
Debt issuance cost amortization 609 609 609
Accretion of interest 48,601 43,148 38,285
Equity in earnings of SFC 46,166 (91,361) 446,550
Changes in operating assets
and liabilities:
Other assets
-- -- (91)
--------- --------- ---------
Net cash (used) by
operating activities (867) (1,081) (1,225)
Cash flows from financing activities:
Purchase of treasury stock -- -- (837)
Proceeds from issuance of
treasury stock -- -- 117
Dividend from subsidiary 1,004 1,122 3,671
Issuance of preferred stock -- 19,500 --
Purchase of Senior Secured
Discount Debentures -- -- (1,712)
Advances from SFC 122 (18,375) (37)
Other
(259) (1,166) 23
--------- --------- ---------
Net cash provided
by financing activities 867 1,081 1,225
Net increase in cash and cash equivalents -- -- --
Cash at beginning of period 1 1 1
--------- --------- ---------
Cash at end of period $ 1 $ 1 $ 1
========= ========= =========
</TABLE>
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements of the Company.
F-33
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,993 $ 5,881
Accounts receivable, net 20,915 19,327
Inventories 25,307 23,366
Net assets of discontinued operations 87,839 86,632
Other current assets 8,764 7,234
----------- -----------
Total current assets 159,818 142,440
Property, plant, and equipment, net 233,001 234,944
Intangible assets, net 110,281 113,438
Other noncurrent assets 34,253 43,573
----------- -----------
Total assets $ 537,353 $ 534,395
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt (Note 5) $ 268,144 $ 3,450
Accounts payable 44,662 37,779
Accrued expenses 75,777 80,741
----------- -----------
Total current liabilities 388,583 121,970
Long-term debt 1,020,537 1,250,198
Other noncurrent liabilities 30,506 31,355
----------- -----------
Total liabilities 1,439,626 1,403,523
Redeemable preferred stock 19,500 19,500
Stockholders' equity (921,773) (888,628)
----------- -----------
Total liabilities and stockholders' equity $ 537,353 $ 534,395
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-34
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Net sales $ 200,265 $ 170,924
Cost of sales 89,444 76,319
--------- ---------
Gross profit 110,821 94,605
Operating expenses:
Selling, distribution, general and administrative 108,780 94,605
Amortization of intangibles 1,017 212
--------- ---------
Total operating expenses 109,797 94,817
--------- ---------
Operating profit 1,024 (212)
Other expenses:
Interest expense, net 36,745 31,397
Other expense, net 679 801
--------- ---------
Loss before income taxes (36,400) (32,410)
Provision for income taxes 141 29
--------- ---------
Loss from continuing operations (36,541) (32,439)
Discontinued operations:
Net income 3,810 2,362
Loss on disposal, net (412) --
--------- ---------
3,398 2,362
--------- ---------
Net loss $ (33,143) $ (30,077)
========= =========
Earnings (loss) per share:
From continuing operations $ (.58) $ (.52)
From discontinued operations .05 .04
--------- ---------
Net loss $ (.53) $ (.48)
========= =========
Weighted average shares outstanding 62,768 62,768
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-35
<PAGE>
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (36,541) $ (32,439)
Adjustments to reconcile to net cash
from continuing operating activities
Depreciation and amortization 9,331 5,653
Debt issuance cost amortization 2,915 1,469
Accretion of interest 13,100 11,617
Changes in operating assets and liabilities,
net of effects from businesses acquired or sold (3,779) (17,701)
--------- ---------
Net cash used by continuing operating activities (14,974) (31,401)
Net cash provided (used) by discontinued operations 2,191 (2,391)
--------- ---------
Net cash used by operating activities (12,783) (33,792)
Cash flows from investing activities:
Capital expenditures (3,658) (5,977)
Proceeds from the sale of business 3,800 --
Other 2,406 (764)
--------- ---------
Net cash provided (used) by investing activities 2,548 (6,741)
Cash flows from financing activities:
Increase in revolving credit 22,801 --
Refinancing costs (586) (9,243)
Other (868) (472)
--------- ---------
Net cash provided (used) by financing activities 21,347 (9,715)
Increase (decrease) in cash and cash equivalents 11,112 (50,248)
Cash - beginning of period 5,881 234,267
--------- ---------
Cash - end of period $ 16,993 $ 184,019
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-36
<PAGE>
NOTE 1 - Interim Financial Information
In the opinion of management, the accompanying unaudited interim condensed
financial information of Specialty Foods Acquisition Corporation (SFAC)
and its subsidiaries (collectively, the Company) contains all adjustments,
consisting only of those of a recurring nature, necessary to present
fairly the Company's financial position and results of operations. All
significant intercompany accounts, transactions and profits have been
eliminated.
These financial statements are for interim periods and do not include all
information normally provided in annual financial statements and should be
read in conjunction with the financial statements of the Company for the
year ended December 31, 1998 included in the annual report filed on Form
10-K and any reports on Form 8-K filed during the quarter. The results of
operations for interim periods are not necessarily indicative of the
results that may be expected for the full year.
Certain amounts in the 1998 financial statements have been reclassified to
conform to the manner in which the 1999 financial statements have been
presented.
NOTE 2 - Inventories
The components of inventories are as follows:
March 31, December 31,
1999 1998
---- ----
(In thousands)
Raw materials and packaging $ 12,519 $ 12,244
Work in progress 588 264
Finished goods 9,282 8,593
Other 3,934 3,209
-------- --------
26,323 24,310
Less obsolescence and other allowances (1,016) (944)
-------- --------
$ 25,307 $ 23,366
======== ========
Inventories are stated at the lower of cost or market. Cost is determined
principally by the first-in first-out ("FIFO") method.
F-37
<PAGE>
NOTE 3 - Sale of H&M Food Systems, Inc. (H&M)
In March 1999, SFC signed a definitive agreement to sell its subsidiary,
H&M, for $132 million. H&M is a producer of custom formulated, pre-cooked
meat products that are sold primarily to national restaurant chains and
prepared-food producers. The transaction closed on April 12, 1999.
Accordingly, SFC will report the net gain on the sale, expected to
approximate $29 million, during the second quarter of 1999. The Company
realized net cash proceeds of $110 million after it repurchased H&M's
financed receivables, established a $5 million one-year escrow and paid
transaction costs.
H&M is classified as a discontinued operation in the accompanying
financial statements. The net assets of H&M are reported as a single line
item in SFC's Balance Sheets for March 31, 1999 and December 31, 1998, and
the results of H&M's operation are reported in the discontinued operations
section of the accompanying Consolidated Statements of Operations.
NOTE 4 - Acquisition
On May 13, 1999, SFC announced that its wholly-owned operating company,
Metz Baking Company, signed a definitive agreement to acquire Grocers
Baking Company. Grocers Baking Company, which had approximately $60
million of sales during 1998, is a privately-held manufacturer and
distributor of retail bread, buns, and sweet goods based in Western
Michigan. The transaction, which is subject to certain regulatory
approvals, is expected to close during the second quarter of 1999.
NOTE 5 - Debt
On May 12, 1999, the Company commenced new private exchange offers ("New
Offers") for its publicly held debt following the termination of its
previous exchange offers on April 30, 1999. Under the New Offers, holders
of existing debt of SFC and SFAC are being offered the opportunity to
exchange their existing debt for the debt of three new intermediate
holding companies as described below:
o Holders of SFAC 13% Senior Secured Discount Debentures are being
offered the opportunity to exchange their existing securities for
new 13% Senior Secured Discount Debentures ("New Senior Debentures")
of one of the new intermediate holding companies. The New Senior
Debentures include provisions that will extend the initial cash pay
interest date from February 2000 to December 2004, extend the
maturity date from August 2005 to June 2009, and provide the Company
with the option to redeem the New Senior Debentures at prescribed
discounts of accreted value. Consenting holders of the New Senior
Debentures will also receive up to an aggregate of ten percent of
the equity interest of one of the new intermediate holding
companies. Additionally, holders of SFAC's 11% Senior Subordinated
Discount Debentures are being offered the opportunity to exchange
their existing securities for new 11% Senior Subordinated Discount
Debentures ("New 11% Debentures") of one of the new intermediate
holding
F-38
<PAGE>
companies. The New 11% Debentures include provisions that will
extend the initial cash pay interest date from August 2001 to
December 2005 and extend the maturity date from August 2006 to
December 2009.
o Holders of SFC Senior Subordinated Notes and Senior Notes are being
offered the opportunity to exchange their existing securities for
new notes ("New Notes") of one of the new intermediate holding
companies. The New Notes will have substantially the same terms and
covenants as the existing SFC notes and will be structurally senior
to the New Senior Debentures. Senior Subordinated Note holders who
exchange for the New Notes will receive a consent fee of $35 per
$1,000 note and an increased coupon rate of 200 basis points of
which 100 basis points will be paid in cash and 100 basis points
payable in kind. Senior Note holders who exchange for the New Notes
will receive a consent fee of $10 per $1,000 note and an increased
coupon rate of 100 basis points. In addition, consenting holders of
the New Notes will receive up to an aggregate of $28.2 million of
New 11% Debentures of one of the new intermediate holding companies.
Concurrent with the above described offers, the Company is seeking the
consent for the Corporate organization changes from its Revolving Credit,
Term Loan, and Accounts Receivable Facility lenders ("Senior Secured Debt
Lenders"). Additionally, the Company is seeking the consent of its Senior
Secured Debt Lenders to extend the maturity of the facilities from January
2000 to January 2001. As of March 31, 1999, $ 264.7 million of the
Revolving Credit and Term Loan Facilities were reclassed to a current
liability based on the existing maturity date. Consummation of the
exchange offers and the extension of the Senior Secured Debt facilities
would result in a reclassification of the amount outstanding under the
Revolving Credit and Term Loan Facilities back to a non-current liability.
The Company's management believes that completion of an exchange offer and
the extension of its senior secured indebtedness are essential elements in
continuing to operate the Company's business as currently conducted.
F-39
<PAGE>
SFAC New Holdings, Inc.
Exchange offers for:
$587,025,332 of our 13% Senior Secured Discount Debentures due 2009
and
$55,000 13% Senior Secured Discount Debentures due 2005
of Specialty Foods Acquisition Corporation
----------------------
PROSPECTUS
August 9, 1999
----------------------
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of SFAC New Holdings since the date hereof or that the information
contained herein is correct as of any time subsequent to its date.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article 8 of the Company's Certificate of Incorporation and By-Laws
provide for the indemnification by the Company of each person who is or was or
had agreed to become a director, officer, employee or agent of the Company, or,
at the request of the Company, a director, officer, employee or agent of another
enterprise, against all expenses and other amounts for which indemnification may
be made under law. Section 145 of the General Corporation Law of the State of
Delaware sets forth provisions which define the extent to which a corporation
organized under the laws of Delaware may indemnify directors, officers,
employees, and agents. Section 145 provides in pertinent part as follows:
(a) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine
II-1
<PAGE>
upon application that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b), or
in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) (unless
ordered by a court) shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion,
or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending a civil, criminal, administrative, or investigative
action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such
expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board
of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section, shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
* * *
II-2
<PAGE>
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
Item 21. Exhibits and Financial Statements.
Exhibit
Number Description of Document
------ -----------------------
3.1* Certificate of Incorporation of SFAC New Holdings, Inc.
3.2* Certificate of Amendment of SFAC New Holdings, Inc.
3.3* Certificate of Amendment of SFAC New Holdings, Inc.
