Filed with the Securities
and Exchange Commission
Pursuant to Rule 424(b)(3)
relating to Reg. Stmt. No. 33-60161
Subject To Completion, Dated July 26, 1995
PROSPECTUS SUPPLEMENT
(To Prospectus Dated July 26, 1995)
BRUNO'S, INC.
$250,000,000 % SENIOR SUBORDINATED NOTES DUE 2005
$ % SENIOR SUBORDINATED DISCOUNT DEBENTURES DUE 2007
-------------------
The % Senior Subordinated Notes due 2005 (the "Senior Subordinated Notes")
and the % Senior Subordinated Discount Debentures due 2007 (the "Discount
Debentures" and, together with the Senior Subordinated Notes, the "Securities")
are being offered (the "Offering") by Bruno's, Inc. (the "Company").
On April 20, 1995, the Company entered into an agreement and plan of merger
(as amended, the "Merger Agreement") with Crimson Acquisition Corp. ("Crimson"),
a company formed by Kohlberg Kravis Roberts & Co. ("KKR"). Upon the approval of
the shareholders of the Company at a special meeting to be held on August 18,
1995 and the satisfaction of certain other conditions, Crimson will be merged
with and into the Company and the Company will be the surviving corporation (the
"Merger"). The Securities are being issued as part of the financings to
consummate the Merger.
Interest on the Senior Subordinated Notes is payable semiannually, on
and of each year, commencing , 1995. The Senior Subordinated
Notes will mature on , 2005.
The Discount Debentures will be issued at a substantial discount from their
principal amount, and cash interest will not accrue on the Discount Debentures
prior to , 2000. Thereafter, interest on the Discount Debentures will be
payable in cash semi-annually on and of each year, commencing on
, 2001. The Discount Debentures will mature on , 2007.
The Securities will be general unsecured obligations of the Company and will
be subordinated in right of payment to all Senior Indebtedness (as defined) of
the Company (which would include all indebtedness of the Company under the
Credit Facility (as defined)) and senior or pari passu in right of payment to
all existing and future subordinated indebtedness of the Company. The Senior
Subordinated Notes will rank pari passu with the Discount Debentures.
The Securities will be redeemable at the option of the Company, in whole or
in part, at any time on or after , 2000, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to , 1998, at the option of
the Company, up to 40% of the aggregate face amount of Securities originally
issued in the Offering may be redeemed at a redemption price equal to % of the
aggregate principal amount or Accreted Value (as defined), as the case may be,
of the Securities at the date of the redemption with the proceeds of certain
equity issuances; provided, that at least 60% of the original aggregate
principal amount of Senior Subordinated Notes and 60% of the principal amount of
the Discount Debentures originally issued remains outstanding following any such
redemption. See "Description of Securities--Optional Redemption."
In the event of a Change of Control (as defined), holders of the Securities
will have the right to require the Company to repurchase their Securities, in
whole or in part, at a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any (or, in the case of
repurchases of Discount Debentures prior to , 2000, at a purchase price
equal to 101% of the Accreted Value thereof) to the date of purchase. There can
be no assurance that the Company will have the financial resources necessary to
purchase the Securities upon a Change of Control. See "Description of
Securities--Repurchase at the Option of Holders--Change of Control."
The Securities are a new issue of securities for which there is currently no
market and the Company does not intend to apply to list the Securities on a
securities exchange or to include the Securities for quotation on an automated
quotation system. See "Risk Factors--Lack of Public Market."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SECURITIES.
-------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Senior Subordinated Note...... % % %
Total............................. $ $ $
Per Discount Debenture............ % % %
Total............................. $ $ $
</TABLE>
(1) Plus accrued interest or accretion, if any, as applicable, from the date of
issuance.
(2) The Company has agreed to indemnify the Underwriters (as defined) against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $ .
-------------------
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
the approval of certain legal matters by counsel and to various other
conditions, including the Underwriters' right to reject orders in whole or in
part. It is expected that delivery of the Securities will be made against
payment therefor on or about , 1995 at the offices of BT Securities
Corporation, One Bankers Trust Plaza, New York, New York.
-------------------
BT SECURITIES CORPORATION
CHEMICAL SECURITIES INC.
SALOMON BROTHERS INC
The date of this Prospectus Supplement is , 1995
<PAGE>
Information contained in this Prospectus Supplement is subject to completion
or amendment. This Prospectus Supplement and the accompanying Prospectus shall
not constitute and offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
<PAGE>
Bruno's Supercenter stores provide many
one-stop shopping conveniences such as pharmacies, [ PHOTO ]
bakeries, delis, floral development
and video rental services.
[ PHOTO ] All of Bruno's different formats
are well known for their high
quality perishables departments.
Bruno's introduced the "every day low price"
format to the Company's market areas with its [ PHOTO ]
Food World Stores.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTION WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus Supplement. All references to fiscal years in this Prospectus
Supplement refer to the fiscal year ending on the Saturday nearest June 30 of
each year. All references to the "Company" shall mean Bruno's, Inc. and its
consolidated subsidiaries, unless the context indicates otherwise. All
references to market share and demographic data in this Prospectus Supplement
are based on industry publications and Company data and, unless otherwise
indicated, all references to numbers of stores are as of July 1, 1995. The
information contained in this Prospectus Supplement concerning the plans of
Crimson Acquisition Corp. ("Crimson"), a company organized by Kohlberg Kravis
Roberts & Co. ("KKR"), for the Company after the Merger are based on information
provided to the Company by Crimson.
GENERAL
The Company is a leading supermarket operator in the Southeastern United
States and is the largest supermarket operator in the state of Alabama. The
Company operates 252 supermarkets of which 124 are located in Alabama, 86 in
Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi, and 5 in South
Carolina. Seventy-nine of the store sites are owned directly by the Company or
through joint ventures. Through its 60 years of operations, the Company has
developed a valuable and strategically located store base, strong name
recognition, customer loyalty, and a reputation as a quality and service leader
among supermarket operators. The Company believes that these factors have
enabled it to establish a leading market share in most of its principal markets,
including market shares of approximately 52% in Birmingham and 30% throughout
Alabama.
The Company operates stores under three principal formats, each addressed to
a different market segment: every day low price ("EDLP") stores aimed at the
value conscious shopper, upscale stores targeted to customers seeking service
and selection, and neighborhood stores stressing convenience in a community
setting. The Company's EDLP stores, comprised of Food World and FoodMax, are
widely regarded as low price leaders in their respective markets. The EDLP
format accounted for 57% of the Company's sales for the 40 weeks ended April 8,
1995. The Company's upscale stores, which operate primarily under the Bruno's
name, are widely regarded as quality, service, and perishables leaders in the
markets the Company serves, and generally have substantial breadth and depth of
product offerings. The upscale format accounted for 21% of the Company's sales
for the 40 weeks ended April 8, 1995. Under the EDLP and upscale formats, the
Company also operates 16 Supercenter stores that offer an expanded mix of higher
margin perishables and general merchandise products and various one-stop
shopping conveniences, such as in-store pharmacies, banks, photo development
services and optical centers. The Company's neighborhood stores, comprised
primarily of Piggly Wiggly and Food Fair, are typically located in small to
medium-sized towns and suburban neighborhoods and emphasize friendly service and
promotional pricing. The neighborhood format accounted for 22% of the Company's
sales for the 40 weeks ended April 8, 1995.
THE MERGER
On April 20, 1995, the Company and Crimson entered into an Agreement and
Plan of Merger, which was amended as of May 18, 1995 (as amended, the "Merger
Agreement"). As of the date hereof, Crimson is a wholly-owned subsidiary of
Crimson Associates, L.P. ("Crimson Associates"), a partnership organized by KKR.
KKR is a private investment firm with extensive experience in the acquisition of
supermarket operators. Pursuant to the Merger Agreement, Crimson will be merged
with and into the Company, with the Company continuing as the surviving
corporation (the "Merger"). Upon completion of the Merger, Crimson Associates
will own 20,833,333 shares, or approximately 83.33%, of the Company's common
stock, $.01 par value ("Common Stock"), expected to be outstanding after the
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<PAGE>
Merger, and warrants to purchase an additional 10,000,000 shares. The remaining
shares of Common Stock outstanding after the Merger will be held by current
shareholders of the Company.
Affiliates of KKR have organized partnerships which currently own
significant positions in supermarket chains with approximately 1,650 stores and
combined sales of $27.5 billion in their latest fiscal years, including
controlling positions in Safeway Inc. ("Safeway") and The Stop & Shop Companies,
Inc. ("Stop & Shop"). Safeway is a West Coast-based supermarket chain of 1,062
stores which was acquired by an affiliate of KKR in 1986. From 1986 to 1994,
Safeway increased its EBITDA margin (operating income plus depreciation and
amortization as a percentage of sales) from 4.2% to 6.0%. Stop & Shop, a chain
of 128 stores operating in the New England market, was acquired by a KKR
affiliate in 1988 and its supermarket division realized an improvement in EBITDA
margin from 4.9% in 1988 to 8.3% in 1994. No assurance can be given that the
Company will experience similar margin improvements after the Merger.
COMPANY STRENGTHS
As a leading regional supermarket operator, the Company has developed the
following principal strengths: (i) strong competitive position, (ii) prime
locations, (iii) attractive Southeast markets, (iv) recently remodeled and new
store base, (v) enhanced store mix, (vi) experienced and well-trained workforce
and (vii) valuable real estate portfolio.
Strong Competitive Position. The Company has achieved leading competitive
positions in many of its primary markets. In Birmingham, Alabama, which is the
Company's leading market, the Company's market share increased from 45% in 1990
to 52% in 1994. In addition, the Company is the market leader in the state of
Alabama with a market share of approximately 30%. The Company's Alabama markets
accounted for approximately 55% of the Company's sales for the 40 weeks ended
April 8, 1995. The Company has also established strong competitive positions in
certain areas of Georgia, Florida and Tennessee. The Company believes that its
reputation for quality and service has created a valuable franchise with strong
name recognition and customer loyalty.
Prime Locations. The Company's 60 years of operation in the Southeast have
allowed it to build its store locations selectively, and the Company believes
that many of its current store locations are in prime sites that offer
significant competitive advantages. In addition, the Company's distribution
facilities, located in Birmingham, Alabama and Vidalia, Georgia, are
conveniently located close to major highways and can efficiently supply new
stores in the Company's existing markets, as well as potential new markets that
exist within such facilities' operating radius.
Attractive Southeast Markets. The Southeast is one of the fastest growing
regions in the United States in terms of population, income, and employment and
has experienced significant additions to its manufacturing base in recent years.
According to the Bureau of the Census, the population of the Southeast region
has increased at an annual rate of 1.5% since 1990, compared to the national
average of 1.1% over the same period. Retail sales of food in the Southeast are
outpacing national levels, with growth in the years 1993 and 1994 of 3.8% and
4.1% compared to national gains of 2.6% and 3.4%, respectively. Since all of the
Company's existing stores and currently planned new stores will be in the
Southeast, the Company believes that it will continue to benefit from the
economic strength of this region. Nevertheless, individual markets or regions
within the Southeast where the Company operates may experience economic and
demographic trends which differ from those of the region as a whole.
Recently Remodeled and New Store Base. The Company has developed a modern,
well-maintained store base. During the five fiscal years ended July 1, 1995, the
Company has invested approximately $425 million in capital expenditures, which
has been primarily directed to building new stores, expanding and remodeling
existing stores and improving its distribution facilities. During the five
fiscal years ended July 1, 1995, the Company has opened 77 new stores, closed or
sold 55 stores and, over the last four fiscal years, expanded or remodeled 81
existing stores. These investments have resulted in an
S-4
<PAGE>
increase in total square footage of 15% since fiscal 1991 and an increase in
average store size from 38,300 square feet to 41,200 square feet over the same
period.
Enhanced Store Mix. The Company attempts to optimize operating results by
selecting a format for each store that is best suited to a site's demographics,
local preferences and competition. In recent years, the Company has expanded its
EDLP and upscale formats while continuing to invest in its neighborhood store
base, where appropriate. In addition, the Company has opened all 16 of its
Supercenter stores since 1992. The result of these changes is a store mix which
emphasizes higher volume stores offering higher margin products, positioning the
Company for continued growth and enhanced profitability. Due in part to the
Company's enhanced store mix, the Company's gross margin has increased from
21.8% in fiscal 1990 to 23.5% for the 40 weeks ended April 8, 1995.