3.4* By-Laws of SFAC New Holdings, Inc.
3.5* Certificate of Designation of SFAC New Holdings, Inc.
4.1* Registration Rights Agreement, dated as of June 11, 1999,
among SFAC New Holdings, Inc. and holders of its 13% Senior
Secured Discount Debentures due 2009.
4.2* Indenture, dated as of June 11, 1999, between SFAC New
Holdings, Inc. and United States Trust Company of New York, as
trustee, governing the 13% Senior Secured Discount Debentures
due 2009 issued by SFAC New Holdings, Inc.
4.3 Registration Rights Agreement, dated as of June 11, 1999,
among SFC New Holdings, Inc. and holders of its 11 1/4% Senior
Notes due 2001, its 121/8% Senior Notes due 2002 and its 13
1/4% Senior Subordinated Notes due 2003. (Incorporated by
reference to Exhibit 4.1 to SFC New Holding, Inc.'s
Registration Statement on Form S-4 (Registration No.
33-83063))
4.4 Indenture, dated as of June 11, 1999, between SFC New
Holdings, Inc. and United States Trust Company of New York, as
trustee, governing the 11 1/4% Senior Notes due 2001 issued by
SFC New Holdings, Inc. (Incorporated by reference to Exhibit
4.2 to SFC New Holding, Inc.'s Registration Statement on Form
S-4 (Registration No. 33-83063))
4.5 Indenture, dated as of June 11, 1999, between SFC New
Holdings, Inc. and United States Trust Company of New York, as
trustee, governing the 121/8% Senior Notes due 2002 issued by
SFC New Holdings, Inc. (Incorporated by reference to Exhibit
4.3 to SFC New Holding, Inc.'s Registration Statement on Form
S-4 (Registration No. 33-83063))
II-3
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
4.6 Indenture, dated as of June 11, 1999, between SFC New
Holdings, Inc. and U.S. Trust Company of Texas, N.A., as
trustee, governing the 13 1/4% Senior Subordinated Notes due
2003 issued by SFC New Holdings, Inc. (Incorporated by
reference to Exhibit 4.4 to SFC New Holding, Inc.'s
Registration Statement on Form S-4 (Registration No.
33-83063))
5.1** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding
the legality of the securities being registered.
8.1** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding
certain tax matters.
10.1 Tax Sharing Agreement, dated as of August 16, 1993, among
Specialty Foods Acquisition Corporation, Specialty Foods Corp.
and certain subsidiaries of Specialty Foods Corp.
(Incorporated by reference to Exhibit 10.17 to Specialty Foods
Acquisition Corporation's Registration Statement on Form S-4
(Registration No. 33-68958))
10.2 First Amended and Restated SFC Group Tax Sharing Agreement,
dated as of June 11, 1999, among Specialty Foods Acquisition
Corporation, SFC New Holdings, Inc. and certain subsidiaries
of SFC New Holdings, Inc. (Incorporated by reference to
Exhibit 10.2 to SFC New Holding, Inc.'s Registration Statement
on Form S-4 (Registration No. 33-83063))
10.3 Tax Sharing Agreement, dated as of August 16, 1993, between
Specialty Foods Acquisition Corporation and Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.18 to Specialty
Foods Acquisition Corporation's Registration Statement on Form
S-4 (Registration No. 33-68958))
10.4 First Amended and Restated SFAC Tax Sharing Agreement, dated
as of June 11, 1999, among Specialty Foods Acquisition
Corporation and SFC New Holdings, Inc. (Incorporated by
reference to Exhibit 10.4 to SFC New Holding, Inc.'s
Registration Statement on Form S-4 (Registration No.
33-83063))
10.5* SFAC and SFC Group Tax Sharing Agreement, dated as of June 11,
1999, between Specialty Foods Acquisition Corporation,
Specialty Foods Corp., SFC Sub, Inc. and SFAC New Holdings,
Inc.
II-4
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.6 Assignment and Assumption Agreement, dated as of June 11,
1999, between Specialty Foods Corp. and SFC New Holdings, Inc.
(Incorporated by reference to Exhibit 10.5 to SFC New Holding,
Inc.'s Registration Statement on Form S-4 (Registration No.
33-83063))
10.7 Corporate Services Agreement, dated as of June 30, 1994,
between Specialty Foods Acquisition Corporation and Specialty
Foods Corp. (Incorporated by reference to Exhibit 10.14 to
Specialty Foods Corp.'s Report on Form 10-K for the year ended
December 31, 1994)
10.8 Term Loan Agreement, dated as of March 16, 1998, among
Specialty Foods Corp., various financial institutions, DLJ
Capital Funding, Inc., as syndication agent, and ABN Amro Bank
N.V., as administrative agent. (Incorporated by reference to
Exhibit 10.24 to Specialty Foods Acquisition Corporation's
Report on Form 10-K for the year ended December 31, 1997)
10.9 Amended and Restated Term Loan Agreement, dated as of June 11,
1999, among SFC New Holdings, Inc., as the Borrower, Various
Financial Institutions, as the Term Loan Lenders, DLJ Capital
Funding, Inc., as the Syndication Agent and Collateral Agent
for the Term Loan Lenders, ABN Amro Bank, N.V. as the
Administrative Agent for the Term Loan Lenders and Banque
Paribas, as the Documentation Agent for the Term Loan Lenders.
(Incorporated by reference to Exhibit 99.3 to Specialty Foods
Acquisition Corporation Report on Form 8-K dated June 30,
1999)
10.10 Revolving Credit Agreement, dated as of March 16, 1998, among
certain subsidiaries of Specialty Foods Corp., various
financial institutions, DLJ Capital Funding, Inc., as
syndication agent, and ABN Amro Bank N.V., as administrative
agent. (Incorporated by reference to Exhibit 10.25 to
Specialty Foods Acquisition Corporation's Report on Form 10-K
for the year ended December 31, 1997)
II-5
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.11 Amended and Restated Revolving Credit Agreement, dated as of
June 11, 1999, among certain subsidiaries of SFC New Holdings,
Inc., as the Revolving Credit Borrowers, Various Financial
Institutions, as the Revolving Credit Lenders, DLJ Capital
Funding, Inc., as the Syndication Agent and Collateral Agent
for the Revolving Credit Lenders, ABN Amro Bank, N.V. as the
Administrative Agent for the Revolving Credit Lenders and
Banque Paribas, as the Documentation Agent for the Revolving
Credit Lenders. (Incorporated by reference to Exhibit 99.2 to
Specialty Foods Acquisition Corporation Report on Form 8-K
dated June 30, 1999)
10.12 Pooling Agreement, dated as of November 16, 1994, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and Chase Manhattan Bank, as trustee (the
"Pooling Agreement"). (Incorporated by reference to Exhibit
10.29 to Specialty Foods Acquisition Corporation's Report on
Form 10-K for the year ended December 31, 1994)
10.13 Series 1994-1 Supplement to the Pooling Agreement, dated as of
November 16, 1994, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and Chase Manhattan
Bank, as trustee. (Incorporated by reference to Exhibit 10.30
to Specialty Foods Acquisition Corporation's Report on Form
10-K for the year ended December 31, 1994)
10.14 Series 1996-1 Supplement to the Pooling Agreement, dated as of
August 1, 1996, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and Chase Manhattan
Bank, as trustee. (Incorporated by reference to Exhibit 10.67
to Specialty Foods Acquisition Corporation's Report on Form
10-Q for the Quarter ended September 28, 1996)
10.15 Amendment No. 1 to Series 1996-1 Supplement to the Pooling
Agreement, dated as of November 29, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, Chase Manhattan Bank, as initial VFC
Certificate holder, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.34 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1996)
II-6
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.16 Amendment No. 2 to Series 1996-1 Supplement to the Pooling
Agreement, dated as of December 13, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, Chase Manhattan Bank, as initial VFC
Certificate holder, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.26 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1996)
10.17 Series 1997-1 Supplement to the Pooling Agreement, dated as of
January 31, 1997, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and Chase Manhattan
Bank, as trustee. (Incorporated by reference to Exhibit 10.36
to Specialty Foods Acquisition Corporation's Report on Form
10-K for the year ended December 31, 1996)
10.18 Series 1998-1 Certificate Purchase Agreement, dated as of
March 31, 1998, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and Bankers Trust
Company, as Agent. (Incorporated by reference to Exhibit 10.78
to Specialty Foods Acquisition Corporation's Report on Form
10-Q for the Quarter ended March 31, 1998)
10.19 Series 1998-1 Supplement, dated as of March 31, 1998, to the
Pooling Agreement, dated as of November 16, 1994, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.79 to Specialty Foods
Acquisition Corporation's Report on Form 10-Q for the Quarter
ended March 31, 1998)
10.20 Amendment to Series 1998-1 Supplement, dated as of March 31,
1998, by and among Specialty Foods Finance Corp., Specialty
Foods Corp., as Master Servicer, Chase Manhattan Bank, as
trustee, and Bankers Trust, as the sole VFC Certificate holder
under that certain Certificate Purchase Agreement.
(Incorporated by reference to Exhibit 10.81 to Specialty Foods
Acquisition Corporation's Report on Form 10-Q for the Quarter
ended March 31, 1998)
II-7
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.21 Amendment No. 3 to Series 1998-1 Supplement and Amendment No.
1 to Series 1998-1 Certificate Purchase Agreement, dated as of
June 10, 1999, between Specialty Foods Finance Corp.,
Specialty Foods Corp., SFC New Holdings, Inc., The Chase
Manhattan Bank, Various Financial Institutions and Bankers
Trust Company, as a VFC Certificateholder and as agent for the
VFC Certificateholder. (Incorporated by reference to Exhibit
99.5 to Specialty Foods Acquisition Corporation's Report on
Form 8-K dated June 30, 1999).
10.22 Amendment No. 4 to Series 1998-I Supplement, dated as of June
10, 1999, by and among Specialty Foods Finance Corp., SFC New
Holdings, Inc., The Chase Manhattan Bank, as trustee, Various
Financial Institutions and Bankers Trust, as a VFC
Certificateholder and as agent for the VFC Certificateholder.