Experienced and Well-Trained Workforce. The Company, with its strong
emphasis on its customers and employees, has developed a loyal, well-trained
workforce which includes many employees who have spent their entire careers with
the Company. The Company emphasizes training, development, and internal
promotions and believes that it possesses considerable management depth among
its middle managers, with store managers having an average of over 13 years of
experience with the Company.
Valuable Real Estate Portfolio. The Company owns, directly or through joint
ventures, 79 of the 252 stores which it operates, 30 of which are located in
shopping centers that the Company owns. The Company owns its two primary
distribution centers subject to arrangements with local industrial development
agencies. In addition, the Company owns land for development or expansion, as
well as certain non-operating real estate assets. In the aggregate, the Company
owns real estate which, as of July 2, 1994, had a net book value of
approximately $260 million. The Company believes that the fair market value of
its owned real estate assets exceeds the book value of such assets.
POST-MERGER BUSINESS STRATEGY
Crimson has initiated a search for a new chief executive officer who is
expected to be appointed shortly after the Merger. Ronald G. Bruno, the chief
executive officer of the Company, and the other four senior executive officers
will remain with the Company for up to one year following the Merger to
accomplish the transition of ownership and management in an orderly fashion. Mr.
Bruno has agreed to remain on the Board of Directors of the Company for three
years after the Merger, subject to his customary right to resign. Crimson
expects that the new chief executive officer will select key executives to
replace the departing executives.
Crimson has developed a business strategy based on its review of the
Company's operations and the experience of its affiliates in the supermarket
industry. In concert with the new senior management team, Crimson intends to
continue certain strategies that have been successfully employed by the Company
and, additionally, to: (i) expand the Company's franchise in the Southeast
region, (ii) improve working capital management, (iii) grow the Company's
private label business, (iv) continue development of the Company's management
information systems and (v) continue improvement of the Company's store and
product mix.
Expand Company Franchise. Through its 60 years of operations in the
Southeast region, the Company has developed a valuable franchise which Crimson
believes can be expanded and enhanced through opening new stores both in
existing and potential new markets while continuing to upgrade the quality of
the Company's existing store base. Crimson intends to implement this strategy
while maintaining the Company's high level of product quality and customer
service.
Improve Working Capital Management. Crimson believes that the Company can
improve its working capital management. For example, the Company's ratio of
accounts payable to inventories, typically used as a measure of the level of
vendor financing for a supermarket or retail chain, is currently approximately
43% and the Company's ratio of cost of goods sold to inventory is currently 8.4
S-5
<PAGE>
to 1. Both of these ratios are below the industry averages. Under the control of
Crimson affiliates, Safeway and Stop & Shop have achieved improvements in
working capital management, although there can be no assurance that similar
improvements can be achieved by the Company.
Grow Private Label Business. Private label products provide a substantially
higher gross margin to the Company and provide consumers with quality products
at lower prices than national brands. Recently, the Company has been focusing on
expanding and enhancing its private label program to provide additional products
and is evaluating the addition of a premium line of private label goods.
According to an industry analyst's survey, the industry average for private
label products as a percentage of total grocery sales is approximately 18.6%,
which is greater than the percentage of total grocery sales that is currently
contributed by the Company's private label program. Crimson intends to continue
the Company's increased emphasis on the higher margin private label business to
increase its contribution to overall Company sales and profitability.
Continue Development of Management Information Systems. In recent years, the
Company has increased its investment in management information systems ("MIS")
and is currently in the process of implementing various new software
applications and upgrading certain of its computer hardware. The Company's
point-of-sale ("POS") technology includes scanning systems and SwipeOut(R), the
Company's electronic payment system. However, opportunities exist for
operational improvements through MIS upgrades. Crimson intends to upgrade the
Company's POS technology and other systems to, among other things, improve the
monitoring of distribution center inventory levels and labor scheduling. Crimson
believes that these upgrades should result in performance and operating
improvements. Crimson intends to lease these enhanced management information
systems, which is expected to result in increased store operating, selling and
administrative expenses.
Improve Store and Product Mix. Crimson intends to continue the Company's
strategy of optimizing the mix of stores across the Company's store formats
through an emphasis on opening and remodeling stores that are closely tailored
to customer needs in a specific market. Crimson will continue the strategy of
emphasizing higher margin specialty products, general merchandise and
value-added services.
After the Merger, Crimson and the new management team may decide to alter or
discontinue certain of the strategies outlined above and will continually assess
whether other strategies should be adopted to complement or replace such
strategies. In addition, there can be no assurance that the strategies outlined
in this Prospectus Supplement, if implemented, will be successful or achieve the
expected level of operating improvement, or that sufficient financial resources
will be available to implement the strategies described above. Moreover, there
can be no assurance that the successful implementation of these strategies will
result in improved operating results, and other conditions may exist, such as
increased competition or an economic downturn in the Southeast region, to offset
any improved earnings that are attributable to such strategies.
THE FINANCINGS
The financings (collectively, the "Financings") in connection with the
Merger will be comprised of (i) the offering of $250.0 million of Senior
Subordinated Notes, (ii) the offering of $ million of Discount Debentures to
provide gross proceeds of approximately $100.0 million, (iii) a $550 million
term loan facility (the "Term Loan Facility") and (iv) a $100 million revolving
credit facility (the "Revolving Credit Facility," and together with the Term
Loan Facility, the "Credit Facility"). The Company will apply the net proceeds
of the Financings to (i) pay $880.1 million of cash merger consideration, (ii)
repay $200.0 million of indebtedness and (iii) pay an estimated $75.0 million of
fees and expenses related to the Merger.
S-6
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THE OFFERING
<TABLE>
<S> <C>
SENIOR SUBORDINATED NOTES DUE 2005
Issuer....................... The Company.
Securities Offered........... $250,000,000 in aggregate principal amount of % Senior
Subordinated Notes due 2005.
Maturity Date................ , 2005 (the "Senior Subordinated Note Maturity Date").
Interest..................... Interest on the Senior Subordinated Notes will accrue from
the date of issuance at the rate of % per annum (the
"Senior Subordinated Note Rate"), and will be payable in
cash semi-annually in arrears on and of each
year (each a "Senior Subordinated Note Interest Payment
Date") to the holders of record at the close of business
on the preceding or (each a "Senior
Subordinated Note Record Date"), commencing ,
1995.
Mandatory Redemption......... None.
Optional Redemption.......... Except as described below, the Senior Subordinated Notes
are not redeemable at the Company's option prior to , 2000
(the "First Optional Redemption Date"). From and after the
First Optional Redemption Date, the Senior Subordinated
Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (the
"Senior Subordinated Note Redemption Prices") (expressed
as percentages of principal amount) set forth below, plus
accrued and unpaid interest, if any, thereon to the
applicable redemption date, if redeemed during the twelve-
month period beginning on of each of the years
indicated below:
PERCENTAGE
OF PRINCIPAL
YEAR AMOUNT
--------------------------------------------- ------------
2000......................................... %
2001.........................................
2002.........................................
2003 and thereafter.......................... 100%
In addition, at any time prior to , 1998 (the
"Equity Redemption Date"), at the option of the Company,
up to 40% of the aggregate face amount of Senior
Subordinated Notes originally issued in the Offering may
be redeemed at a redemption price equal to % (the
"Senior Subordinated Note Equity Redemption Price") of the
aggregate principal amount of the Senior Subordinated
Notes at the date of the redemption with the proceeds of
certain equity issuances; provided, that at least 60% of
the original
</TABLE>
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<TABLE>
<S> <C>
aggregate principal amount of Senior Subordinated Notes remains
outstanding following any such redemption.
Ranking...................... The Senior Subordinated Notes will be general unsecured
obligations of the Company and will be subordinated in
right of payment to all Senior Indebtedness of the Company
(which would include all indebtedness of the Company under
the Credit Facility) and senior or pari passu in right of
payment to all existing and future subordinated
indebtedness of the Company. The Senior Subordinated Notes
will rank pari passu with the Discount Debentures.
Change of Control............ In the event of a Change of Control, holders of the Senior
Subordinated Notes will have the right to require the
Company to repurchase their Senior Subordinated Notes, in
whole or in part, at a price equal to 101% of the
aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. The
indenture pursuant to which the Senior Subordinated Notes
will be issued (including the resolutions of the Board of
Directors of the Company adopted pursuant thereto, the
"Indenture") will require that prior to such a purchase,
the Company must either repay all outstanding indebtedness
under the Credit Facility or obtain any required consent
to such purchase.
Certain Covenants............ The Indenture will contain certain covenants that, among
other things, limit the ability of the Company and its
Restricted Subsidiaries (as defined) to incur additional
Indebtedness and issue Disqualified Stock (as defined),
pay dividends or distributions or make investments,
repurchase Equity Interests (as defined) or make certain
other Restricted Payments (as defined), create certain
liens, enter into certain transactions with affiliates,
sell assets, issue or sell Equity Interests of the
Company's Restricted Subsidiaries or enter into certain
mergers and consolidations. In addition, under certain
circumstances, the Company will be required to offer to
purchase the Senior Subordinated Notes at a price equal to
100% of the principal amount thereof, plus accrued
interest, if any, to the date of purchase, with the
proceeds of certain Asset Sales (as defined).
SENIOR SUBORDINATED DISCOUNT DEBENTURES DUE 2007
Issuer....................... The Company.
Securities Offered........... $ in aggregate principal amount of % Senior
Subordinated Discount Debentures due 2007. The Discount
Debentures will be offered at a substantial discount from
their principal amount and will be issued in such
aggregate principal amount as to provide gross proceeds of
approximately $100,000,000.
Maturity Date................ , 2007 (the "Discount Debenture Maturity Date").
Interest..................... No interest will accrue on the Discount Debentures prior
to , 2000 (the "Full Accretion Date"). The price to
</TABLE>
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<TABLE>
<S> <C>
the public will represent a yield to such date of %
computed on a semi-annual bond equivalent basis.
Commencing , 2000, interest on the Discount
Debentures will accrue at the rate of % per annum (the
"Discount Debenture Rate"), and will be payable in cash
semi-annually in arrears on each and (each a
"Discount Debenture Interest Payment Date") to the holders
of record at the close of business on the preceding
or (each a "Discount Debenture
Record Date") beginning with the first such date after the
Full Accretion Date.
Mandatory Redemption......... None.
Optional Redemption.......... Except as described below, the Discount Debentures are not
redeemable at the Company's option prior to the First
Optional Redemption Date. From and after the First
Optional Redemption Date, the Discount Debentures will be
subject to redemption at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (the "Discount
Debenture Redemption Prices") (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid
interest, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning
on of each of the years indicated below:
PERCENTAGE
OF PRINCIPAL
YEAR AMOUNT
--------------------------------------------- ------------
2000......................................... %
2001.........................................
2002.........................................
2003.........................................
2004 and thereafter.......................... 100%
In addition, at any time prior to the Equity Redemption
Date, at the option of the Company, up to 40% of the
aggregate face amount of Discount Debentures originally
issued in the Offering may be redeemed at a redemption
price equal to % (the "Discount Debenture Equity
Redemption Price") of the Accreted Value of the Discount
Debentures at the date of the redemption with the proceeds
of certain equity issuances; provided, that at least 60%
of the principal amount of the Discount Debentures
originally issued remains outstanding following any such
redemption.
Ranking...................... The Discount Debentures will be general unsecured
obligations of the Company and will be subordinated in
right of payment to all Senior Indebtedness of the Company
(which would include all indebtedness of the Company under
the Credit Facility) and senior or pari passu in right of
payment to all existing and future subordinated
indebtedness of the
</TABLE>
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<S> <C>
Company. The Discount Debentures will rank pari passu with
the Senior Subordinated Notes.
Change of Control............ In the event of a Change of Control, holders of the
Discount Debentures will have the right to require the
Company to repurchase their Discount Debentures, in whole
or in part, at a price equal to 101% of the Accreted Value
thereof (or, if after the Full Accretion Date, 101% of the
principal amount thereof plus accrued and unpaid interest
to the date of purchase). The Indenture, pursuant to which
the Discount Debentures also will be issued, will require
that prior to such a purchase, the Company must either
repay all outstanding indebtedness under the Credit
Facility or obtain any required consent to such purchase.
Original Issue Discount...... For federal income tax purposes, each Discount Debenture
will be deemed to be issued with "original issue discount"
equal to the difference between the issue price thereof
and the sum of all cash payments (whether denominated as
principal or interest) to be made thereon. Each holder of
a Discount Debenture must include in gross income for
federal income tax purposes the sum of the daily portions
of such original issue discount for each day during each
taxable year in which the Discount Debenture is held, even
though no interest payments will be received prior to
, 2001.
Certain Covenants............ The Indenture will contain certain covenants that, among
other things, limit the ability of the Company and its
Restricted Subsidiaries to incur additional Indebtedness
and issue Disqualified Stock, pay dividends or
distributions or make investments, repurchase Equity
Interests (as defined) or make certain other Restricted
Payments (as defined), create certain liens, enter into
certain transactions with affiliates, sell assets, issue
or sell Equity Interests of the Company's Restricted
Subsidiaries or enter into certain mergers and
consolidations. In addition, under certain circumstances,
the Company will be required to offer to purchase the
Discount Debentures at a price equal to 100% of the
Accreted Value thereof (or, if after the Full Accretion
Date, 100% of the principal amount thereof plus accrued
and unpaid interest to the date of purchase), with the
proceeds of certain Asset Sales.
</TABLE>
USE OF PROCEEDS
Upon consummation of the Merger, the net proceeds received by the Company
from the Offering, estimated to be approximately $ million, after
deducting discounts, commissions and estimated fees and expenses, and from the
Term Loan Facility and a portion of the Revolving Credit Facility will be used
to (i) pay $880.1 million of cash merger consideration, (ii) repay $200.0
million of indebtedness and (iii) pay an estimated $75.0 million of fees and
expenses related to the Merger.
S-10
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth summary consolidated historical financial
data of the Company which for the three fiscal years ended July 2, 1994 have
been derived from, and should be read in conjunction with, the audited
consolidated financial statements of the Company incorporated by reference
herein, and which for the 40 weeks ended April 9, 1994 and April 8, 1995 have
been derived from, and should be read in conjunction with, the unaudited interim
consolidated financial statements of the Company incorporated by reference
herein, including in each case the respective notes thereto. See "Available
Information" and "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included in the unaudited
interim data. Interim results for the 40 weeks ended April 8, 1995 are not
necessarily indicative of results which may be expected for future periods,
including the fiscal year ended July 1, 1995.
<TABLE>
<CAPTION>
(UNAUDITED)
52 WEEKS 53 WEEKS 52 WEEKS 40 WEEKS ENDED
ENDED ENDED ENDED ------------------------------
JUNE 27, 1992 JULY 3, 1993 JULY 2, 1994 APRIL 9, 1994 APRIL 8, 1995
------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS)
OPERATING DATA:
Net sales................ $ 2,657,846 $ 2,872,327 $ 2,834,688 $ 2,173,757 $ 2,201,015
Gross profit............. 590,286 629,872 649,101 494,068 516,199
Store operating, selling
and administrative
expenses............... 439,713 489,950 512,063 391,436 424,789(a)
Interest expense, net.... 10,777 17,817 15,925 12,717 16,011
Net income(b)............ 43,416 46,894 37,293 24,674 21,027
Ratio of earnings to
fixed charges(c)....... 4.09 3.20 2.91 2.77 2.03(d)
OTHER DATA:
Depreciation and
amortization........... $ 44,261 $ 48,718 $ 52,343 $ 41,228 $ 41,485
Capital expenditures..... 102,050 131,741 63,989 52,653 39,569
Stores open at end of
period(e).............. 253 257 257 258 253
EBITDA(f)................ $ 150,573 $ 139,922 $ 137,038 $ 102,632 $ 91,410(g)
BALANCE SHEET DATA (END OF
PERIOD):
Working capital.......... 110,968 117,510 174,392 183,870 131,280
Total assets............. 834,683 916,923 927,208 938,543 898,480
Long-term debt and
capitalized lease
obligations............ 172,190 269,046 296,460 322,621 220,071
Shareholders'
investment............. 422,443 402,667 421,354 413,541 422,478
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Store operating, selling and administrative expenses for the 40 weeks ended April 8,
1995 include a $22.2 million charge due to a change in accounting estimate relating to
the Company's self- insurance reserves.
</TABLE>
(Footnotes continued on following page)
S-11
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(b) Net income for fiscal 1994 reflects an extraordinary loss of $3.3 million, net of
applicable tax benefit of $2.0 million, resulting from the retirement of a total of
$142.8 million principal amount of 6.5% Convertible Subordinated Debentures. In
addition, in the fiscal year ended July 2, 1994 and the 40 weeks ended April 9, 1994,
the Company recorded an additional tax provision of $2.2 million to retroactively
restate income tax liabilities to reflect the change in federal income tax rates in
connection with the Omnibus Budget Reconciliation Act of 1993. Net income for fiscal
1992 reflects the Company's loss of $13.0 million, net of applicable tax benefit of
$7.3 million, from the operation and disposal of an unsuccessful store format that was
accounted for separately as a discontinued operation.
(c) For purposes of computing the ratio of earnings to fixed charges, "earnings" consists
of income before income taxes and extraordinary loss on extinguishment of debt, plus
fixed charges. "Fixed charges" consist of interest expense and one-third of rental
expense (the portion deemed representative of the interest factor).
(d) The ratio of earnings to fixed charges for the 40 weeks ended April 8, 1995 reflects a
$22.2 million charge ($19.2 million of which is estimated to be nonrecurring) due to a
change in accounting estimate relating to the Company's self-insurance reserves.
(e) The following table sets forth additional information concerning changes in the
Company's store base:
</TABLE>
<TABLE>
<CAPTION>
FISCAL 40 WEEKS ENDED
-------------------- ------------------------------
1992 1993 1994 APRIL 9, 1994 APRIL 8, 1995
---- ---- ---- ------------- -------------
<S> <C> <C> <C> <C> <C>
Beginning of period............................... 240 253 257 257 257
Opened.......................................... 21 23 8 7 5
Closed/Sold..................................... 8 19 8 6 9
---- ---- ---- --- ---
End of period..................................... 253 257 257 258 253
---- ---- ---- --- ---
---- ---- ---- --- ---
Remodels.......................................... 14 13 39 * 15
</TABLE>
- ------------
* See remodels data for fiscal 1994.
<TABLE>
<C> <S>
(f) EBITDA as defined by the Company, represents net income before net interest expense,
income taxes, depreciation and amortization, extraordinary loss on extinguishment of
debt, loss on disposal of discontinued operations and loss from operation of
discontinued operations. EBITDA is a widely accepted financial indicator of a company's
ability to service debt. However, EBITDA should not be construed as an alternative to
operating income, net income or cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be construed
as an indication of the Company's operating performance or as a measure of liquidity.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(g) EBITDA for the 40 weeks ended April 8, 1995 is reduced by a $22.2 million change in
accounting estimate ($19.2 million of which is estimated to be nonrecurring) that was
recorded in the third quarter of fiscal 1995 to increase the Company's self-insurance
reserves. In addition, during 1995, the Company received $5 million of a cash vendor
rebate that relates to future periods of a multi-year vendor agreement. Such amount was
deferred and is currently being amortized to income over the four-year term of the
related vendor agreement.
</TABLE>
S-12
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus
Supplement, prospective investors should carefully consider the following
information in evaluating the Company and its business before making an
investment in the Securities.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company will incur significant indebtedness in connection with the
Merger. See "The Merger" and "Pro Forma Capitalization." At April 8, 1995,
giving pro forma effect to the Merger and the Financings and the application of
the net proceeds therefrom, the Company's consolidated long-term indebtedness
and total shareholders' investment (deficit) would have been approximately $925
million and $(282.6) million, respectively. See "Pro Forma Capitalization." Upon
completion of the Financings, the Company will have consolidated long-term
indebtedness substantially greater than the Company's pre-Merger long-term
indebtedness. Upon execution of the Credit Facility and consummation of the
Merger, the Company expects to have $94.9 million available to be borrowed under
the Revolving Credit Facility. The Company's pro forma ratio of earnings to
fixed charges for the fiscal year ended July 2, 1994 and the 40 weeks ended
April 8, 1995 would have been 0.96 to 1.0 and 0.78 to 1.0, respectively, after
giving effect to the Merger and the Financings and the application of the
proceeds therefrom. The ratio of earnings to fixed charges for the 40 weeks
ended April 8, 1995 reflects a $22.2 million charge ($19.2 million of which is
estimated to be nonrecurring) due to a change in accounting estimate relating to
the Company's self-insurance reserves. For the 40 weeks ended April 8, 1995, the
Company's net income (loss), on a pro forma basis as adjusted to give effect to
the Merger and the Financings, would have been $(11.3) million, compared to the
historical amount for such period of $21.0 million. For the fiscal year ended
July 2, 1994, the Company's net income (loss), on a pro forma basis as adjusted
to give effect to the Merger and the Financings, would have been $(4.7) million,
compared to the historical amount for such period of $37.3 million. Pro forma
interest expense would have been $69.1 million and $89.6 million for the 40
weeks ended April 8, 1995 and the fiscal year ended July 2, 1994, respectively,
as compared to $20.7 million and $20.5 million, respectively, for the same
periods on a historical basis.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Securities) and
to make scheduled payments under its operating and capitalized leases depends on
its future performance, which to a certain extent is subject to economic,
financial, competitive and other factors beyond its control. Based upon the
current level of operations and anticipated growth, management believes that
available cash, together with available borrowings under the Revolving Credit
Facility and other sources of liquidity, will be adequate to meet the Company's
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." There can be no assurance, however, that the Company's business will
continue to generate sufficient cash flow from operations in the future to
service its debt and make necessary capital expenditures. If unable to do so,
the Company may be required to refinance all or a portion of its existing debt,
including the Securities, to sell assets or to obtain additional financing.
There can be no assurance that any such refinancing would be possible or that
any such sales of assets or additional financing could be achieved.
The Company's high level of debt will have several important effects on its
future operations, including the following: (a) the Company will have
significant cash requirements to service debt, reducing funds available for
operations and future business opportunities and increasing the Company's
vulnerability to adverse general economic and industry conditions; (b) the
financial covenants and other restrictions contained in the Credit Facility and
in the Indenture will require the Company to meet certain financial tests and
will restrict its ability to borrow additional funds, to dispose of assets or to
pay cash dividends; and (c) because of the Company's debt service requirements,
funds available for
S-13
<PAGE>
working capital, capital expenditures, acquisitions and general corporate
purposes may be limited. After the Merger is consummated, the Company's
principal sources of liquidity are expected to be cash flow from operations and
borrowings under the Revolving Credit Facility. It is anticipated that the
Company's principal uses of liquidity will be to provide working capital, meet
debt service requirements and finance the Company's strategic plans. The
Revolving Credit Facility will be available for the Company's working capital
needs, and a portion thereof will be available for the issuance of letters of
credit. The Term Loan Facility will be drawn in full upon consummation of the
Merger. The Company's continued growth depends, in part, on its ability to
continue its expansion and store remodeling efforts, and, therefore, its
inability to finance capital expenditures through borrowed funds could have a
material adverse effect on the Company's operations.
SUBORDINATION
The Securities will be general unsecured obligations of the Company. The
Securities will be subordinate in right of payment to all Senior Indebtedness of
the Company, including all indebtedness of the Company under the Credit
Facility. As of April 8, 1995, giving pro forma effect to the Merger and the
Offering and the application of the net proceeds therefrom, approximately $575.2
million of Senior Indebtedness would have been outstanding. The Indenture and
the Credit Facility permit the Company to incur additional Senior Indebtedness,
provided certain conditions are met, and the Company expects from time to time
to incur additional Senior Indebtedness. Furthermore, although no Senior
Indebtedness will be secured at the Issuance Date (as defined), the Indenture
does not limit the Company's ability to secure Senior Indebtedness. In addition,
as of April 8, 1995, giving pro forma effect to the Merger and the Offering and
the application of the net proceeds therefrom, the Company would have available
borrowings of approximately $94.9 million under the Revolving Credit Facility.