(Incorporated by reference to Exhibit 99.6 to Specialty Foods
Acquisition Corporation's Report on Form 8-K dated June 30,
1999)
10.23 Performance Guaranty, dated as of March 31, 1998, by and among
Specialty Foods Corp., as Master Servicer, in favor of
Specialty Foods Finance Corp. (Incorporated by reference to
Exhibit 10.82 to Specialty Foods Acquisition Corporation's
Report on Form 10-Q for the Quarter ended March 31, 1998)
10.24 Amended and Restated Receivables Sales Agreement, dated as of
November 16, 1994, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and certain
subsidiaries of Specialty Foods Corp. (Incorporated by
reference to Exhibit 10.31 to Specialty Foods Acquisition
Corporation's Report on Form 10-K for the year ended December
31, 1994)
10.25 Servicing Agreement, dated as of November 16, 1994, by and
among Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and certain subsidiaries of Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.32 to Specialty
Foods Acquisition Corporation's Report on Form 10-K for the
year ended December 31, 1994)
10.26 Amendment No. 1 to Specialty Foods Corp. Master Trust Pooling
and Servicing Agreements, dated as of December 16, 1996, by
and among Specialty Foods Finance Corp., Specialty Foods
Corp., as Master Servicer, and Chase Manhattan Bank, as
trustee. (Incorporated by reference to Exhibit 10.38 to
Specialty Foods Acquisition Corporation's Report on Form 10-K
for the year ended December 31, 1996)
II-8
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.27 Amendment No. 2 to Specialty Foods Corp. Master Trust Pooling
Agreement, dated as of December 27, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.40 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1996)
10.28 Amendment No. 3 to Specialty Foods Corp. Master Trust Pooling
Agreement, dated as of February 24, 1997, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.41 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1996)
10.29 Amendment No. 7 to Specialty Foods Corp. Master Trust
Amendment No. 7 to the Master Trust Pooling Agreement and the
Receivables Sale Agreement and Amendment No. 2 to the
Servicing Agreement and Consent Related thereto, dated as of
June 10, 1999, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., SFC New Holdings, Inc. and The Chase
Manhattan Bank, as trustee. (Incorporated by reference to
Exhibit 99.4 to Specialty Foods Acquisition Corporation's
Report on Form 8-K dated June 8, 1999)
10.30 Amendment No. 1 to Amended and Restated Receivables Sale
Agreement, dated as of December 16, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and certain subsidiaries of Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.42 to Specialty
Foods Acquisition Corporation's Report on Form 10-K for the
year ended December 31, 1996)
10.31 Amendment No. 2 to Amended and Restated Receivables Sale
Agreement, dated as of December 27, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and certain subsidiaries of Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.43 to Specialty
Foods Acquisition Corporation's Report on Form 10-K for the
year ended December 31, 1996)
II-9
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.32 Amendment No. 3 to Amended and Restated Receivables Sale
Agreement, dated as of February 24, 1997, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and certain subsidiaries of Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.44 to Specialty
Foods Acquisition Corporation's Report on Form 10-K for the
year ended December 31, 1996)
10.33 Specialty Foods Corp. Master Trust Amendment No. 5 to each of
the Pooling Agreement and Receivables Sale Agreement and
Amendment No. 1 to the Servicing Agreement. (Incorporated by
reference to Exhibit 10.80 to Specialty Foods Acquisition
Corporation's Report on Form 10-Q for the Quarter ended March
31, 1998)
10.34 Amended and Restated Executive Employment Agreement, dated as
of March 15, 1999, among Specialty Foods Acquisition
Corporation, Specialty Foods Corp. and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.38 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.35 Amended and Restated Executive Employment Agreement, dated as
of March 15, 1999, among Specialty Foods Acquisition
Corporation, Specialty Foods Corp. and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.43 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.36 Amended and Restated Executive Employment Agreement, dated as
of March 15, 1999, among Specialty Foods Acquisition
Corporation, Specialty Foods Corp. and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.43 to Specialty Food
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.37 Executive Employment Agreement, dated as of July 15, 1997,
among Specialty Foods Corp., Mother's Cake & Cookie Company,
MCC-DSD Holdings, Inc. and Patrick J. O'Dea. (Incorporated by
reference to Exhibit 10.44 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
II-10
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.38 Mother's Cake & Cookie Co. Amended and Restated Supplemental
Long Term Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.48 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
10.39 Deferred Bonus Agreement, dated as of October 27, 1997,
between Specialty Foods Corp. and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.53 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1997)
10.40 Special Bonus Agreement, dated as of December 21, 1997,
between Specialty Foods Corp. and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.54 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1997)
10.41 Retention Bonus Agreement, dated as of March 15, 1999, between
Specialty Foods Corp. and Lawrence S. Benjamin. (Incorporated
by reference to Exhibit 10.52 to Specialty Foods Corp.'s
Report on Form 10-K for the year ended December 31, 1998)
10.42 Participation Award Agreement, dated as of March 15, 1999,
between Mother's Cake & Cookie Company and Lawrence S.
Benjamin. (Incorporated by reference to Exhibit 10.53 to
Specialty Foods Corp.'s Report on Form 10-K for the year ended
December 31, 1998)
10.43 Deferred Bonus Agreement, dated as of July 15, 1997, between
Specialty Foods Corp. and Robert L. Fishbune. (Incorporated by
reference to Exhibit 10.55 to Specialty Foods Acquisition
Corporation's Report on Form 10-K for the year ended December
31, 1997)
10.44 Retention Bonus Agreement, dated as of March 15, 1999, between
Specialty Foods Corp. and Robert L. Fishbune. (Incorporated by
reference to Exhibit 10.55 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
10.45 Deferred Bonus Agreement, dated as of June 16, 1998, between
Andre-Boudin Bakeries, Inc. and Larry Strain. (Incorporated by
reference to Exhibit 10.56 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
II-11
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.46 Deferred Bonus Agreement, dated as of July 15, 1997, between
Mother's Cake & Cookie Company and Patrick J. O'Dea.
(Incorporated by reference to Exhibit 10.58 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.47 Retention Bonus Agreement, dated as of March 15, 1999, between
Mother's Cake & Cookie Company and Patrick J. O'Dea.
(Incorporated by reference to Exhibit 10.59 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.48 Retention Bonus Agreement, dated as of March 15, 1999, between
Specialty Foods Corp. and David E. Schreibman. (Incorporated
by reference to Exhibit 10.60 to Specialty Foods Corp.'s
Report on Form 10-K for the year ended December 31, 1998)
10.49 Deferred Bonus Agreement, dated as of July 15, 1997, between
Metz Baking Company and Henry J. Metz. (Incorporated by
reference to Exhibit 10.57 Specialty Foods Acquisition
Corporation's Report on Form 10-Q for the Quarter ended March
31, 1998)
10.50 Divestiture Award Agreement, dated as of March 15, 1999,
between Metz Baking Company and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.66 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.51 Divestiture Award Agreement, dated as of July 15, 1997,
between Metz Baking Company and Henry J. Metz. (Incorporated
by reference to Exhibit 10.65 to Specialty Foods Acquisition
Corporation's Report on Form 10-K for the year ended December
31, 1997)
10.52 Divestiture Award Agreement, dated as of March 15, 1999,
between H&M Food System Company, Inc. and Lawrence S.
Benjamin. (Incorporated by reference to Exhibit 10.68 to
Specialty Foods Corp.'s Report on Form 10-K for the year ended
December 31, 1998)
10.53 Divestiture Award Agreement, dated as of March 15, 1999,
between Metz Baking Company and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.69 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
II-12
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.54 Divestiture Award Agreement, dated as of March 15, 1999,
between H&M Food System Company, Inc. and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.70 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.55 Divestiture Award Agreement, dated as of March 15, 1999,
between Mother's Cake & Cookie Company and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.71 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.56 Divestiture Award Agreement, dated as of March 15, 1999,
between Andre-Boudin Bakeries, Inc. and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.72 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.57 Divestiture Award Agreement, dated as of October 19, 1998
between H&M Food System Company, Inc. and David E. Schreibman.
(Incorporated by reference to Exhibit 10.73 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.58 Divestiture Award Agreement, dated as of March 15, 1999,
between Metz Baking Company and David E. Schreibman.
(Incorporated by reference to Exhibit 10.74 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.59 Divestiture Award Agreement, dated as of March 15, 1999,
between Mother's Cake & Cookie Company and David E.
Schreibman. (Incorporated by reference to Exhibit 10.75 to
Specialty Foods Corp.'s Report on Form 10-K for the year ended
December 31, 1998)
10.60 Divestiture Award Agreement, dated as of March 15, 1999,
between Andre-Boudin Bakeries, Inc. and David E. Schreibman.
(Incorporated by reference to Exhibit 10.76 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.61 Amended and Restated Metz Baking Company Pension Plan for
Non-Union Employees. (Incorporated by reference to Exhibit
10.52 to Specialty Foods Acquisition Corporation's Report on
Form 10-K for the year ended December 31, 1994)
II-13
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.62 Amended and Restated Mother's Cake & Cookie Company Retirement
Plan. (Incorporated by reference to Exhibit 10.51 to Specialty
Foods Acquisition Corporation's report on Form 10-K for the
year ended December 31, 1994)
10.63 Coordination Document for the Metz Baking Company-Mother's
Cake & Cookie Co. Consolidated Pension Plan. (Incorporated by
reference to Exhibit 10.80 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
10.64 Form of 1998 Annual Bonus Plan. (Incorporated by reference to
Exhibit 10.84 to Specialty Foods Corp.'s Report on Form 10-K
for the year ended December 31, 1998)
10.65 Form of 1999 Annual Bonus Plan. (Incorporated by reference to
Exhibit 10.85 to Specialty Foods Corp.'s Report on Form 10-K
for the year ended December 31, 1998)
10.66 Executive Employment Agreement, dated as of May 1, 1999, by
and among Specialty Foods Acquisition Corporation, Specialty
Foods Corp., Metz Baking Company, Mother's Cake & Cookie
Company, Archway Cookies, Inc., and Andre-Boudin Bakeries,
Inc. and David E. Schreibman. (Incorporated by reference to
Exhibit 10.87 to Specialty Foods Corp.'s Report on Form 10-Q
for the Quarter ended March 31, 1999)
10.67 Amended and Restated Retention Bonus Agreement, dated as of
May 1, 1999, by and between Specialty Foods Corp. and David E.
Schreibman. (Incorporated by reference to Exhibit 10.88 to
Specialty Foods Corp.'s Report on Form 10-Q for the Quarter
ended March 31, 1999)
10.68 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Metz Baking Company and David E.
Schreibman. (Incorporated by reference to Exhibit 10.89 to
Specialty Foods Corp.'s Report on Form 10-Q for the Quarter
ended March 31, 1999)
10.69 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Mother's Cake & Cookie Company and
David E. Schreibman. (Incorporated by reference to Exhibit
10.90 to Specialty Foods Corp.'s Report on Form 10-Q for the
Quarter ended March 31, 1999)
II-14
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.70 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Andre-Boudin Bakeries, Inc. and
David E. Schreibman. (Incorporated by reference to Exhibit
10.91 to Specialty Foods Corp.'s Report on Form 10-Q for the
Quarter ended March 31, 1999)
10.71 Participation Award Agreement, dated as of May 1, 1999,
between Mother's Cake & Cookie Company and Patrick J. O'Dea.
(Incorporated by reference to Exhibit 10.92 to Specialty Foods
Corp.'s Report on Form 10-Q for the Quarter ended March 31,
1999)
10.72* Stockholders Agreement, dated as of June 11, 1999, by and
between SFAC New Holdings, Inc. and holders of the 13% Senior
Secured Discount Debentures due 2009 issued by SFAC New
Holdings, Inc.
12.1* Statement re Computation of Ratio of Earnings to Fixed
Charges.
21.1* Subsidiaries of SFC New Holdings, Inc.
23.1* Consent of KPMG.
23.2** Consent of Paul, Weiss, Rifkind, Wharton & Garrison (See
Exhibit 5.1).
24.1* Power of attorney (included on the signature page of this
registration statement).
25.1* Statement on Form T-1, of the Eligibility of United States
Trust Company of New York, as Trustee under the Indenture
relating to the 13% Senior Secured Discount Debentures due
2009.
27* Financial Data Schedule
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
- ----------
* Previously filed.
** Filed herewith.
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 20, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
II-15
<PAGE>
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
II-16
<PAGE>
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows:
(a) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) SFAC New Holdings undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(b) Every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Deerfield, Illinois on
August 9, 1999.
SFAC NEW HOLDINGS, INC.
By: /s/ Sean M. Stack
---------------------------------
Name: Sean M. Stack
Title: Vice President, Treasurer and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature and Title Capacity Date
- ------------------- -------- ----
*
- -------------------------- Principal Executive Officer August 9, 1999
Lawrence S. Benjamin and Director
*
- -------------------------- Principal Financial and August 9, 1999
Robert L. Fishbune Accounting Officer
*
- -------------------------- Chairman of the Board of August 9, 1999
Robert B. Haas Directors
- -------------------------- Director
Thomas J. Baldwin
* Director August 9, 1999
- --------------------------
J. Taylor Crandall
* Director August 9, 1999
- --------------------------
Jerry M. Meyer
<PAGE>
Signature and Title Capacity Date
- ------------------- -------- ----
* Director August 9, 1999
- --------------------------
Andrew J. Nathanson
Director
- --------------------------
David G. Offensend
* Director August 9, 1999
- --------------------------
Marc C. Particelli
* Director August 9, 1999
- --------------------------
Anthony P. Scotto
*
- --------------------------
Douglas D. Wheat Director August 9, 1999
*By: /s/ Sean M. Stack
----------------------
Sean M. Stack
Attorney-in-fact
<PAGE>
EXHIBITS INDEX
3.1* Certificate of Incorporation of SFAC New Holdings, Inc.
3.2* Certificate of Amendment of SFAC New Holdings, Inc.
3.3* Certificate of Amendment of SFAC New Holdings, Inc.
3.4* By-Laws of SFAC New Holdings, Inc.
3.5* Certificate of Designation of SFAC New Holdings, Inc.
4.1* Registration Rights Agreement, dated as of June 11, 1999,
among SFAC New Holdings, Inc. and holders of its 13% Senior
Secured Discount Debentures due 2009.
4.2* Indenture, dated as of June 11, 1999, between SFAC New
Holdings, Inc. and United States Trust Company of New York, as
trustee, governing the 13% Senior Secured Discount Debentures
due 2009 issued by SFAC New Holdings, Inc.
4.3 Registration Rights Agreement, dated as of June 11, 1999,
among SFC New Holdings, Inc. and holders of its 11 1/4% Senior
Notes due 2001, its 121/8% Senior Notes due 2002 and its 13
1/4% Senior Subordinated Notes due 2003. (Incorporated by
reference to Exhibit 4.1 to SFC New Holding, Inc.'s
Registration Statement on Form S-4 (Registration No.
33-83063))
4.4 Indenture, dated as of June 11, 1999, between SFC New
Holdings, Inc. and United States Trust Company of New York, as
trustee, governing the 11 1/4% Senior Notes due 2001 issued by
SFC New Holdings, Inc. (Incorporated by reference to Exhibit
4.2 to SFC New Holding, Inc.'s Registration Statement on Form
S-4 (Registration No. 33-83063))
4.5 Indenture, dated as of June 11, 1999, between SFC New
Holdings, Inc. and United States Trust Company of New York, as
trustee, governing the 121/8% Senior Notes due 2002 issued by
SFC New Holdings, Inc. (Incorporated by reference to Exhibit
4.3 to SFC New Holding, Inc.'s Registration Statement on Form
S-4 (Registration No. 33-83063))
4.6 Indenture, dated as of June 11, 1999, between SFC New
Holdings, Inc. and U.S. Trust Company of Texas, N.A., as
trustee, governing the 13 1/4% Senior Subordinated Notes due
2003 issued by SFC New Holdings, Inc. (Incorporated by
reference to Exhibit 4.4 to SFC New Holding, Inc.'s
Registration Statement on Form S-4 (Registration No.
33-83063))
5.1** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding
the legality of the securities being registered.
<PAGE>
8.1** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding
certain tax matters.
10.1 Tax Sharing Agreement, dated as of August 16, 1993, among
Specialty Foods Acquisition Corporation, Specialty Foods Corp.
and certain subsidiaries of Specialty Foods Corp.
(Incorporated by reference to Exhibit 10.17 to Specialty Foods
Acquisition Corporation's Registration Statement on Form S-4
(Registration No. 33-68958))
10.2 First Amended and Restated SFC Group Tax Sharing Agreement,
dated as of June 11, 1999, among Specialty Foods Acquisition
Corporation, SFC New Holdings, Inc. and certain subsidiaries
of SFC New Holdings, Inc. (Incorporated by reference to
Exhibit 10.2 to SFC New Holding, Inc.'s Registration Statement
on Form S-4 (Registration No. 33-83063))
10.3 Tax Sharing Agreement, dated as of August 16, 1993, between
Specialty Foods Acquisition Corporation and Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.18 to Specialty
Foods Acquisition Corporation's Registration Statement on Form
S-4 (Registration No. 33-68958))
10.4 First Amended and Restated SFAC Tax Sharing Agreement, dated
as of June 11, 1999, among Specialty Foods Acquisition
Corporation and SFC New Holdings, Inc. (Incorporated by
reference to Exhibit 10.4 to SFC New Holding, Inc.'s
Registration Statement on Form S-4 (Registration No.
33-83063))
10.5* SFAC and SFC Group Tax Sharing Agreement, dated as of June 11,
1999, between Specialty Foods Acquisition Corporation,
Specialty Foods Corp., SFC Sub, Inc. and SFAC New Holdings,
Inc.
10.6 Assignment and Assumption Agreement, dated as of June 11,
1999, between Specialty Foods Corp. and SFC New Holdings, Inc.
(Incorporated by reference to Exhibit 10.5 to SFC New Holding,
Inc.'s Registration Statement on Form S-4 (Registration No.
33-83063))
10.7 Corporate Services Agreement, dated as of June 30, 1994,
between Specialty Foods Acquisition Corporation and Specialty
Foods Corp. (Incorporated by reference to Exhibit 10.14 to
Specialty Foods Corp.'s Report on Form 10-K for the year ended
December 31, 1994)
<PAGE>
10.8 Term Loan Agreement, dated as of March 16, 1998, among
Specialty Foods Corp., various financial institutions, DLJ
Capital Funding, Inc., as syndication agent, and ABN Amro Bank
N.V., as administrative agent. (Incorporated by reference to
Exhibit 10.24 to Specialty Foods Acquisition Corporation's
Report on Form 10-K for the year ended December 31, 1997)
10.9 Amended and Restated Term Loan Agreement, dated as of June 11,
1999, among SFC New Holdings, Inc., as the Borrower, Various
Financial Institutions, as the Term Loan Lenders, DLJ Capital
Funding, Inc., as the Syndication Agent and Collateral Agent
for the Term Loan Lenders, ABN Amro Bank, N.V. as the
Administrative Agent for the Term Loan Lenders and Banque
Paribas, as the Documentation Agent for the Term Loan Lenders.
(Incorporated by reference to Exhibit 99.3 to Specialty Foods
Acquisition Corporation Report on Form 8-K dated June 30,
1999)
10.10 Revolving Credit Agreement, dated as of March 16, 1998, among
certain subsidiaries of Specialty Foods Corp., various
financial institutions, DLJ Capital Funding, Inc., as
syndication agent, and ABN Amro Bank N.V., as administrative
agent. (Incorporated by reference to Exhibit 10.25 to
Specialty Foods Acquisition Corporation's Report on Form 10-K
for the year ended December 31, 1997)
10.11 Amended and Restated Revolving Credit Agreement, dated as of
June 11, 1999, among certain subsidiaries of SFC New Holdings,
Inc., as the Revolving Credit Borrowers, Various Financial
Institutions, as the Revolving Credit Lenders, DLJ Capital
Funding, Inc., as the Syndication Agent and Collateral Agent
for the Revolving Credit Lenders, ABN Amro Bank, N.V. as the
Administrative Agent for the Revolving Credit Lenders and
Banque Paribas, as the Documentation Agent for the Revolving
Credit Lenders. (Incorporated by reference to Exhibit 99.2 to
Specialty Foods Acquisition Corporation Report on Form 8-K
dated June 30, 1999)
10.12 Pooling Agreement, dated as of November 16, 1994, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and Chase Manhattan Bank, as trustee (the
"Pooling Agreement"). (Incorporated by reference to Exhibit
10.29 to Specialty Foods Acquisition Corporation's Report on
Form 10-K for the year ended December 31, 1994)
<PAGE>
10.13 Series 1994-1 Supplement to the Pooling Agreement, dated as of
November 16, 1994, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and Chase Manhattan
Bank, as trustee. (Incorporated by reference to Exhibit 10.30
to Specialty Foods Acquisition Corporation's Report on Form
10-K for the year ended December 31, 1994)
10.14 Series 1996-1 Supplement to the Pooling Agreement, dated as of
August 1, 1996, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and Chase Manhattan
Bank, as trustee. (Incorporated by reference to Exhibit 10.67
to Specialty Foods Acquisition Corporation's Report on Form
10-Q for the Quarter ended September 28, 1996)
10.15 Amendment No. 1 to Series 1996-1 Supplement to the Pooling
Agreement, dated as of November 29, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, Chase Manhattan Bank, as initial VFC
Certificate holder, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.34 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1996)
10.16 Amendment No. 2 to Series 1996-1 Supplement to the Pooling
Agreement, dated as of December 13, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, Chase Manhattan Bank, as initial VFC
Certificate holder, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.26 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1996)
10.17 Series 1997-1 Supplement to the Pooling Agreement, dated as of
January 31, 1997, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and Chase Manhattan
Bank, as trustee. (Incorporated by reference to Exhibit 10.36
to Specialty Foods Acquisition Corporation's Report on Form
10-K for the year ended December 31, 1996)
10.18 Series 1998-1 Certificate Purchase Agreement, dated as of
March 31, 1998, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and Bankers Trust
Company, as Agent. (Incorporated by reference to Exhibit 10.78
to Specialty Foods Acquisition Corporation's Report on Form
10-Q for the Quarter ended March 31, 1998)
<PAGE>
10.19 Series 1998-1 Supplement, dated as of March 31, 1998, to the
Pooling Agreement, dated as of November 16, 1994, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.79 to Specialty Foods
Acquisition Corporation's Report on Form 10-Q for the Quarter
ended March 31, 1998)
10.20 Amendment to Series 1998-1 Supplement, dated as of March 31,
1998, by and among Specialty Foods Finance Corp., Specialty
Foods Corp., as Master Servicer, Chase Manhattan Bank, as
trustee, and Bankers Trust, as the sole VFC Certificate holder
under that certain Certificate Purchase Agreement.
(Incorporated by reference to Exhibit 10.81 to Specialty Foods
Acquisition Corporation's Report on Form 10-Q for the Quarter
ended March 31, 1998)
10.21 Amendment No. 3 to Series 1998-1 Supplement and Amendment No.
1 to Series 1998-1 Certificate Purchase Agreement, dated as of
June 10, 1999, between Specialty Foods Finance Corp.,
Specialty Foods Corp., SFC New Holdings, Inc., The Chase
Manhattan Bank, Various Financial Institutions and Bankers
Trust Company, as a VFC Certificateholder and as agent for the
VFC Certificateholder. (Incorporated by reference to Exhibit
99.5 to Specialty Foods Acquisition Corporation's Report on
Form 8-K dated June 30, 1999).
10.22 Amendment No. 4 to Series 1998-I Supplement, dated as of June
10, 1999, by and among Specialty Foods Finance Corp., SFC New
Holdings, Inc., The Chase Manhattan Bank, as trustee, Various
Financial Institutions and Bankers Trust, as a VFC
Certificateholder and as agent for the VFC Certificateholder.