In the event of the insolvency, liquidation, reorganization, dissolution or
other winding up of the Company or upon a default in payment with respect to, or
the acceleration of, or if a judicial proceeding is pending with respect to any
default under any Senior Indebtedness, the lenders under the Credit Facility and
other creditors who are holders of Senior Indebtedness must be paid in full
before a holder of the Securities may be paid. Accordingly, there may be
insufficient assets remaining after such payments to pay the Securities. See
"Description of Securities--Subordination."
Certain assets related to the Company's Piggly Wiggly stores are owned by
one of its subsidiaries ("PWS"). The right of the Company, and thus the right of
its creditors (with the exception of creditors of the Company benefitted by a
guarantee from PWS), to participate in any distribution of earnings or assets of
PWS is subject to the prior claims of the creditors of such subsidiary,
including trade creditors. As of the date of this Prospectus Supplement, PWS had
no Indebtedness outstanding. The incurrence of Indebtedness by PWS will be
limited by the Indenture.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors include national and regional
supermarket chains, independent and specialty grocers, drug and convenience
stores, and the newer "alternative format" food stores, including warehouse club
stores, deep discount drug stores and "Supercenters." Supermarket chains
generally compete on the basis of location, quality of products, service, price,
product variety and store condition. The Company regularly monitors its
competitors' prices and adjusts its prices and marketing strategy as management
deems appropriate in light of existing conditions. The Company faces increased
competitive pressure in all of its markets, including Alabama where it has
historically been the single largest supermarket chain, from existing
competitors and from the threatened entry by one or more major new competitors.
Some of the Company's competitors have greater financial resources than the
Company and could use these resources to take measures which could adversely
affect the Company's competitive position. See "Business--Competition."
S-14
<PAGE>
DIFFICULTY IN ACHIEVING POST-MERGER BUSINESS STRATEGY
The post-Merger business strategy that has been developed by Crimson is
based on Crimson's review of the Company's operations and the experience of
Crimson's affiliates in the supermarket industry. See "Prospectus Supplement
Summary--Post-Merger Business Strategy" and "Business-- Business Strategy."
After the Merger and after gaining experience with the Company's operations,
Crimson and its new management team may decide to alter or discontinue certain
parts of the post-Merger business strategy described herein and may adopt
alternative or additional strategies. In addition, there can be no assurance
that such a strategy, if implemented, will be successful or will improve
operating results. Moreover, there can be no assurance that the successful
implementation of such a strategy will result in improved operating results.
Further, other conditions may exist, such as increased competition, or an
economic downturn in the Southeast region, which may offset any improved
operating results that are attributable to such a strategy.
Crimson has initiated a search for a new chief executive officer who is
expected to be appointed shortly after the Merger. Crimson expects that the new
chief executive officer will select key executives to replace the other four
senior executive officers who have agreed to remain with the Company for up to
one year after the Merger. No assurance can be given as to the timing of the
selection of a new chief executive officer, or as to the amount of time that
will be required to select and retain a new senior management team capable of
implementing the post-Merger business strategy for the Company. Although Mr.
Bruno and the four other departing senior executive officers have agreed to
remain with the Company for up to one year, the new senior management team may
require additional time to become sufficiently familiar with the Company's
operations to implement such strategy for the Company. In addition, the
transition period could negatively impact the existing operations of the
Company.
The implementation of the post-Merger business strategy for the Company will
require significant financial resources as the Company renovates and expands its
store base while supporting the operations of new stores until they become
profitable. There can be no assurance that sufficient financial resources will
be available from either future earnings or other sources to maintain such a
program.
Generally, new stores opened by the Company operate at a loss for varying
periods of time, depending on such factors as prevailing competition and the
Company's market position in the surrounding community. Pursuing a strategy of
growth and expansion in light of the current highly competitive industry
conditions could lead to a near-term decline in earnings as a result of opening
and operating a substantial number of new stores, particularly with respect to
stores in new markets where the Company does not have an established presence.
LABOR RELATIONS
Approximately 77% of the Company's employees are unionized. The Company's
collective bargaining agreement with the United Food and Commercial Workers
Union for its Food World stores in Alabama, which account for 24% of the
Company's workforce and 25% of the Company's stores, is due to expire on
September 30, 1995. While the Company believes that its relations with its
employees are good, a prolonged dispute could have a material adverse effect on
the Company.
GEOGRAPHIC CONCENTRATION
All of the Company's stores are located in the Southeast region, with a
strong concentration in Alabama, and thus the performance of the Company will be
particularly influenced by developments in this area. Although the Southeast
region has experienced economic and demographic growth over the past several
years, a significant economic downturn in the region could have a material
adverse effect on the Company.
S-15
<PAGE>
CONTROL BY KKR
Upon completion of the Merger, approximately 83.33% of the outstanding
shares of the Company's Common Stock (approximately 88% if all of the Warrants
are exercised) will be held by Crimson Associates, of which KKR Associates, a
New York limited partnership and an affiliate of KKR, is the general partner.
Accordingly, KKR Associates and its general partners will control the Company
and have the power to elect all of its directors, appoint new management and
approve any action requiring the approval of the holders of the Company's Common
Stock, including adopting amendments to the Company's Articles of Incorporation
and approving mergers or sales of substantially all of the Company's assets. See
"Management." The directors elected by Crimson Associates will have the
authority to effect decisions affecting the capital structure of the Company,
including the issuance of additional capital stock, the implementation of stock
repurchase programs and the declaration of dividends. There can be no assurance
that the capital policies of the Company in effect prior to the Merger will
continue after the Merger.
LACK OF PUBLIC MARKET
There is no existing trading market for the Securities and, although the
Company has been advised by the Underwriters that they currently intend to make
a market in the Securities, the Underwriters are not obligated to do so and any
market making may be discontinued at any time without notice. There can be no
assurance as to the development of any market or liquidity of any market that
may develop for the Securities.
USE OF PROCEEDS
Upon consummation of the Merger, the net proceeds received by the Company
from the Offering, estimated to be approximately $ million, after deducting
discounts, commissions and estimated fees and expenses, and from the Credit
Facility (as defined herein) will be used to (i) pay $880.1 million of cash
merger consideration, (ii) repay $200.0 million of indebtedness and (iii) pay an
estimated $75.0 million of fees and expenses related to the Merger. The
indebtedness to be repaid consists of $100.0 million aggregate principal amount
of 6.62% Series A Senior Notes due 2003 and $100.0 million aggregate principal
amount of 7.09% Series B Senior Notes due 2008.
SOURCES AND USES
(dollars in millions)
<TABLE>
<CAPTION>
CASH SOURCES CASH USES
- --------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C>
Term Loan Facility................. $ 550.0 Purchase Bruno's Common Stock...... $ 880.1
Revolving Credit Facility.......... 5.1 Repay 6.62% Series A Senior Notes
due 2003......................... 100.0
Senior Subordinated Notes.......... 250.0 Repay 7.09% Series B Senior Notes
due 2008......................... 100.0
Discount Debentures................ 100.0 Estimated Fees and Expenses........ 75.0
Equity Investment from Crimson
Associates....................... 250.0
-------- --------
Total Cash Sources............. $1,155.1 Total Cash Uses.................... $1,155.1
-------- --------
-------- --------
</TABLE>
S-16
<PAGE>
THE COMPANY
The Company is a leading supermarket operator in the Southeastern United
States and is the largest supermarket operator in the state of Alabama. The
Company operates 252 supermarkets of which 124 are located in Alabama, 86 in
Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi, and 5 in South
Carolina. Seventy-nine of the store sites are owned directly by the Company or
through joint ventures. Through its 60 years of operations, the Company has
developed a valuable and strategically located store base, strong name
recognition, customer loyalty, and a reputation as a quality and service leader
among supermarket operators. The Company believes that these factors have
enabled it to establish a leading market share in most of its principal markets,
including market shares of approximately 52% in Birmingham and 30% throughout
Alabama.
The Company operates stores under three principal formats, each addressed to
a different market segment: every day low price ("EDLP") stores aimed at the
value conscious shopper, upscale stores targeted to customers seeking service
and selection, and neighborhood stores stressing convenience in a community
setting. The Company's EDLP stores, comprised of Food World and FoodMax, are
widely regarded as low price leaders in their respective markets. The EDLP
format accounted for 57% of the Company's sales for the 40 weeks ended April 8,
1995. The Company's upscale stores, which operate primarily under the Bruno's
name, are widely regarded as quality, service, and perishables leaders in the
markets the Company serves, and generally have substantial breadth and depth of
product offerings. The upscale format accounted for 21% of the Company's sales
for the 40 weeks ended April 8, 1995. Under the EDLP and upscale formats, the
Company also operates 16 Supercenter stores that offer an expanded mix of higher
margin perishables and general merchandise products and various one-stop
shopping conveniences, such as in-store pharmacies, banks, photo development
services and optical centers. The Company's neighborhood stores, comprised
primarily of Piggly Wiggly and Food Fair, are typically located in small to
medium-sized towns and suburban neighborhoods and emphasize friendly service and
promotional pricing. The neighborhood format accounted for 22% of the Company's
sales for the 40 weeks ended April 8, 1995.
The principal executive offices of the Company are located at 800 Lakeshore
Parkway, Birmingham, Alabama 35211, and its telephone number is (205) 940-9400.
THE MERGER
The statements made under this heading relating to the Merger (as defined
below) are summaries of the agreements described therein, do not purport to be
complete and are qualified in their entirety by reference to such agreements,
which are incorporated herein by reference. See "Available Information."
MERGER AGREEMENT. The Company and Crimson, an Alabama corporation and as of
the date hereof, a wholly owned subsidiary of Crimson Associates, which is a
partnership organized by KKR, entered into an Agreement and Plan of Merger,
dated as of April 20, 1995, and amended as of May 18, 1995 (as amended, the
"Merger Agreement"), pursuant to which Crimson will be merged with and into the
Company ("the Merger"), with the Company continuing as the surviving
corporation. Upon consummation of the Merger, each share of the Company's Common
Stock outstanding immediately prior to the time the Merger becomes effective
(the "Effective Time of the Merger") will be converted at the election of the
holder thereof into either (i) the right to receive $12.00 in cash from the
Company following the Merger or (ii) the right to retain that share of Common
Stock. The Merger contemplates that approximately 94.7% of the presently issued
and outstanding shares of the Company's Common Stock will be converted into
cash, and that approximately 5.3% of the presently issued and outstanding shares
will be retained by shareholders. Because the Company's existing shareholders
will retain 4,173,682 shares of Common Stock, the right to receive $12.00 in
cash or to retain Common Stock will
S-17
<PAGE>
be subject to proration. Such number of retained shares will represent
approximately 16.67% of the Common Stock expected to be outstanding after the
Merger.
As a result of the Merger, Crimson Associates will hold 20,833,333 shares,
or approximately 83.33%, of the Common Stock expected to be outstanding after
the Merger, and 10,000,000 warrants (the "Warrants") to purchase up to an
additional 10,000,000 shares of Common Stock in the aggregate at an exercise
price of $12.00 per share, subject to certain anti-dilution adjustments. Each
Warrant will be exercisable in whole or in part during the ten year period
following the Effective Time of the Merger and, upon exercise, may be exchanged,
at the option of the holder, for either (i) such number of shares of Common
Stock for which the Warrant is then exercisable upon payment by the holder to
the Company of the aggregate exercise price or (ii) that number of shares of
Common Stock having a value equal to the difference between the "fair market
value" at the time of exercise of such number of shares of Common Stock for
which the Warrant is then exercisable and the aggregate exercise price. If the
Warrants were exercised in full by the payment of the aggregate cash exercise
price immediately after the Merger, Crimson Associates would hold approximately
88% of the shares of Common Stock expected to be outstanding after the Merger.