(Incorporated by reference to Exhibit 99.6 to Specialty Foods
Acquisition Corporation's Report on Form 8-K dated June 30,
1999)
10.23 Performance Guaranty, dated as of March 31, 1998, by and among
Specialty Foods Corp., as Master Servicer, in favor of
Specialty Foods Finance Corp. (Incorporated by reference to
Exhibit 10.82 to Specialty Foods Acquisition Corporation's
Report on Form 10-Q for the Quarter ended March 31, 1998)
10.24 Amended and Restated Receivables Sales Agreement, dated as of
November 16, 1994, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., as Master Servicer, and certain
subsidiaries of Specialty Foods Corp. (Incorporated by
reference to Exhibit 10.31 to Specialty Foods Acquisition
Corporation's Report on Form 10-K for the year ended December
31, 1994)
<PAGE>
10.25 Servicing Agreement, dated as of November 16, 1994, by and
among Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and certain subsidiaries of Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.32 to Specialty
Foods Acquisition Corporation's Report on Form 10-K for the
year ended December 31, 1994)
10.26 Amendment No. 1 to Specialty Foods Corp. Master Trust Pooling
and Servicing Agreements, dated as of December 16, 1996, by
and among Specialty Foods Finance Corp., Specialty Foods
Corp., as Master Servicer, and Chase Manhattan Bank, as
trustee. (Incorporated by reference to Exhibit 10.38 to
Specialty Foods Acquisition Corporation's Report on Form 10-K
for the year ended December 31, 1996)
10.27 Amendment No. 2 to Specialty Foods Corp. Master Trust Pooling
Agreement, dated as of December 27, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.40 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1996)
10.28 Amendment No. 3 to Specialty Foods Corp. Master Trust Pooling
Agreement, dated as of February 24, 1997, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and Chase Manhattan Bank, as trustee.
(Incorporated by reference to Exhibit 10.41 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1996)
10.29 Amendment No. 7 to Specialty Foods Corp. Master Trust
Amendment No. 7 to the Master Trust Pooling Agreement and the
Receivables Sale Agreement and Amendment No. 2 to the
Servicing Agreement and Consent Related thereto, dated as of
June 10, 1999, by and among Specialty Foods Finance Corp.,
Specialty Foods Corp., SFC New Holdings, Inc. and The Chase
Manhattan Bank, as trustee. (Incorporated by reference to
Exhibit 99.4 to Specialty Foods Acquisition Corporation's
Report on Form 8-K dated June 8, 1999)
10.30 Amendment No. 1 to Amended and Restated Receivables Sale
Agreement, dated as of December 16, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and certain subsidiaries of Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.42 to Specialty
Foods Acquisition Corporation's Report on Form 10-K for the
year ended December 31, 1996)
<PAGE>
10.31 Amendment No. 2 to Amended and Restated Receivables Sale
Agreement, dated as of December 27, 1996, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and certain subsidiaries of Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.43 to Specialty
Foods Acquisition Corporation's Report on Form 10-K for the
year ended December 31, 1996)
10.32 Amendment No. 3 to Amended and Restated Receivables Sale
Agreement, dated as of February 24, 1997, by and among
Specialty Foods Finance Corp., Specialty Foods Corp., as
Master Servicer, and certain subsidiaries of Specialty Foods
Corp. (Incorporated by reference to Exhibit 10.44 to Specialty
Foods Acquisition Corporation's Report on Form 10-K for the
year ended December 31, 1996)
10.33 Specialty Foods Corp. Master Trust Amendment No. 5 to each of
the Pooling Agreement and Receivables Sale Agreement and
Amendment No. 1 to the Servicing Agreement. (Incorporated by
reference to Exhibit 10.80 to Specialty Foods Acquisition
Corporation's Report on Form 10-Q for the Quarter ended March
31, 1998)
10.34 Amended and Restated Executive Employment Agreement, dated as
of March 15, 1999, among Specialty Foods Acquisition
Corporation, Specialty Foods Corp. and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.38 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.35 Amended and Restated Executive Employment Agreement, dated as
of March 15, 1999, among Specialty Foods Acquisition
Corporation, Specialty Foods Corp. and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.43 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.36 Amended and Restated Executive Employment Agreement, dated as
of March 15, 1999, among Specialty Foods Acquisition
Corporation, Specialty Foods Corp. and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.43 to Specialty Food
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
<PAGE>
10.37 Executive Employment Agreement, dated as of July 15, 1997,
among Specialty Foods Corp., Mother's Cake & Cookie Company,
MCC-DSD Holdings, Inc. and Patrick J. O'Dea. (Incorporated by
reference to Exhibit 10.44 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
10.38 Mother's Cake & Cookie Co. Amended and Restated Supplemental
Long Term Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.48 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
10.39 Deferred Bonus Agreement, dated as of October 27, 1997,
between Specialty Foods Corp. and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.53 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1997)
10.40 Special Bonus Agreement, dated as of December 21, 1997,
between Specialty Foods Corp. and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.54 to Specialty Foods
Acquisition Corporation's Report on Form 10-K for the year
ended December 31, 1997)
10.41 Retention Bonus Agreement, dated as of March 15, 1999, between
Specialty Foods Corp. and Lawrence S. Benjamin. (Incorporated
by reference to Exhibit 10.52 to Specialty Foods Corp.'s
Report on Form 10-K for the year ended December 31, 1998)
10.42 Participation Award Agreement, dated as of March 15, 1999,
between Mother's Cake & Cookie Company and Lawrence S.
Benjamin. (Incorporated by reference to Exhibit 10.53 to
Specialty Foods Corp.'s Report on Form 10-K for the year ended
December 31, 1998)
10.43 Deferred Bonus Agreement, dated as of July 15, 1997, between
Specialty Foods Corp. and Robert L. Fishbune. (Incorporated by
reference to Exhibit 10.55 to Specialty Foods Acquisition
Corporation's Report on Form 10-K for the year ended December
31, 1997)
10.44 Retention Bonus Agreement, dated as of March 15, 1999, between
Specialty Foods Corp. and Robert L. Fishbune. (Incorporated by
reference to Exhibit 10.55 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
<PAGE>
10.45 Deferred Bonus Agreement, dated as of June 16, 1998, between
Andre-Boudin Bakeries, Inc. and Larry Strain. (Incorporated by
reference to Exhibit 10.56 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
10.46 Deferred Bonus Agreement, dated as of July 15, 1997, between
Mother's Cake & Cookie Company and Patrick J. O'Dea.
(Incorporated by reference to Exhibit 10.58 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.47 Retention Bonus Agreement, dated as of March 15, 1999, between
Mother's Cake & Cookie Company and Patrick J. O'Dea.
(Incorporated by reference to Exhibit 10.59 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.48 Retention Bonus Agreement, dated as of March 15, 1999, between
Specialty Foods Corp. and David E. Schreibman. (Incorporated
by reference to Exhibit 10.60 to Specialty Foods Corp.'s
Report on Form 10-K for the year ended December 31, 1998)
10.49 Deferred Bonus Agreement, dated as of July 15, 1997, between
Metz Baking Company and Henry J. Metz. (Incorporated by
reference to Exhibit 10.57 Specialty Foods Acquisition
Corporation's Report on Form 10-Q for the Quarter ended March
31, 1998)
10.50 Divestiture Award Agreement, dated as of March 15, 1999,
between Metz Baking Company and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.66 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.51 Divestiture Award Agreement, dated as of July 15, 1997,
between Metz Baking Company and Henry J. Metz. (Incorporated
by reference to Exhibit 10.65 to Specialty Foods Acquisition
Corporation's Report on Form 10-K for the year ended December
31, 1997)
10.52 Divestiture Award Agreement, dated as of March 15, 1999,
between H&M Food System Company, Inc. and Lawrence S.
Benjamin. (Incorporated by reference to Exhibit 10.68 to
Specialty Foods Corp.'s Report on Form 10-K for the year ended
December 31, 1998)
<PAGE>
10.53 Divestiture Award Agreement, dated as of March 15, 1999,
between Metz Baking Company and Lawrence S. Benjamin.
(Incorporated by reference to Exhibit 10.69 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.54 Divestiture Award Agreement, dated as of March 15, 1999,
between H&M Food System Company, Inc. and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.70 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.55 Divestiture Award Agreement, dated as of March 15, 1999,
between Mother's Cake & Cookie Company and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.71 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.56 Divestiture Award Agreement, dated as of March 15, 1999,
between Andre-Boudin Bakeries, Inc. and Robert L. Fishbune.
(Incorporated by reference to Exhibit 10.72 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.57 Divestiture Award Agreement, dated as of October 19, 1998
between H&M Food System Company, Inc. and David E. Schreibman.
(Incorporated by reference to Exhibit 10.73 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.58 Divestiture Award Agreement, dated as of March 15, 1999,
between Metz Baking Company and David E. Schreibman.
(Incorporated by reference to Exhibit 10.74 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
10.59 Divestiture Award Agreement, dated as of March 15, 1999,
between Mother's Cake & Cookie Company and David E.
Schreibman. (Incorporated by reference to Exhibit 10.75 to
Specialty Foods Corp.'s Report on Form 10-K for the year ended
December 31, 1998)
10.60 Divestiture Award Agreement, dated as of March 15, 1999,
between Andre-Boudin Bakeries, Inc. and David E. Schreibman.
(Incorporated by reference to Exhibit 10.76 to Specialty Foods
Corp.'s Report on Form 10-K for the year ended December 31,
1998)
<PAGE>
10.61 Amended and Restated Metz Baking Company Pension Plan for
Non-Union Employees. (Incorporated by reference to Exhibit
10.52 to Specialty Foods Acquisition Corporation's Report on
Form 10-K for the year ended December 31, 1994)
10.62 Amended and Restated Mother's Cake & Cookie Company Retirement
Plan. (Incorporated by reference to Exhibit 10.51 to Specialty
Foods Acquisition Corporation's report on Form 10-K for the
year ended December 31, 1994)
10.63 Coordination Document for the Metz Baking Company-Mother's
Cake & Cookie Co. Consolidated Pension Plan. (Incorporated by
reference to Exhibit 10.80 to Specialty Foods Corp.'s Report
on Form 10-K for the year ended December 31, 1998)
10.64 Form of 1998 Annual Bonus Plan. (Incorporated by reference to
Exhibit 10.84 to Specialty Foods Corp.'s Report on Form 10-K
for the year ended December 31, 1998)
10.65 Form of 1999 Annual Bonus Plan. (Incorporated by reference to
Exhibit 10.85 to Specialty Foods Corp.'s Report on Form 10-K
for the year ended December 31, 1998)
10.66 Executive Employment Agreement, dated as of May 1, 1999, by
and among Specialty Foods Acquisition Corporation, Specialty
Foods Corp., Metz Baking Company, Mother's Cake & Cookie
Company, Archway Cookies, Inc., and Andre-Boudin Bakeries,
Inc. and David E. Schreibman. (Incorporated by reference to
Exhibit 10.87 to Specialty Foods Corp.'s Report on Form 10-Q
for the Quarter ended March 31, 1999)
10.67 Amended and Restated Retention Bonus Agreement, dated as of
May 1, 1999, by and between Specialty Foods Corp. and David E.
Schreibman. (Incorporated by reference to Exhibit 10.88 to
Specialty Foods Corp.'s Report on Form 10-Q for the Quarter
ended March 31, 1999)
10.68 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Metz Baking Company and David E.