The Company will submit the Merger Agreement to its shareholders for
approval at a special meeting, which is expected to be held on August 18, 1995
(the "Special Meeting"). In addition, the Company will submit to the
shareholders for their consent (i) a proposal to increase the Company's "bonded
indebtedness" under Alabama law to finance the conversion into cash of
approximately 94.7% of the issued and outstanding shares of Common Stock upon
the consummation of the Merger, to refinance certain outstanding indebtedness of
the Company and to provide for working capital requirements and (ii) a proposal
to amend and restate the Company's Articles of Incorporation to, among other
things, reduce the authorized shares of Common Stock from 200,000,000 to
60,000,000. The affirmative vote of the holders of two-thirds of the shares of
Common Stock entitled to vote thereon is required for approval and adoption of
the Merger Agreement and the transactions contemplated thereby. The affirmative
vote of the holders of a majority of the shares of Common Stock entitled to vote
thereon is required for approval and adoption of each of the increase in bonded
indebtedness and the Amended and Restated Articles of Incorporation. Approval of
the increase in bonded indebtedness and the Amended and Restated Articles of
Incorporation will be sought at the Special Meeting only if the shareholders
approve the Merger. Pursuant to a Stockholders Agreement, dated as of April 20,
1995 (the "Stockholders Agreement"), among Crimson and the shareholders parties
thereto, holders of approximately 24% of Common Stock have agreed, among other
things and subject to certain conditions, to vote in favor of the Merger
Agreement.
In addition to the obtaining of shareholder approval, the respective
obligations of the Company and Crimson to effect the Merger are subject to the
satisfaction, at or prior to the consummation thereof, of certain conditions,
including, but not limited to, (i) the termination or expiration of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (ii) the absence of any judicial order or legal
restraint preventing the consummation of the Merger and (iii) the effectiveness
of a registration statement on Form S-4 used in connection with the Merger and
the absence of any stop order or proceeding seeking a stop order suspending such
effectiveness. On June 20, 1995, the Federal Trade Commission and the Antitrust
Division of the Department of Justice granted early termination of the waiting
period under the HSR Act with respect to the Merger. The obligations of Crimson
to effect the Merger are further subject to (i) the receipt, in form and
substance reasonably satisfactory to Crimson, of such licenses (including beer,
wine and/or liquor licenses), permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third parties as
are necessary in connection with the transactions contemplated by the Merger
Agreement, (ii) the absence of any pending or threatened governmental suit,
action or proceeding (or, with respect to any person, any suit, action or
proceeding which has a reasonable likelihood of success) challenging any of the
transactions contemplated in connection with the Merger and (iii) the receipt of
proceeds of financing on terms satisfactory to Crimson in an amount sufficient
to
S-18
<PAGE>
consummate the transactions contemplated by the Merger Agreement, including,
without limitation, (a) the payment of the cash merger consideration, (b) the
refinancing of outstanding indebtedness of the Company, (c) the payment of
transaction fees and expenses associated with the Merger and the financing
thereof and (d) the provision of working capital needs of the Company following
the Merger.
The Merger Agreement contains customary representations and warranties as
well as covenants which, among other things, provide that the Company will, and
will cause its subsidiaries to, up to the Effective Time of the Merger, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice. In addition, the Company has agreed,
among other things and subject to certain exceptions, that it will not, and will
not permit any of its subsidiaries to, without the prior consent of Crimson, (i)
declare or pay any dividends on its capital stock (other than certain dividends
which have already been declared and paid), (ii) split or reclassify its capital
stock; (iii) acquire Common Stock, (iv) encumber its capital stock or that of
its subsidiaries, (v) acquire any new business, (vi) encumber or sell any of its
properties or assets, (vii) incur any indebtedness, except for short-term
borrowings and lease obligations, (viii) acquire any material assets or make any
capital expenditures, (ix) authorize a liquidation, merger or restructuring, (x)
except upon mutual agreement of the parties, enter into any collective
bargaining agreement, (xi) change any material accounting principle or (xii)
settle any litigation. The Company has also agreed, subject to certain
exceptions, that neither it nor any of its subsidiaries will adopt or amend any
employee benefit plan, grant any new or modified severance or termination
arrangement, effectuate any plant closing or mass layoff, make any tax election
or settle any tax liability.
The Merger Agreement provides that the directors of Crimson at the Effective
Time of the Merger will be the directors of the Company following the Merger.
See "Management--Directors and Executive Officers of Crimson." It is also
contemplated that Ronald G. Bruno will continue to serve as a director of the
Company for three years following the Effective Time of the Merger, subject to
the customary right of a director to resign. The Board of Directors of the
Company will be subject to change from time to time. Although the Merger
Agreement also provides that the officers of Crimson at the Effective Time of
the Merger will be officers of the Company following the Merger, it is not
expected that the officers of Crimson will continue as ongoing officers of the
Company following the Merger. The five current executive officers of the
Company, Messrs. R. Bruno, Garrison, Griffin, K. Bruno and Conley, will remain,
in general, as officers of the Company until one year following the Effective
Time of the Merger or for such shorter time as may be determined by the Board of
Directors following the Merger. The Merger Agreement also provides that, for six
years after the Effective Time of the Merger, the Company will indemnify all
present and former directors and officers of the Company for acts or omissions
occurring prior to the Effective Time of the Merger and, subject to certain
limitations, maintain its current directors' and officers' insurance and
indemnification policy to the extent it provides coverage for events occurring
prior to the Effective Time of the Merger.
The Merger Agreement provides for termination thereof at any time prior to
the Effective Time of the Merger, whether before or after approval of the Merger
by the shareholders of the Company, (i) upon the mutual written consent of
Crimson and the Company, (ii) by Crimson or the Company, upon the taking of any
final and nonappealable action prohibiting the Merger by any federal, state or
local governmental authority, or if the Merger is not consummated on or before
October 31, 1995 and (iii) by Crimson, among other things, upon (a) the failure
to obtain Company shareholder approval, (b) the withdrawal, modification or
amendment of the Company's recommendation of the Merger to its shareholders and
(c) the taking of certain actions by the Company with respect to a third party
transaction proposal or the failure by the Company to take certain actions
during the pendency of such a proposal or in pursuance of the Merger Agreement.
If the Merger is consummated in accordance with the Merger Agreement, the
Company will pay KKR, on the closing date, a fee of $15 million in cash, and
will also reimburse KKR for all of its expenses in connection with the
transactions contemplated by the Merger Agreement. If the Merger is
S-19
<PAGE>
not consummated in accordance with the Merger Agreement, among other things and
subject to certain conditions, either (i) the Company will reimburse KKR for all
its expenses contemplated by the Merger Agreement, up to an aggregate of $3
million, or (ii) the Company will reimburse KKR for up to an aggregate of $12.5
million of its expenses and will pay KKR $30 million in addition to such
reimbursement if the Merger Agreement is terminated under certain circumstances
generally related to the presence of a third party transaction proposal or the
acquisition by a third party of Common Stock.
The Company expects that the Merger will be financed by the proceeds of the
Term Loan Facility ($550.0 million), the Securities ($350.0 million), the
Revolving Credit Facility ($5.1 million) and an equity contribution by Crimson
Associates ($250.0 million). The proceeds of such financings will be applied to
cash merger consideration ($880.1 million), repayment of historical debt ($200.0
million) and fees and expenses ($75.0 million). The fees and expenses are
anticipated to consist of (i) fees and expenses related to the Financings,
including bank syndication and commitment fees and underwriting discounts and
commissions, (ii) fees in connection with the prepayment of historical debt and
an interest rate swap, (iii) professional, advisory and investment banking fees
and expenses and (iv) miscellaneous fees and expenses, such as printing and
filing fees. Included in the $75.0 million of estimated fees and expenses is the
$15 million fee payable by the Company to KKR in the event the Merger closes in
accordance with the Merger Agreement. It is expected that the most substantial
portion of the remaining estimated fees and expenses will relate to the
Financings.
STOCKHOLDERS AGREEMENT. Pursuant to the Stockholders Agreement, holders of
approximately 24% of the Common Stock have agreed, among other things and
subject to certain conditions, to vote in favor of the Merger Agreement and to
refrain from soliciting competing transaction proposals and from taking certain
other actions. Except for certain covenants which will survive the Effective
Time of the Merger, the covenants and agreements in the Stockholders Agreement
terminate on the first to occur of (a) the Effective Time of the Merger and (b)
the date the Merger Agreement is terminated in accordance with its terms.
STOCK OPTION AGREEMENT. Pursuant to a Stock Option Agreement, dated as of
April 20, 1995, as amended as of May 18, 1995 (as amended, the "Option
Agreement"), between the Company and Crimson, the Company has granted to Crimson
an irrevocable option, expiring upon the first to occur of the Effective Time of
the Merger and April 30, 1996, which may be exercised by Crimson or its designee
(which may be an affiliate or a third party), in whole or in part, to purchase
up to 15,541,570 newly issued shares of Common Stock (or 16.6% of the
outstanding Common Stock after giving effect to the issuance of such shares) at
an exercise price of $12.00 per share in cash (the "Exercise Price"). Any such
issuance would dilute the proportionate holdings of all of the Company's
shareholders. Such shares would be cancelled and would not be entitled to be
converted into any merger consideration in the Merger. The terms of the Option
Agreement provide, among other things, for upward adjustment of the Exercise
Price in certain circumstances. The number and kind of securities subject to the
Option Agreement and the Exercise Price are also subject to adjustments in the
event of certain changes in the number of issued and outstanding shares of
Common Stock. The Option Agreement also includes customary provisions relating
to the registration and listing of such option shares.
S-20
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the (i) unaudited consolidated historical
cash and cash equivalents and historical capitalization of the Company and (ii)
unaudited consolidated pro forma cash and cash equivalents and pro forma
capitalization of the Company as of April 8, 1995, as adjusted to give effect to
the Merger and the Financings and the application of the proceeds therefrom.
This table should be read in conjunction with the "Pro Forma Consolidated
Condensed Financial Statements" and the notes thereto and the consolidated
financial statements of the Company and related notes thereto included elsewhere
in this Prospectus Supplement and incorporated by reference herein.
<TABLE><CAPTION>
AS OF
APRIL 8, 1995
----------------------------
PRO FORMA FOR
THE MERGER AND
HISTORICAL THE FINANCINGS
---------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents........................................... $ 20.8 $ 20.8
---------- -------
---------- -------
Long-term debt:
Term Loan Facility(a)............................................. $-- $ 550.0
Revolving Credit Facility(b)...................................... -- 5.1
Capitalized lease obligations..................................... 19.3 19.3
6.62% Series A Senior Notes due 2003.............................. 100.0 --
7.09% Series B Senior Notes due 2008.............................. 100.0 --
Senior Subordinated Notes......................................... -- 250.0
Discount Debentures(c)............................................ -- 100.0
Other long-term debt.............................................. 0.8 0.8
---------- -------
Total long-term debt.......................................... 220.1 925.2
---------- -------
Shareholders' investment:
Common stock (200.0 million shares authorized, $.01 par value,
78.1 million shares outstanding, historical basis; 60.0 million
shares authorized, $.01 par value, 25.0 million shares
outstanding, pro forma basis)................................... 0.8 0.3
Paid-in capital (deficit)......................................... 42.0 (592.3)
Retained earnings................................................. 384.4 309.4
Treasury stock.................................................... (4.7) --
---------- -------
Total shareholders' investment................................ 422.5 (282.6)
---------- -------
Total capitalization................................................ $642.6 $ 642.6
---------- -------
---------- -------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) The Company will incur $550 million of indebtedness under the Term Loan Facility (as
defined herein) in connection with the Merger. The term loan tranches under the Term
Loan Facility consist of the $325 million 78-month amortizing Tranche A Loans, the $75
million 90-month amortizing Tranche B Loans, the $75 million 102-month amortizing
Tranche C Loans and the $75 million 114-month amortizing Tranche D Loans. See
"Description of the Credit Facility."
(b) The Revolving Credit Facility will provide a $100 million revolving credit facility
which will be available for working capital purposes and general corporate purposes. Up
to $50 million of the Revolving Credit Facility may be used to issue letters of credit.
See "Description of the Credit Facility." Approximately $5.1 million of the funds
available under the Revolving Credit Facility will be drawn on the date of the Merger.
(c) The Discount Debentures will be issued at a substantial discount from their face
amount. See "Description of the Securities."