Schreibman. (Incorporated by reference to Exhibit 10.89 to
Specialty Foods Corp.'s Report on Form 10-Q for the Quarter
ended March 31, 1999)
10.69 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Mother's Cake & Cookie Company and
David E. Schreibman. (Incorporated by reference to Exhibit
10.90 to Specialty Foods Corp.'s Report on Form 10-Q for the
Quarter ended March 31, 1999)
<PAGE>
10.70 Amended and Restated Divestiture Award Agreement, dated as of
May 1, 1999, by and between Andre-Boudin Bakeries, Inc. and
David E. Schreibman. (Incorporated by reference to Exhibit
10.91 to Specialty Foods Corp.'s Report on Form 10-Q for the
Quarter ended March 31, 1999) 10.71 Participation Award
Agreement, dated as of May 1, 1999, between Mother's Cake &
Cookie Company and Patrick J. O'Dea. (Incorporated by
reference to Exhibit 10.92 to Specialty Foods Corp.'s Report
on Form 10-Q for the Quarter ended March 31, 1999)
10.72* Stockholders Agreement, dated as of June 11, 1999, by and
between SFAC New Holdings, Inc. and holders of the 13% Senior
Secured Discount Debentures due 2009 issued by SFAC New
Holdings, Inc.
12.1* Statement re Computation of Ratio of Earnings to Fixed
Charges.
21.1* Subsidiaries of SFC New Holdings, Inc.
23.1* Consent of KPMG.
23.2** Consent of Paul, Weiss, Rifkind, Wharton & Garrison (See
Exhibit 5.1).
24.1* Power of attorney (included on the signature page of this
registration statement).
25.1* Statement on Form T-1, of the Eligibility of United States
Trust Company of New York, as Trustee under the Indenture
relating to the 13% Senior Secured Discount Debentures due
2009.
27* Financial Data Schedule
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
- ----------
* Previously filed.
** Filed herewith.
EXHIBIT 5
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
August 9, 1999
SFAC New Holdings, Inc.
520 Lake Cook Road
Suite 550
Deerfield, Illinois 60015
Registration Statement on Form S-4 (Registration No. 333-83149)
Ladies and Gentlemen:
In connection with the referenced Registration Statement on Form S-4
(the "Registration Statement") filed on July 19, 1999 by SFAC New Holdings, Inc.
(the "Issuer"), a Delaware corporation, with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations under the Act (the "Rules"), we have been
requested to render our opinion as to the legality of the securities being
registered. The Registration Statement registers under the Act the issuance of
the Issuer's 13% Senior Secured Discount Debentures due 2009 (the "Exchange
Debentures"). The Exchange Debentures are to be offered in exchange for (i) the
Issuer's outstanding 13% Senior Secured Discount Debentures due 2009 (the
"Initial Debentures") and (ii) the outstanding 13% Senior Secured Discount
Debentures due 2005 of Specialty Foods Acquisition Corporation, a Delaware
corporation, and will be issued under the Indenture (the "Indenture"), dated as
of June 11, 1999, between the Issuer and United
<PAGE>
SFAC New Holdings, Inc.
August 9, 1999
Page -2-
States Trust Company of New York, as trustee (the "Trustee"). Capitalized terms
used and not otherwise defined in this letter have the respective meanings given
those terms in the Registration Statement.
In connection with this opinion, we have examined originals,
conformed copies or photocopies, certified or otherwise identified to our
satisfaction, of the following documents (collectively, the "Documents"):
(i) the Registration Statement (including its exhibits);
(ii) the Indenture included as Exhibit 4.2 to the Registration
Statement;
(iii) the proposed form of the Exchange Debentures included as
Exhibit A to the Indenture; and
(iv) the Registration Rights Agreement, dated as of June 11, 1999,
among the Issuer and holders of the Initial Debentures
(the "Registration Rights Agreement").
In addition, we have examined: (i) those corporate records of the Issuer that we
have considered appropriate; and (ii) those other certificates, agreements and
documents that we deemed relevant and necessary as a basis for the opinion
expressed below.
In our examination of the documents and in rendering the opinion set
forth below, we have assumed, without independent investigation, (i) the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity of the original documents of all documents
submitted to us as certified, photostatic, reproduced or conformed copies of
validly existing agreements or other
<PAGE>
SFAC New Holdings, Inc.
August 9, 1999
Page -3-
documents, the authenticity of all the latter documents and the legal capacity
of all individuals who have executed any of the documents which we examined,
(ii) that the Exchange Debentures will be issued as described in the
Registration Statement, (iii) that the Indenture was duly authorized, executed
and delivered by the Trustee and is a valid and binding agreement of the
Trustee, (iv) that the Registration Rights Agreement was duly authorized,
executed and delivered by or on behalf of each of the holders of the Initial
Debentures and is a valid and binding agreement of each of the holders of the
Initial Debentures and (v) that the Exchange Debentures will be in substantially
the form attached to the Indenture and that any information omitted from them
will be properly added. We have also relied upon certificates of public
officials and officers of the Issuer.
Based on the above, and subject to the stated assumptions,
exceptions and qualifications, we are of the opinion that, when the Exchange
Debentures are duly issued, authenticated and delivered in accordance with the
terms of the Indenture and the Registration Rights Agreement, the Exchange
Debentures will be legal, valid and binding obligations of the Issuer
enforceable against it in accordance with their terms.
Our opinion is subject to the qualification that the enforceability
of the Indenture and the Exchange Debentures may be (i) subject to bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization, moratorium and
other similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity).
<PAGE>
SFAC New Holdings, Inc.
August 9, 1999
Page -4-
Our opinion is limited to matters of New York law. Our opinion is
rendered only with respect to the laws, and the rules, regulations and orders
under them, which are currently in effect.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the prospectus included in the Registration Statement. In giving
this consent, we do not admit that we come within the category of persons whose
consent is required by the Act or the Rules.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
EXHIBIT 8
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 Avenue of the Americas
New York, New York 10019-6064
August 9, 1999
SFAC New Holdings, Inc.
520 Lake Cook Road
Suite 550
Deerfield, Illinois 60015
Registration Statement on Form S-4 (Registration No. 333-83149)
Ladies and Gentlemen:
In connection with the referenced Registration Statement on Form S-4
(the "Registration Statement") filed on July 19, 1999 by SFAC New Holdings, Inc.
(the "Issuer"), a Delaware corporation, with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations under the Act (the "Rules"), we have been
requested to render this opinion. Capitalized terms used and not otherwise
defined shall have the meanings given those terms in the Registration Statement.
In this regard, we have reviewed copies of the Registration
Statement (including its exhibits) with respect to the offer by the Issuer to
exchange up to $587,126,474 aggregate principal amount of its 13% Senior Secured
Discount Debentures due 2009 for (i) up to $587,025,332 aggregate principal
amount of its outstanding 13% Senior Secured Discount Debentures due 2009 and
(ii) up to $55,000 aggregate principal amount of the outstanding 13% Senior
Secured Discount Debentures due 2005 of Specialty Foods Acquisition Corporation,
a Delaware corporation, plus accrued interest as of the date of the exchange. We
have also made
<PAGE>
SFAC New Holdings, Inc.
August 9, 1999
Page -2-
those other investigations of fact and law and have examined the originals, or
copies authenticated to our satisfaction, of those other documents, records,
certificates or other instruments that in our judgment are necessary or
appropriate to enable us to render our opinion.
Our opinion is limited to the Internal Revenue Code of 1986, as
amended (the "Code"), administrative rulings, judicial decisions, Treasury
regulations and other applicable authorities, all as in effect today. The
statutory provisions, regulations and interpretations upon which our opinion is
based are subject to change and those changes could apply retroactively. Any
change could affect the continuing validity of our opinion. We assume no
responsibility to advise you of any subsequent changes in existing law or facts,
nor do we assume any responsibility to update this opinion with respect to any
matters expressly stated in this letter, and no opinions are to be implied or
may be inferred beyond the matters expressly so stated.
Based upon and subject to the above, the legal matters and
conclusions stated in the Registration Statement under the heading "Certain
Federal Income Tax Considerations" constitute our opinion with respect to those
matters.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus included in the Registration Statement. In giving
this consent, we
<PAGE>
SFAC New Holdings, Inc.
August 9, 1999
Page -3-
do not admit that we come within the category of persons whose consent is
required by the Act or the Rules.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
LETTER OF TRANSMITTAL
SFAC NEW HOLDINGS, INC.
Offers to Exchange
$587,126,474 of its 13% Senior Secured Discount Debentures due 2009
(the "Exchange Debentures")
which have been registered under the Securities Act of
1933, as amended, for $587,025,332 of its outstanding 13%
Senior Secured Discount Debentures due 2009
and
$55,000 of the outstanding 13% Senior Secured Discount Debentures due 2005
of Specialty Foods Acquisition Corporation
(the "Old 13% Debentures")
Pursuant to the Prospectus, dated August 9, 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER
13, 1999 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFERS MAY BE
EXTENDED (THE "EXPIRATION DATE").
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The Exchange Agent for the Exchange Offers is:
UNITED STATES TRUST COMPANY OF NEW YORK
By Registered or Certified Mail:
United States Trust Company of New York
P.O. Box 843 Cooper Station
New York, New York 10276
Attention: Corporate Trust Services
By Hand Before 4:30 p.m.:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
By Overnight Courier and By Hand After 4:30 p.m. on the Expiration Date:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
By Facsimile for Eligible Institutions:
(212) 420-6211
Attention: Customer Service
For confirmation and/or information call:
(800) 548-6565
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
---------------------------
<PAGE>
List below the Old 13% Debentures to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers and
principal amount of Old 13% Debentures should be listed on a separate signed
schedule affixed hereto.
<TABLE>
<CAPTION>
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DESCRIPTION OF OLD 13% DEBENTURES (1) (2) (3)
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Principal Amount
Principal of Old 13%
Amount of Debentures
Name(s) and Address(es) of Registered Holder(s) Certificate Old 13% Tendered
(Please fill in, if blank) Number(s)* Debentures (if less than all)**
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<S> <C> <C> <C>
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</TABLE>
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by such Old 13% Debentures.
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The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated August 9, 1999 (the "Prospectus"), of SFAC New Holdings, Inc.,
a Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offers (the "Exchange
Offers") to exchange up to (i) $587,025,332 aggregate principal amount of the
13% Senior Secured Discount Debentures due 2009 (the "Exchange Debentures") for
the same aggregate principal amount of substantially identical debentures that
the Company issued in a private transaction on June 11, 1999 (the "Initial 13%
Debentures"), and (ii) $101,142 aggregate principal amount of the Exchange
Debentures for $55,000 principal amount of 13% Senior Secured Discount
Debentures due 2005 of Specialty Foods Acquisition Corporation, plus accrued
interest as of the date of the exchange (the "SFAC 13% Debentures"). The Initial
13% Debentures and the SFAC 13% Debentures are collectively referred to as the
"Old 13% Debentures." The Old 13% Debentures were issued and sold in
transactions exempt from registration under the Securities Act of 1933, as
amended.
The undersigned has completed the appropriate boxes above and below and
signed this Letter to indicate the action the undersigned desires to take with
respect to the Exchange Offers.
This Letter is to be used either if certificates of Old 13% Debentures are
to be forwarded herewith or if delivery of Old 13% Debentures is to be made by
book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company, pursuant to the procedures set forth in "The Exchange
Offers--Terms of the Exchange Offers--Procedures for Tendering" in the
Prospectus. Delivery of this Letter and any other required documents should be
made to the Exchange Agent. Delivery of documents to a book-entry transfer
facility does not constitute delivery to the Exchange Agent.