</TABLE>
S-21
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements (the "Pro Forma Financial Statements") have been derived by the
application of pro forma adjustments to the Company's historical financial
statements incorporated by reference herein. The pro forma income statements for
the periods presented give effect to the Merger and related transactions as if
such transactions were consummated as of July 4, 1993 for the year ended July 2,
1994 and as of July 3, 1994 for the 40 weeks ended April 8, 1995. The pro forma
balance sheet gives effect to the Merger and related transactions as if such
transactions had occurred as of April 8, 1995. The adjustments are described in
the accompanying notes. The Pro Forma Financial Statements should not be
considered indicative of actual results that would have been achieved had the
Merger and related transactions been consummated on the date or for the periods
indicated and do not purport to indicate balance sheet data or results of
operations as of any future date or for any future period. The Pro Forma
Financial Statements should be read in conjunction with the Company's historical
financial statements and the notes thereto incorporated herein by reference. See
"Available Information" and "Incorporation Of Certain Information By Reference"
in the accompanying Prospectus.
The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the transaction.
S-22
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE><CAPTION>
AS OF APRIL 8, 1995
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 20.8 $ 0.0(a) $ 20.8
Receivables........................................... 40.3 40.3
Inventories........................................... 250.3 250.3
Prepaid expenses...................................... 14.5 14.5
Deferred income taxes................................. 1.4 1.4
---------- ---------
327.3 327.3
Property and equipment, net........................... 515.4 515.4
Intangibles and other, net............................ 55.7 55.7
---------- ----------- ---------
TOTAL ASSETS.......................................... $898.4 $ 0.0 $ 898.4
---------- ----------- ---------
---------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of debt and short-term
borrowings.............................................. $ 26.9(b) $ 0.0 $ 26.9 (b)
Accounts payable...................................... 107.0 107.0
Accrued income taxes.................................. 0.9 0.9
Other accrued expenses................................ 61.2 61.2
---------- ----------- ---------
196.0 0.0 196.0
---------- ----------- ---------
NONCURRENT LIABILITIES:
Long-term debt........................................ 200.8 700.0(c) 900.8
Revolving Credit Facility............................. 0.0 5.1(d) 5.1 (d)
Capitalized lease obligations......................... 19.3 19.3
Deferred income taxes................................. 47.1 47.1
Other noncurrent liabilities.......................... 12.7 12.7
---------- ----------- ---------
279.9 705.1 985.0
---------- ----------- ---------
SHAREHOLDERS' INVESTMENT (DEFICIT):
Common stock (78.1 million shares outstanding, $.01
par value, historical basis; 25.0 million shares
outstanding, $.01 par value, pro forma basis)....... 0.8 (0.5)(e) 0.3
Paid-in capital (deficit)............................. 42.0 (634.3)(f) (592.3)
Retained earnings..................................... 384.4 (75.0)(g) 309.4
Treasury stock........................................ (4.7) 4.7(h) 0.0
---------- ----------- ---------
422.5 (705.1) (282.6)
---------- ----------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT........ $898.4 $ 0.0 $ 898.4
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
See notes to pro forma consolidated balance sheet.
S-23
<PAGE>
NOTES TO PRO FORMA
CONSOLIDATED BALANCE SHEET
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of assets and liabilities. The pro forma
financial data assume that there are no dissenting shareholders to the Merger.
(a) The net effect of $0.0 reflects the following:
<TABLE>
<CAPTION>
(MILLIONS)
--------
<S> <C>
Total Sources:
Term Loan Facility proceeds............................................... $ 550.0
Securities proceeds....................................................... 350.0
Revolving Credit Facility proceeds........................................ 5.1
Crimson equity contribution............................................... 250.0
--------
$1,155.1
--------
Total Uses:
Cash merger consideration................................................. $ 880.1
Historical debt repayment................................................. 200.0
Fees and expenses......................................................... 75.0
--------
$1,155.1
--------
Net........................................................................... $ 0.0
--------
--------
</TABLE>
<TABLE>
<C> <S>
(b) This amount consists primarily of a $25.0 million note payable which was repaid by the
Company on April 14, 1995.
(c) The pro forma adjustment to long-term debt reflects the following:
</TABLE>
<TABLE>
<CAPTION>
(MILLIONS)
-------
<S> <C>
Repayment of historical debt outstanding....................................... $(200.0)
Term Loan Facility............................................................. 550.0
Securities..................................................................... 350.0
-------
Total adjustment............................................................... $ 700.0
-------
-------
</TABLE>
The Discount Debentures will be issued at a substantial discount from
their face amount.
<TABLE>
<C> <S>
(d) The Company expects that the $100 million Revolving Credit Facility will be available
for working capital and general corporate purposes. It is anticipated that $5.1 million
will be drawn in connection with the Merger.
(e) The adjustment reflects the effect of the Merger on the 78.1 million shares outstanding
at $.01 par value per share. There will be 25.0 million shares outstanding subsequent
to the Merger.
(f) The adjustment reflects amounts distributed to convert to cash 73.3 million shares of
the Company's Common Stock for total consideration of $880.1 million, plus the $4.7
million impact of cancelled treasury stock, net of the receipt of 20.8 million shares
by Crimson Associates for total consideration of $250.0 million, and net of the $0.5
million allocated to par value of the Company's Common Stock as a result of the Merger.
It is anticipated that all 73.3 million shares of Common Stock will be cancelled.
(g) The adjustment reflects the fees and expenses anticipated to be paid to effect the
Merger. Such fees and expenses are anticipated to consist of (i) fees and expenses
related to the Financings, including bank syndication and commitment fees and
underwriting discounts and commissions, (ii) fees and expenses in connection with the
prepayment of historical debt and an interest rate swap, (iii) professional, advisory
and investment banking fees and expenses and (iv) miscellaneous fees and expenses such
as printing and filing fees. Included in the $75.0 million of estimated fees and
expenses is the $15 million fee payable by the Company to KKR in the event the Merger
closes in accordance with the Merger Agreement. It is expected that the most
substantial portion of the remaining estimated fees and expenses will relate to the
Financings.
(h) The adjustment reflects the cancellation of the 0.6 million shares of treasury stock.
</TABLE>
S-24
<PAGE>
PRO FORMA CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE 40 WEEKS ENDED APRIL 8, 1995
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.............................................. $ 2,201.0 $2,201.0
Cost of products sold.................................. 1,684.8 1,684.8
---------- ---------
Gross profit........................................... 516.2 516.2
Store operating, selling and administrative expenses... 424.8 424.8
Depreciation and amortization.......................... 41.5 41.5
Interest expense....................................... 20.7 $ 48.4(a) 69.1
Interest income........................................ (4.7) 3.7(b) (1.0)
---------- ----------- ---------
Income (loss) before income taxes...................... 33.9 (52.1) (18.2)
Income taxes........................................... 12.9 (19.8)(c) (6.9)
---------- ----------- ---------
Net income (loss)...................................... $ 21.0 $ (32.3) $ (11.3)
---------- ----------- ---------
---------- ----------- ---------
Weighted average shares outstanding.................... 77.6 25.0
---------- ---------
---------- ---------
Primary earnings (loss) per share...................... $ 0.27 $ (0.45)
---------- ---------
---------- ---------
</TABLE>
- -------------------
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of assets and liabilities. The pro forma
financial data assume that there are no dissenting shareholders to the Merger.
(a) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
(MILLIONS)
------
<S> <C>
Interest expense on historical debt............................................. $(18.9)
Interest expense on the Term Loan Facility and Revolving Credit Facility
(assumed 9.0% average rate)................................................... 38.4
Interest expense on the Securities (assumed 10.75% average rate)................ 28.9
------
Total adjustment................................................................ $ 48.4
------
------
</TABLE>
A 0.125% increase or decrease in the assumed average interest rate on the
Term Loan Facility and Revolving Credit Facility would change the pro forma
interest expense by $0.6 million. The pro forma net income (loss) would change
by $0.3 million and the pro forma primary earnings (loss) per share would change
by $0.01.
A 0.125% increase or decrease in the assumed average interest rate on the
Securities would change the pro forma interest expense by $0.4 million. The pro
forma net income (loss) would change by $0.2 million and the pro forma primary
earnings (loss) per share would change by $0.01.
(b) The adjustment reverses historical income recognized on the Company's
interest rate swap (assumed to be settled upon consummation of the Merger).
(c) The adjustment reflects the tax effect of the pro forma adjustments at a 38%
effective rate.
S-25
<PAGE>
PRO FORMA CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
FOR THE FISCAL YEAR ENDED JULY 2, 1994
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.............................................. $ 2,834.7 $2,834.7
Cost of products sold.................................. 2,185.6 2,185.6
---------- ---------
Gross profit........................................... 649.1 649.1
Store operating, selling and administrative expenses... 512.1 512.1
Depreciation and amortization.......................... 52.3 52.3
Interest expense....................................... 20.5 $ 69.1(a) 89.6
Interest income........................................ (4.6) 4.0(b) (0.6)
---------- ----------- ---------
Income (loss) before income taxes...................... 68.8 (73.1) (4.3)
Income taxes........................................... 28.2 (27.8)(c) 0.4
---------- ----------- ---------
Net income (loss)...................................... $ 40.6 $ (45.3) $ (4.7)
---------- ----------- ---------
---------- ----------- ---------
Weighted average shares outstanding ................... 78.1 25.0
---------- ---------
---------- ---------
Primary earnings (loss) per share...................... $ 0.52 $ (0.19)
---------- ---------
---------- ---------
</TABLE>
- -------------------
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of assets and liabilities. The pro forma
financial data assume that there are no dissenting shareholders to the Merger.
(a) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
(MILLIONS)
------
<S> <C>
Interest expense on historical debt............................................. $(18.5)
Interest expense on the Term Loan Facility and Revolving Credit Facility
(assumed 9.0% average rate)................................................... 50.0
Interest expense on the Securities (assumed 10.75% average rate)................ 37.6
------
Total adjustment................................................................ $ 69.1
------
------
</TABLE>
A 0.125% increase or decrease in the assumed average interest rate on the
Term Loan Facility and Revolving Credit Facility would change the pro forma
interest expense by $0.7 million. The pro forma net income (loss) would change
by $0.4 million and the pro forma primary earnings (loss) per share would change
by $0.02.
A 0.125% increase or decrease in the assumed average interest rate on the
Securities would change the pro forma interest expense by $0.5 million. The pro
forma net income (loss) would change by $0.3 million and the pro forma primary
earnings (loss) per share would change by $0.01.
(b) The adjustment reverses historical income recognized on the Company's
interest rate swap (assumed to be settled upon consummation of the Merger).
(c) The adjustment reflects the tax effect of the pro forma adjustments at a 38%
effective rate. The historical effective tax rate of 41% includes the impact
of a $2.2 million retroactive adjustment due to a change in federal tax
rates.
S-26
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical financial
data of the Company and has been derived from and should be read in conjunction
with the audited consolidated financial statements of the Company for each of
the five fiscal years ended July 2, 1994, and the unaudited interim consolidated
financial statements of the Company for the 40 weeks ended April 9, 1994 and the
40 weeks ended April 8, 1995, including the respective notes thereto, each
incorporated by reference herein. See "Available Information" and "Incorporation
of Certain Information by Reference" in the accompanying Prospectus. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included in the unaudited interim data. Interim data for
the 40 weeks ended April 8, 1995 are not necessarily indicative of results which
may be expected for future periods, including the fiscal year ended July 1,
1995.
<TABLE><CAPTION>
UNAUDITED
----------------------------
JUNE 30, 1990 JUNE 29, 1991 JUNE 27, 1992 JULY 3, 1993 JULY 2, 1994 APRIL 9, 1994 APRIL 8, 1995
(52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (40 WEEKS) (40 WEEKS)
------------- ------------- ------------- ------------ ------------ ------------- -------------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Net sales.................... $ 2,394,788 $ 2,585,934 $ 2,657,846 $ 2,872,327 $ 2,834,688 $ 2,173,757 $ 2,201,015
Cost of products sold........ 1,871,946 2,012,042 2,067,560 2,242,455 2,185,587 1,679,689 1,684,816
------------- ------------- ------------- ------------ ------------ ------------- -------------
Gross profit................ 522,842 573,892 590,286 629,872 649,101 494,068 516,199
Store operating, selling and
administrative expenses.... 373,325 410,464 439,713 489,950 512,063 391,436 424,789(a)
Depreciation and
amortization............... 36,366 40,758 44,261 48,718 52,343 41,228 41,485
Interest expense, net........ 13,240 11,005 10,777 17,817 15,925 12,717 16,011
Writedown of property and
securities................. 0 0 8,393 0 0 0 0
------------- ------------- ------------- ------------ ------------ ------------- -------------
Income from continuing
operations before income
taxes and extraordinary
item...................... 99,911 111,665 87,142 73,387 68,770 48,687 33,914
Provision for income
taxes(b)................... 37,275 40,854 30,776 26,493 28,189 20,725 12,887
------------- ------------- ------------- ------------ ------------ ------------- -------------
Income from continuing
operations before
extraordinary item........ 62,636 70,811 56,366 46,894 40,581 27,962 21,027
Discontinued operations,
net:(c)
Loss on disposal............. 0 0 (8,550) 0 0 0 0
Loss from operations......... (2,498) (4,085) (4,400) 0 0 0 0
------------- ------------- ------------- ------------ ------------ ------------- -------------
(2,498) (4,085) (12,950) 0 0 0 0
------------- ------------- ------------- ------------ ------------ ------------- -------------
Income before extraordinary
item...................... 60,138 66,726 43,416 46,894 40,581 27,962 21,027
Extraordinary item, net(d)... (2,039) 0 0 0 (3,288) (3,288) 0
------------- ------------- ------------- ------------ ------------ ------------- -------------
Net income.................. $ 58,099 $ 66,726 $ 43,416 $ 46,894 $ 37,293 $ 24,674 $ 21,027
------------- ------------- ------------- ------------ ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------ ------------- -------------
Earnings per common share:
Income from continuing
operations before
extraordinary item........ $ 0.77 $ 0.87 $ 0.69 $ 0.60 $ 0.52 $ 0.36 $ 0.27
Discontinued operations,
net....................... (0.03) (0.05) (0.16) 0.00 0.00 0.00 0.00
Extraordinary item, net..... (0.03) 0.00 0.00 0.00 (0.04) (0.04) 0.00
------------- ------------- ------------- ------------ ------------ ------------- -------------
Net income per common
share..................... $ 0.71 $ 0.82 $ 0.53 $ 0.60 $ 0.48 $ 0.32 $ 0.27
------------- ------------- ------------- ------------ ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------ ------------- -------------
Cash dividends per common
share..................... $ 0.14 $ 0.18 $ 0.20 $ 0.22 $ 0.24 $ 0.18 $ 0.20
------------- ------------- ------------- ------------ ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------ ------------- -------------
Weighted average number of
common and common equivalent
shares outstanding.......... 81,580,000 81,661,000 81,874,000 78,717,000 78,088,000 78,087,000 77,591,000
------------- ------------- ------------- ------------ ------------ ------------- -------------
------------- ------------- ------------- ------------ ------------ ------------- -------------
OTHER DATA:
Ratio of earnings to fixed
charges(e)................ 4.59 5.08 4.09 3.20 2.91 2.77 2.03(f)
EBITDA(g)................... $ 149,517 $ 163,428 $ 150,573 $ 139,922 $ 137,038 $ 102,632 $ 91,410(h)
Capital expenditures........ 70,009 81,403 102,050 131,741 63,989 52,653 39,569
</TABLE>
S-27
<PAGE>
<TABLE><CAPTION>
UNAUDITED
----------------------------
JUNE 30, 1990 JUNE 29, 1991 JUNE 27, 1992 JULY 3, 1993 JULY 2, 1994 APRIL 9, 1994 APRIL 8, 1995
------------- ------------- ------------- ------------ ------------ ------------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital............. $ 118,179 $ 125,286 $ 110,968 $ 117,510 $ 174,392 $ 183,370 $ 131,280
Property and equipment,
net....................... 378,056 420,113 467,824 543,877 540,139 546,403 515,461
Total assets................ 728,149 765,696 834,683 916,923 927,208 938,543 898,480
Long-term debt and
capitalized lease
obligations............... 180,134 175,750 172,190 269,046 296,460 322,621 220,071
Shareholders' investment.... 337,136 390,187 422,443 402,667 421,354 413,541 422,478
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Store operating, selling and administrative expenses for the 40 weeks ended April 8,
1995 include a $22.2 million charge due to a change in accounting estimate relating to
the Company's self-insurance reserves.
(b) In the fiscal year ended July 2, 1994 and the 40 weeks ended April 9, 1994, the Company
recorded an additional tax provision of $2.2 million to retroactively restate income tax
liabilities to reflect the change in federal income tax rates in connection with the
Omnibus Budget Reconciliation Act of 1993.
(c) In the fiscal year ended June 27, 1992, the Company sold its interest in a joint venture
formed for the purpose of developing hypermarket stores. The Company has since
discontinued its development of this format. Operating results were reclassified in the
prior two years to reflect this event.
(d) Net income for fiscal 1994 reflects an extraordinary loss of $3.3 million, net of
applicable tax benefit of $2.0 million, resulting from the retirement of a total of
$142.8 million principal amount of 6.5% Convertible Subordinated Debentures. Net income
for fiscal 1990 reflects an extraordinary loss of $2.0 million, net of applicable tax
benefit of $1.3 million, resulting from the repurchase of $29.4 million principal amount
of 11.75% Senior Subordinated Notes.
(e) For purposes of computing the ratio of earnings to fixed charges, "earnings" consists of
income before income taxes and extraordinary loss on extinguishment of debt, plus fixed
charges. "Fixed charges" consist of interest expense and one-third of rental expense
(the portion deemed representative of the interest factor).
(f) The ratio of earnings to fixed charges for the 40 weeks ended April 8, 1995 reflects a
$22.2 million charge ($19.2 million of which is estimated to be nonrecurring) due to a
change in accounting estimate relating to the Company's self-insurance reserves.
(g) EBITDA, as defined by the Company, represents net income before net interest expense,
income taxes, depreciation and amortization, extraordinary loss on extinguishment of
debt, loss on disposal of discontinued operations and loss from operation of
discontinued operations. EBITDA is a widely accepted financial indicator of a company's
ability to service debt. However, EBITDA should not be construed as an alternative to
operating income, net income or cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be construed as
an indication of the Company's operating performance or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations."
(h) EBITDA for the 40 weeks ended April 8, 1995 is reduced by a $22.2 million change in
accounting estimate ($19.2 million of which is estimated to be nonrecurring) that was
recorded in the third quarter of fiscal 1995 to increase the Company's self-insurance
reserves. In addition, during 1995, the Company received $5 million of a cash vendor
rebate that relates to future periods of a multi-year vendor agreement. Such amount was
deferred and is currently being amortized to income over the four-year term of the
related vendor agreement.
</TABLE>
S-28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL. The Company operates a chain of 252 supermarkets and combination
food and drug stores. The Company operates on a 52 or 53 week fiscal year. The
consolidated statements of income for the fiscal years ended July 2, 1994 and
June 27, 1992 include 52 weeks of operation while the fiscal year ended July 3,
1993 includes 53 weeks of operation. The Company's fiscal year ends on the
Saturday nearest June 30 of each year.
The following is management's discussion and analysis of significant factors
affecting the Company's earnings during the 40 weeks ended April 8, 1995 and the
three fiscal years ended July 2, 1994.
COMPARISON OF 40 WEEKS ENDED APRIL 8, 1995 TO 40 WEEKS ENDED APRIL 9, 1994
A table showing the percentage of net sales represented by certain items in
the Company's condensed consolidated statements of income is as follows:
<TABLE>
<CAPTION>
40 WEEKS ENDED 14 WEEKS ENDED
------------------------------ ------------------------------
APRIL 9, 1994 APRIL 8, 1995 APRIL 9, 1994 APRIL 8, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0%
Cost of products sold...................... 77.3 76.5 77.3 77.1
----- ----- ----- -----
Gross profit............................. 22.7 23.5 22.7 22.9
Store operating, selling and administrative
expenses................................. 18.0 19.3(a) 18.2 21.3(a)
Depreciation and amortization.............. 1.9 1.9 1.9 1.8
Net interest expense....................... 0.6 0.7 0.6 0.8
----- ----- ----- -----
Income (loss) before provision for income
taxes and extraordinary item........... 2.2 1.6 2.0 (1.0)
Provision (credit) for income taxes........ 0.9 0.6 0.8 (0.4)
----- ----- ----- -----
Income (loss) before extraordinary
item................................... 1.3 1.0 1.2 (0.6)
Extraordinary item, net.................... (0.2) 0.0 0.0 0.0
----- ----- ----- -----
Net income (loss)........................ 1.1% 1.0% 1.2% (0.6)%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
- ------------
(a) Includes an adjustment to increase self-insurance and general liability
reserves by $22.2 million recorded in the fiscal quarter ended April 8,
1995.
S-29
<PAGE>
A summary of the period to period changes in certain items included in the
condensed statements of income is as follows:
<TABLE>
<CAPTION>
COMPARISON OF COMPARISON OF
40 WEEKS ENDED 14 WEEKS ENDED
APRIL 9, 1994 AND APRIL 9, 1994 AND
APRIL 8, 1995 APRIL 8, 1995
------------------ -------------------
INCREASE (DECREASE) INCREASE (DECREASE)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales..................................... $27,258 1.3% $ (1,328) (0.2%
Cost of products sold......................... 5,127 0.3 (2,997) (0.5)
Store operating, selling and administrative
expenses.................................... 33,353 8.5 23,826 17.2
Depreciation and amortization................. 257 0.6 (1,431) (9.6)
Net interest expense.......................... 3,294 25.9 1,881 43.6
Income (loss) before extraordinary item..... (6,935) (24.8) (14,016) N/A
Extraordinary item, net....................... 3,288 100.0 0 0.0
Net income (loss)........................... (3,647) (14.8) (14,016) N/A
Income (loss) per common share before
extraordinary item.......................... (0.09) (25.0) (0.18) N/A
Net income (loss) per common share............ (0.05) (15.6) (0.18) N/A
</TABLE>
CHANGE IN ACCOUNTING ESTIMATE. On May 18, 1995, the Company announced that
it had reviewed the methodology it used to estimate required balance sheet
reserves for self-insured workers' compensation and general liability claims.
The Company had historically followed the guidance in Statement of Financial
Accounting Standards ("SFAS") No. 5 and SFAS No. 112 to account for exposures
under its workers' compensation, general liability and medical self-insurance
programs. This guidance requires accrual of the best estimate of probable
liabilities within a range of loss estimates. In applying this accounting
principle, the Company has consistently utilized case estimates of probable
liabilities prepared by experienced parties (independent third party
administrators for most claims) using all available claims data as to the extent
of losses and related costs. The Company believes this practice to be consistent
with the method used by many other companies. Because (a) the number of stores
and employees had remained flat from fiscal 1992 through fiscal 1995, (b) annual
cash payments under these plans had only increased approximately 6% from fiscal
1993 through fiscal 1995 (an average of 3% per year) and (c) the number of
outstanding claims had also remained relatively flat, the Company did not
believe a complete actuarial study was either necessary or cost beneficial.
Consequently, actuarially-based computations were previously not performed.
During May 1995, in connection with the Merger, KKR independently obtained
actuarially-based estimates of the Company's liabilities for workers'
compensation and general liability self-insurance exposures which were
substantially higher than the Company's case estimates. After a review of these
estimates and consultation with its advisors, the Company determined that these
actuarial techniques provided better estimates than those which had previously
been used by the Company. The Company then computed new estimated reserve
requirements using actuarial techniques, and, in accordance with its policy and
SFAS No. 5 and SFAS No. 112, recorded an adjustment to increase these
self-insurance reserves by approximately $22.2 million (approximately $13.8
million net of income taxes) as a change in accounting estimate in the third
fiscal quarter ended April 8, 1995. Approximately $19.2 million of the $22.2
million charge relating to this change in accounting estimate is of a
nonrecurring nature. In addition, the Company determined that a $5 million
vendor rebate received and recorded as a reduction of cost of sales in the third
quarter should have been deferred and amortized to income over the multi-year
term of the vendor agreement. Thus, the previously announced third quarter cost
of sales was adjusted to account appropriately for this item. The Company's
third quarter financial results were previously announced on May 1, 1995. The
effect of these adjustments in the third quarter was to reduce, from previously
announced results, the Company's net income for the quarter from $12.3 million
(or $.16 per share) to a net loss of $4.6 million (or $.06
S-30
<PAGE>
per share) and for the year to date from $37.9 million (or $.49 per share) to
$21.0 million (or $.27 per share).