Holders whose Old 13% Debentures are not immediately available or who
cannot deliver their Old 13% Debentures and all other documents required hereby
to the Exchange Agent on or prior to the Expiration Date must tender their Old
13% Debentures according to the guaranteed delivery procedure set forth in the
Prospectus under the caption "The Exchange Offers--Terms of the Exchange
Offers--Procedures for Tendering." See Instruction 1.
2
<PAGE>
|_| CHECK HERE IF OLD 13% DEBENTURES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution__________________ |_| The Depository Trust Company
Account Number _________________________________________________________________
Transaction Code Number ________________________________________________________
|_| CHECK HERE IF OLD 13% DEBENTURES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ___________________________________________________
Name of Eligible Institution that Guaranteed Delivery __________________________
If delivered by book-entry transfer:
Account Number _________________________________________________________________
Date of execution of Notice of Guaranteed Delivery _____________________________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is acquiring the Exchange Debentures in the ordinary course of business of
the undersigned, that it is not engaged in, and does not intend to engage in, or
has no arrangement or understanding with any person to participate in, a
distribution of Exchange Debentures and that it is not an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"). If the undersigned is a broker-dealer that will
receive Exchange Debentures for its own account in exchange for Old 13%
Debentures that were acquired as a result of market-making activities or other
trading activities, it may be deemed to be an "underwriter" within the meaning
of the Securities Act and must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Debentures; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offers, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
13% Debentures indicated above. Subject to, and effective upon, the acceptance
for exchange of the Old 13% Debentures tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Old 13% Debentures as are being tendered
hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old 13%
Debentures tendered hereby and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Company or the Exchange Agent to be necessary
or desirable to complete the sale, assignment and transfer of the Old 13%
Debentures tendered hereby.
The undersigned also acknowledges that these Exchange Offers are being
made in reliance on the Company's belief, based on interpretations by the staff
of the Securities and Exchange Commission (the "SEC") to third parties in
unrelated transactions, that the Exchange Debentures issued in exchange for the
Old 13% Debentures pursuant to the Exchange Offers may be offered for resale,
resold and otherwise transferred by holders thereof (other than (i) any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or (ii) any broker-dealer that purchases Initial 13%
Debentures from the Company to resell pursuant to Rule 144A under the Securities
Act ("Rule 144A") or any other available exemption) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Debentures are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with any
person to participate in the distribution of such Exchange Debentures and are
not participating in, and do not intend to participate in, the distribution of
such Exchange Debentures. The undersigned acknowledges that any holder of Old
13% Debentures using the Exchange Offers to participate in a distribution of the
Exchange Debentures (i) cannot rely on the position of the staff of the SEC
enunciated in its interpretive letter with respect to Exxon Capital Holdings
Corporation (available April 13, 1989) or similar letters and (ii) must comply
with the registration and prospectus requirements of the Securities Act in
connection with a secondary resale transaction.
The undersigned represents that (i) the Exchange Debentures acquired
pursuant to the Exchange Offers are being obtained in the ordinary course of
business of the person receiving such Exchange Debentures, whether or not such
person is the holder, (ii) such holder or such other person has no arrangement
or understanding with any person to participate in the distribution of such
Exchange Debentures within the meaning of the Securities Act and is not
participating in, and does not intend to participate in, the distribution of
such Exchange Debentures within the meaning of the Securities Act, and (iii)
such holder or such other person is not an "affiliate," as defined in Rule 405
under the Securities Act, of the Company or, if such holder or such other person
is an affiliate, such holder or such other person will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
All authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in the instructions
contained in this Letter.
The undersigned understands that tenders of the Old 13% Debentures
pursuant to any one of the procedures described under "The Exchange
Offers--Terms of the Exchange Offers--Procedures for Tendering"
4
<PAGE>
in the Prospectus and in the instructions hereto will constitute a binding
agreement between the undersigned and the Company in accordance with the terms
and subject to the conditions of the Exchange Offers.
The undersigned recognizes that, under certain circumstances set forth in
the Prospectus under "The Exchange Offers--Terms of the Exchange
Offers--Conditions," the Company may not be required to accept for exchange any
of the Old 13% Debentures tendered. Old 13% Debentures not accepted for exchange
or withdrawn will be returned to the undersigned at the address set forth below
unless otherwise indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the Exchange Debentures (and, if applicable,
substitute certificates representing Old 13% Debentures for any Old 13%
Debentures not exchanged) in the name of the undersigned. Similarly, unless
otherwise indicated under the box entitled "Special Delivery Instructions"
below, please deliver the Exchange Debentures (and, if applicable, substitute
certificates representing Old 13% Debentures for any Old 13% Debentures not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old 13% Debentures."
THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN OLD
13% DEBENTURES, HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY
PARTICIPANTS WHOSE NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO
SUCH OLD 13% DEBENTURES AS OF THE DATE OF TENDER OF SUCH OLD 13% DEBENTURES TO
EXECUTE AND DELIVER THE LETTER OF TRANSMITTAL AS IF THEY WERE THE HOLDERS OF
RECORD. ACCORDINGLY, FOR PURPOSES OF THIS LETTER OF TRANSMITTAL, THE TERM
"HOLDER" SHALL BE DEEMED TO INCLUDE SUCH BOOK-ENTRY TRANSFER FACILITY
PARTICIPANTS.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD 13%
DEBENTURES" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH DEBENTURES AND
THIS LETTER TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE OLD 13%
DEBENTURES AS SET FORTH IN SUCH BOX ABOVE.
5
<PAGE>
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PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
Dated: ........................................................................
X .............................................. ..........................
X .............................................. ..........................
Signature(s) of Owner(s)/or Authorized Signatory Date
Area Code and Telephone Number .................................................
If a holder is tendering any Old 13% Debentures, this Letter must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the Old 13% Debentures or by any person(s) authorized to
become registered holder(s) by endorsements and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity, please set forth
full title. See Instruction 3.
Names ..........................................................................
..........................................................................
(Please Type or Print)
Capacity:.......................................................................
.......................................................................
Address .......................................................................
(Include Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution: ......................................................
(Authorized Signature)
................................................................................
(Title)
................................................................................
(Name of Firm)
Dated: ........................................................................
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6
<PAGE>
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SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Exchange Debentures are to be
issued in the name of and sent to someone other than the person or persons whose
signature(s) appear on this Letter above.
Issue: Exchange Debentures to:
Name(s): .......................................................................
(Please Type or Print)
.......................................................................
(Please Type or Print)
Address: .......................................................................
.......................................................................
(Zip Code)
Social Security Number: ........................................................
(Complete Substitute Form W-9)
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- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Exchange Debentures are to be
sent to someone other than the person or persons whose signature(s) appear(s) on
this Letter above or to such person or persons at an address other than shown in
the box entitled "Description of Old 13% Debentures" on this Letter above.
Mail: Exchange Debentures to:
Name(s): .......................................................................
(Please Type or Print)
.......................................................................
(Please Type or Print)
Address: .......................................................................
.......................................................................
(Zip Code)
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IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (IN EACH CASE, TOGETHER WITH
THE CERTIFICATE(S) FOR OLD 13% DEBENTURES OR A CONFIRMATION OF BOOK-ENTRY
TRANSFER OF SUCH OLD 13% DEBENTURES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
7
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offers
1. Delivery of this Letter and Old 13% Debentures; Guaranteed Delivery
Procedure.
This Letter is to be used to forward, and must accompany, all certificates
representing Old 13% Debentures tendered pursuant to the Exchange Offers unless
such certificates are accompanied by an Agent's Message (as defined in the
Prospectus) in which case you need not submit this Letter to the Exchange Agent.
Certificates representing the Old 13% Debentures in proper form for transfer (or
a confirmation of book-entry transfer of such Old 13% Debentures into the
Exchange Agent's account at the book- entry transfer facility) must be received
by the Exchange Agent at its address set forth herein on or before the
Expiration Date. A tender will not be deemed to have been timely received when
the tendering holder's properly completed and duly signed Letter or an Agent's
Message accompanied by the Old 13% Debentures is mailed prior to the Expiration
Date but is received by the Exchange Agent after the Expiration Date.
The method of delivery of this Letter, the Old 13% Debentures and all
other required documents is at the election and risk of the tendering holders,
but the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If such delivery is by mail, it is recommended that
registered mail properly insured, with return receipt requested, be used. In all
cases, sufficient time should be allowed to permit timely delivery.
If a holder desires to tender Old 13% Debentures and such holder's Old 13%
Debentures are not immediately available or time will not permit such holder's
Letter of Transmittal, Old 13% Debentures (or a confirmation of book-entry
transfer of Old 13% Debentures into the Exchange Agent's account at the
book-entry transfer facility with an Agent's Message) or other required
documents to reach the Exchange Agent on or before the Expiration Date, such
holder may still tender in the Exchange Offers if:
(a) the tender is made through an Eligible Institution (as defined
below);
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by us (by facsimile transmission, mail
or hand delivery), setting forth your name and address as holder of the
Old 13% Debentures and the amount of Old 13% Debentures tendered, stating
that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date the certificates for all
physically tendered Old 13% Debentures, in proper form for transfer, or a
book-entry confirmation with an Agent's Message, as the case may be, and
any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) the certificates for all physically tendered Old 13% Debentures,
in proper form for transfer, or a book-entry confirmation as the case may
be, and all other documents required by this Letter of Transmittal are
received by the Exchange Agent within five business days after the
Expiration Date.
See "The Exchange Offers--Terms of the Exchange Offers--Procedures for
Tendering" in the Prospectus.
2. Withdrawals.
Any holder who has tendered Old 13% Debentures may withdraw the tender by
delivering written notice of withdrawal (which may be sent by telegram,
facsimile (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier)) to the Exchange Agent prior to the close of
business on the Expiration Date and prior to acceptance for exchange thereof by
us. For a withdrawal to be effective, a written notice of withdrawal must (i)
specify the name of the person having tendered the Old 13% Debentures to be
withdrawn (the "Depositor"), (ii) identify the Old 13% Debentures to be
withdrawn (including the certificate number or numbers and principal amount of
such Old 13% Debentures), (iii) signed by the holder in the same manner as the
original signature on the Letter by which such Old 13% Debentures were tendered
or as otherwise set forth
8
<PAGE>
in Instruction 3 below (including any required signature guarantees), or be
accompanied by documents of transfer sufficient to have the Trustee (as defined
in the Prospectus) register the transfer of such Old 13% Debentures pursuant to
the terms of the Indenture into the name of the person withdrawing the tender
and (iv) specify the name in which any such Old 13% Debentures are to be
registered, if different from that of the Depositor. If Old 13% Debentures have
been tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the participant's account at the
book-entry transfer facility to be credited, if different from that of the
Depositor, with the withdrawn Old 13% Debentures or otherwise comply with the
book-entry transfer facility's procedures. See "The Exchange Offers--Terms of
the Exchange Offers--Withdrawal of Tenders" in the Prospectus.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the registered holder of the Old 13%
Debentures tendered hereby, the signature must correspond with the name as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If this Letter is signed by a participant in DTC, the signature must
correspond with the name as it appears on the security position listing as the
holder of the Old 13% Debentures.
If this Letter or any Old 13% Debentures or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, evidence
satisfactory to us of their authority to so act must also be submitted with the
Letter of Transmittal.
If any tendered Old 13% Debentures are owned of record by two or more
joint owners, all such owners must sign this Letter.
The signatures on this Letter or a notice of withdrawal, as the case may
be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended (each, an "Eligible
Institution"), unless the Old 13% Debentures are tendered : (i) by a registered
holder (or by a participant in DTC whose name appears on a security position
listing as the owner) who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on this Letter and the Exchange
Debentures are being issued directly to such registered holder (or deposited
into the participant's account at DTC), or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old 13% Debentures should indicate in the applicable
box the name and address to which Exchange Debentures issued pursuant to the
Exchange Offers are to be issued or sent, if different from the name or address
of the person signing this Letter. In the case of issuance in a different name,
the employer identification or social security number of the person named must
also be indicated. If no such instructions are given, any Exchange Debentures
will be issued in the name of, and delivered to, the name or address of the
person signing this Letter and any Old 13% Debentures not accepted for exchange
will be returned to the name or address of the person signing this Letter.
5. Backup Federal Income Tax Withholding and Substitute Form W-9.
Under the federal income tax laws, payments that may be made by the
Company on account of Exchange Debentures issued pursuant to the Exchange Offers
may be subject to backup withholding at the rate of 31%. In order to avoid such
backup withholding, each tendering holder should complete and sign the
Substitute Form W-9 included in this Letter and either (a) provide the correct
taxpayer identification number ("TIN") and certify, under penalties of perjury,
that the TIN provided is correct and that (i) the holder has not been notified
by the Internal Revenue Service (the "IRS") that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the IRS has notified the holder that the holder is no longer subject to backup
9
<PAGE>
withholding; or (b) provide an adequate basis for exemption. If the tendering
holder has not been issued a TIN and has applied for one, or intends to apply
for one in the near future, such holder should write "Applied For" in the space
provided for the TIN in Part I of the Substitute Form W-9, sign and date the
Substitute Form W-9, and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I, the Company (or
the Paying Agent under the Indenture governing the Exchange Debentures) shall
retain 31% of payments made to the tendering holder during the sixty (60) day
period following the date of the Substitute Form W-9. If the holder furnishes
the Exchange Agent or the Company with his or her TIN within sixty (60) days
after the date of the Substitute Form W-9, the Company (or the Paying Agent)
shall remit such amounts retained during the sixty (60) day period to the holder
and no further amounts shall be retained or withheld from payments made to the
holder thereafter. If, however, the holder has not provided the Exchange Agent
or the Company with his or her TIN within such sixty (60) day period, the
Company (or the Paying Agent) shall remit such previously retained amounts to
the IRS as backup withholding. In general, if a holder is an individual, the
taxpayer identification number is the Social Security number of such individual.
If the Exchange Agent or the Company is not provided with the correct taxpayer
identification number, the holder may be subject to a $50 penalty imposed by the
IRS. Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Exchange Agent. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if Old 13% Debentures are
registered in more than one name), consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
13% Debentures to be deemed invalidly tendered, but may require the Company (or
the Paying Agent) to withhold 31% of the amount of any payments made on account
of the Exchange Debentures. Backup withholding is not an additional federal
income tax. Rather, the federal income tax liability of a person subject to
backup withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old 13% Debentures to it or its order pursuant to the Exchange
Offers. If, however, Exchange Debentures and/or substitute Old 13% Debentures
not exchanged or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Old 13% Debentures tendered hereby, or if tendered Old 13% Debentures are
registered in the name of any person other than the person signing this Letter,
or if a transfer tax is imposed for any reason other than the transfer of Old
13% Debentures to the Company or its order pursuant to the Exchange Offers, the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old 13% Debentures specified in this
Letter.
7. Waiver of Conditions.
Conditions enumerated in the Prospectus may be waived by the Company, in
whole or in part, at any time from time to time in its reasonable discretion.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old 13% Debentures, by execution of this
Letter, shall waive any right to receive notice of the acceptance of their Old
13% Debentures for exchange.
10
<PAGE>
Neither the Company nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. Inadequate Space.
If the space provided herein is inadequate, the aggregate principal amount
of Old 13% Debentures being tendered and the certificate number or numbers (if
available) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter.
10. Mutilated, Lost, Stolen or Destroyed Old 13% Debentures.
If any certificate has been lost, mutilated, destroyed or stolen, the
holder should promptly notify United States Trust Company of New York at the
telephone number indicated above. The holder will then be instructed as to the
steps that must be taken to replace the certificate(s). This Letter of
Transmittal and related documents cannot be processed until the Old 13%
Debentures have been replaced.
11. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter may be directed to United
States Trust Company of New York at the address and telephone number indicated
above.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYER'S NAME: SFAC NEW HOLDINGS, INC.
<TABLE>
<CAPTION>
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<S> <C> <C>
SUBSTITUTE Part I--Taxpayer Identification Number
Form W-9 Enter your taxpayer identification number in the _______________________________________________
Department of the appropriate box. For most individuals, this is your Social Security Number
Treasury social security number. If you do not have a number,
Internal Revenue see how to obtain a "TIN" in the enclosed Guidelines. OR
Service
NOTE: If the account is in more than one name, see _______________________________________________
the chart on page 2 of the enclosed Guidelines to Employer Identification Number
determine what number to give.
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Part II--For Payees Exempt From Backup Withholding (see enclosed Guidelines)
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Payer's Request for CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Taxpayer Identification
Number (TIN) and (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a
Certification number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure
to report all interest or dividends or the IRS has notified me that I am no longer subject to
backup withholding.
SIGNATURE ________________________________________________________ DATE ______________________________
- ------------------------------------------------------------------------------------------------------------------------------------
Certification Guidelines--You must cross out item (2) of the above certification if you have been notified by the IRS that you are
subject to backup withholding because of underreporting of interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no
longer subject to backup withholding, do not cross out item (2).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me on account of the Exchange Debentures shall be retained
until I provide a Taxpayer Identification Number to the payer and that, if I do
not provide my Taxpayer Identification Number within sixty (60) days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31 percent of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
Taxpayer Identification Number.
SIGNATURE __________________________________________ DATE ______________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE DEBENTURES.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
12
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
================================================================================
Give the
For this type of account: SOCIAL SECURITY
NUMBER OF --
================================================================================
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the account or, if
account) combined funds, the first individual
on the account(1)
3. Husband and wife (joint account) The actual owner of the account or, if
joint funds, either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is the only
contributor, the minor(1)
6. Account in the name of the The ward, minor, or incompetent
guardian or committee for a person(3)
designated ward, minor, or
incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under State
law
8. Sole proprietorship account The owner(4)
================================================================================
================================================================================
Give the EMPLOYER
For this type of account: IDENTIFICATION
NUMBER OF--
================================================================================
9. A valid trust, estate, or The legal entity (Do not furnish the
pension trust identifying number of the personal
representative or trustee unless the
legal entity itself is not designated
in the account title).(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments1
================================================================================
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's, or incompetent person's name and furnish such
person's social security number.
(4) Show your individual name. You may also enter your business name. You may
use either your Social Security number or your Employer Identification
number.
(5) List first and circle the name of the legal trust, estate, or pension
trust
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
13
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number, at
the local office of the Social Security Administration or the Internal Revenue
Service (the "IRS") and apply for a number.
Payee Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments including
the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under Section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan or a custodial account under Section 403(b)(7) of the Code, if the
account satisfies the requirements of Section 401(f)(2) of the Code.
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S.,
the District of Columbia or a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under Section 584(a) of the Code.
o An exempt charitable remainder trust, or a trust described in Section 4947
of the Code.
o An entity registered at all times during the tax year under the Investment
Company Act of 1940.
o A foreign central bank of issue.
Payment of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under Section 1441
of the Code.
o Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
o Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
o Payment of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
o Payment of tax-exempt interest (including exempt interest dividends under
Section 852 of the Code).
o Payment described in Section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under Section 1451 of the Code.
o Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN
ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH THE PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see Sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
and 6050A and 6050N of the Code and the regulations promulgated thereunder.
Privacy Act Notice--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividends, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.-- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
14
NOTICE OF GUARANTEED DELIVERY
for
Tenders of Outstanding
13% Senior Secured Discount Debentures due 2009
and
13% Senior Secured Discount Debentures due 2005
of Specialty Foods Acquisition Corporation
in Exchange for
13% Senior Secured Discount Debentures due 2009
Registered Under the Securities Act of 1933, as amended,
of
SFAC NEW HOLDINGS, INC.
Registered holders of outstanding (i) 13% Senior Secured Discount
Debentures due 2009 (the "Initial 13% Debentures") and (ii) 13% Senior Secured
Discount Debentures due 2005 of Specialty Foods Acquisition Corporation (the
"SFAC 13% Debentures" and, together with the Initial 13% Debentures, the "Old
13% Debentures") who wish to tender their Old 13% Debentures in exchange for a
like principal amount of 13% Senior Secured Discount Debentures due 2009 (the
"Exchange Debentures") together with, for the SFAC 13% Debentures, accrued
interest as of the date of the exchange, and whose Old 13% Debentures are not
immediately available or who cannot deliver their Old 13% Debentures and Letter
of Transmittal (and any other documents required by the Letter of Transmittal)
to United States Trust Company of New York (the "Exchange Agent") prior to the
Expiration Date, may use this Notice of Guaranteed Delivery or one substantially
equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand
or sent by facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) or letter to the Exchange
Agent. See "The Exchange Offers-- Terms of the Exchange Offers-- Procedures for
Tendering" in the Prospectus.
THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER
13, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD 13% DEBENTURES TENDERED
PURSUANT TO THE EXCHANGE OFFERS MAY BE WITHDRAWN, SUBJECT TO THE PROCEDURES
DESCRIBED IN THE PROSPECTUS, AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offers is:
UNITED STATES TRUST COMPANY OF NEW YORK
By Registered or Certified Mail:
United States Trust Company of New York
P.O. Box 843 Cooper Station
New York, New York 10276
Attention: Corporate Trust Services
By Hand Before 4:30 p.m.:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
<PAGE>
By Overnight Courier and By Hand After 4:30 p.m. on the Expiration Date:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
By Facsimile for Eligible Institutions:
(212) 420-6211
Attention: Customer Service
For confirmation and/or information call:
(800) 548-6565
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old 13% Debentures
indicated below, upon the terms and subject to the conditions contained in the
Prospectus dated August 9, 1999 of SFAC New Holdings, Inc. (the "Prospectus"),
receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
Name and address of
registered holder as it
appears on the Old 13% Aggregate Principal Amount
Debentures Certificate Number(s) of Old Represented by Principal Amount of Old
(Please Print) 13% Debentures Tendered Old 13% Debentures 13% Debentures Tendered
<S> <C> <C> <C>
- ---------------------- ---------------------------- -------------------------- -----------------------
- ---------------------- ---------------------------- -------------------------- -----------------------
- ---------------------- ---------------------------- -------------------------- -----------------------
- ---------------------- ---------------------------- -------------------------- -----------------------
- ---------------------- ---------------------------- -------------------------- -----------------------
</TABLE>
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the certificates
representing the Old 13% Debentures, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
Name of Firm: __________________________________________________________________
(Authorized Signature)
Address: ________________________________________________ Title: _______________
_____________________________________ Name: ____________________________________
(Zip Code) (Please type or print)
Area Code and Telephone Number: ______________________________ Date: ___________
NOTE: DO NOT SEND OLD 13% DEBENTURES WITH THIS NOTICE OF GUARANTEED DELIVERY.
OLD 13% DEBENTURES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