NET SALES. Net sales increased 1.3% ($27.3 million) in the 40 weeks ended
April 8, 1995 but decreased 0.2% ($1.3 million) in the 14 weeks ended April 8,
1995, as compared to the applicable periods in the prior year. The 40 week
period sales increase was primarily attributable to the Company's recent focus
on remodeling its existing stores and increasing its emphasis on customer
service. The 14 week period sales decrease was primarily attributable to the
Easter holiday falling in the third quarter of the prior year and falling in the
fourth quarter of the current fiscal year. During the 40 weeks ended April 8,
1995, the Company opened five new stores and remodeled 15 stores. The Company's
recent focus on remodeling stores has resulted in positive same store sales
growth despite competitive pressures. Same store sales increased 0.06% for the
14 weeks ended April 8, 1995.
GROSS PROFIT. Gross profit as a percentage of net sales was 23.5% and 22.9%
in the 40 and 14 weeks ended April 8, 1995, respectively, as compared to a gross
profit percentage of 22.7% for the applicable periods in the prior fiscal year.
The increase in gross profit is due to an increased sales mix of higher margin
perishable and general merchandise products. This improvement is a direct result
of the Company's continued development and emphasis on its larger format stores
which carry a greater percentage of these products.
STORE OPERATING, SELLING AND ADMINISTRATIVE EXPENSES. Excluding the
adjustment to self-insurance reserves, store operating, selling and
administrative expenses as a percentage of net sales increased from 18.0% for
the 40 weeks ended April 9, 1994, to 19.3% for the 40 weeks ended April 8, 1995.
This increase as a percentage of net sales is primarily due to the higher
operating costs associated with the increasing number of larger format stores.
These larger stores employ additional personnel and have higher operating costs,
particularly in their expanded service-oriented departments.
DEPRECIATION AND AMORTIZATION. The $1.4 million decrease in depreciation and
amortization expense for the 14 weeks ended April 8, 1995, compared to the
applicable period in the prior year is primarily due to lower capital
expenditures.
INTEREST EXPENSE AND INTEREST INCOME. The $3.3 million increase in net
interest expense for the 40 weeks ended April 8, 1995, compared to the
applicable period in the prior year, is due to an increase in interest rates
which affected the Company's borrowings and net interest position on its $80
million notional interest rate swap.
INCOME TAXES. The Company's effective income tax rate decreased from 42.6%
for the 40 weeks ended April 9, 1994 to 38% for the 40 weeks ended April 8,
1995. The higher effective tax rate for the 40 weeks ended April 9, 1994 relates
to an additional tax provision of $2.2 million to retroactively restate income
tax liabilities to reflect the change in federal income tax rates in connection
with the Omnibus Budget Reconciliation Act of 1993.
EXTRAORDINARY ITEM. The Company redeemed its 6.5% Convertible Debentures at
103.9% of face value during the first quarter of fiscal 1994. This redemption
resulted in an extraordinary loss of $3.3 million (net of the applicable income
tax benefit of $2.0 million).
S-31
<PAGE>
COMPARISON OF FISCAL YEARS 1992, 1993 AND 1994
A table showing the percentage of net sales represented by certain items in
the Company's condensed consolidated statements of income is as follows:
<TABLE><CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
JUNE 27, 1992 JULY 3, 1993 JULY 2, 1994
(52 WEEKS) (53 WEEKS) (52 WEEKS)
------------- ------------ ------------
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0%
Cost of products sold................................... 77.8 78.1 77.1
------ ------ ------
Gross profit.......................................... 22.2 21.9 22.9
Store operating, selling and administrative expenses.... 16.5 17.1 18.1
Depreciation and amortization........................... 1.7 1.7 1.8
Net interest expense.................................... 0.4 0.6 0.6
Writedown of property and securities.................... 0.3 0.0 0.0
------ ------ ------
Income from continuing operations before provision for
income taxes and extraordinary item................. 3.3 2.5 2.4
Provision for income taxes.............................. 1.2 0.9 1.0
------ ------ ------
Income from continuing operations before extraordinary
item................................................ 2.1 1.6 1.4
Discontinued operations................................. (0.5) (0.0) (0.0)
Extraordinary item, net................................. (0.0) (0.0) (0.1)
------ ------ ------
Net income............................................ 1.6% 1.6% 1.3%
------ ------ ------
------ ------ ------
</TABLE>
A summary of the period to period changes in certain items included in the
condensed statements of income is as follows:
<TABLE>
<CAPTION>
COMPARISON OF COMPARISON OF
FISCAL YEARS ENDED FISCAL YEARS ENDED
JUNE 27, 1992 AND JULY 3, 1993 AND
JULY 3, 1993 JULY 2, 1994
------------------- --------------------
INCREASE (DECREASE) INCREASE (DECREASE)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales..................................... $214,481 8.1% $(37,639) (1.3)%
Cost of products sold......................... 174,895 8.5 (56,868) (2.5)
Store operating, selling and administrative
expenses.................................... 50,237 11.4 22,113 4.5
Depreciation and amortization................. 4,457 10.1 3,625 7.4
Net interest expense.......................... 7,040 65.3 (1,892) (10.6)
Writedown of property and securities.......... (8,393) 100.0 0 0.0
Income from continuing operations before
extraordinary item........................ (9,472) (16.8) (6,313) (13.5)
Discontinued operations....................... (12,950) 100.0 0 0.0
Extraordinary item, net....................... 0 0.0 3,288 100.0
Net income.................................. 3,478 8.0 (9,601) (20.5)
Income from continuing operations before
extraordinary item per common share......... (.09) (13.0) (.08) (13.3)
Net income per common share................... .07 13.2 (.12) (20.0)
</TABLE>
NET SALES. Net sales decreased 1.3% ($37.6 million) from fiscal 1993 to
fiscal 1994 while sales increased 8.1% ($214.5 million) from fiscal 1992 to
fiscal 1993. The net sales decrease from fiscal 1993 to fiscal 1994 was
primarily due to the additional week of sales included in fiscal 1993. Excluding
the effects of the additional week in fiscal 1993, fiscal 1994 sales increased
slightly over fiscal 1993. This increase from fiscal 1993 to fiscal 1994 is
attributable to a net of four stores open a full year in fiscal
S-32
<PAGE>
1994 versus a partial year in fiscal 1993, as the total number of stores
remained flat at 257 as of July 2, 1994 and July 3, 1993 and same store sales
decreased slightly. The net sales increase in fiscal 1993 over fiscal 1992 was
primarily attributable to the additional week of sales as well as the Company
increasing the number of stores by four (23 new stores offset by 19 closed
stores) in fiscal 1993.
GROSS PROFIT. Gross profit as a percentage of net sales increased 1.0%
(22.9% compared to 21.9%) between fiscal 1993 and 1994 and decreased 0.3%
between fiscal 1992 and fiscal 1993 (21.9% compared to 22.2%). The lower margins
in fiscal 1993 were primarily the result of a more aggressive pricing strategy
implemented by management during the third quarter of that same fiscal year.
STORE OPERATING, SELLING AND ADMINISTRATIVE EXPENSES. Store operating,
selling and administrative expenses as a percentage of net sales increased by
1.0% from fiscal 1993 to fiscal 1994 and by 0.6% from fiscal 1992 to fiscal
1993. The increase in fiscal 1994 is primarily a result of flat sales growth,
coupled with increased labor added to the stores to enhance customer service.
The increase in fiscal 1993 over fiscal 1992 was primarily due to increased
advertising expenses related to the Company's fiscal 1993 third quarter
promotion of its pricing strategy, as well as increased advertising in
competitive markets.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization as a percentage
of net sales increased 0.1% in fiscal 1994 due to the significant amount of
capital expenditures in fiscal 1993 ($131.7 million) experiencing a full year of
depreciation in fiscal 1994. These costs increased slightly in fiscal 1993 as
compared to fiscal 1992 due to an office building addition being placed into
service in fiscal 1993.
INTEREST EXPENSE AND INTEREST INCOME. Net interest expense as a percentage
of net sales decreased slightly from fiscal 1993 to fiscal 1994 and increased
0.2% from fiscal 1992 to fiscal 1993. The decrease in fiscal 1994 was primarily
attributable to income earned on temporary cash investments held by the Company
in fiscal 1994 that were not held during fiscal 1993 and the utilization of much
lower levels of short-term borrowings in fiscal 1994 as compared to fiscal 1993.
The 0.2% increase in net interest expense from fiscal 1992 to fiscal 1993 was
primarily related to the Company utilizing short-term borrowings and obtaining
$100.0 million in new long-term borrowings.
WRITEDOWN OF PROPERTY AND SECURITIES. In fiscal 1992, the Company recorded a
charge to earnings of $5 million to reduce certain real estate properties
currently not being utilized to their estimated net realizable value. In
addition, the Company recorded a charge to earnings of $3.4 million to reduce
its marketable equity securities portfolio to market value based upon
management's decision to liquidate this portfolio.
DISCONTINUED OPERATIONS. During fiscal 1992, the Company sold its interest
in a hypermarket stores joint venture and discontinued its development of this
type store due to continuing operating losses and lack of success with this
store format. Accordingly, operating results of the venture for fiscal 1992
(losses of $4.4 million, net of the applicable income tax benefit) have been
reclassified and presented as discontinued operations, and a loss on the
disposal of $8.6 million (net of the applicable income tax benefit) has been
recorded.
EXTRAORDINARY ITEM. In the first quarter of fiscal 1994, the Company
redeemed $142.8 million aggregate principal amount of 6.5% Convertible
Subordinated Debentures at a conversion price above par value. The redemption
was financed with the proceeds of a $200.0 million private placement loan. The
redemption of these debentures resulted in an extraordinary loss of $3.3
million, net of the applicable income tax benefit of $2.0 million.
S-33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
After the Merger, the Company's principal sources of liquidity are expected
to be cash flow from operations and borrowings under the Revolving Credit
Facility. It is anticipated that the Company's principal uses of liquidity will
be to provide working capital, meet debt service requirements and finance the
Company's strategic plans.
The Credit Facility will consist of a $550 million Term Loan Facility and a
$100 million 78-month Revolving Credit Facility. The Term Loan Facility will be
comprised of $325 million of Tranche A Term Loans, $75 million of Tranche B Term
Loans, $75 million of Tranche C Term Loans and $75 million of Tranche D Term
Loans. The Term Loan Facility will be fully drawn to finance a portion of the
cash merger consideration. The Revolving Credit Facility will be available for
the Company's working capital needs, and up to $50 million of the Revolving
Credit Facility will be available for the issuance of letters of credit. See
"Description of the Credit Facility."
The Tranche A Loans will have a final maturity approximately six years and
six months after the closing of the Credit Facility (the "Bank Closing") and
will be subject to amortization in the amount of (i) $25.0 million on the date
that is twelve months after the Bank Closing, (ii) $25.0 million on the date
that is twenty-four months after the Bank Closing, (iii) in equal semi-annual
installments totaling $40.0 million in the third year after the Bank Closing,
(iv) in equal semi-annual installments totalling $50.0 million in the fourth
year after the Bank Closing, (v) in equal semi-annual installments totalling
$75.0 million in each of the fifth and sixth years after the Bank Closing and
(vi) $35.0 million in the final six months prior to the final maturity of the
Tranche A Term Loans. Tranche B Term Loans will have a final maturity
approximately seven years and six months after the Bank Closing and will
amortize in equal semi-annual installments totalling $1.0 million in each of the
first six years after the Bank Closing and totalling $69.0 million during the
final 18 months prior to the final maturity of the Tranche B Term Loans. The
Tranche C Term Loans will have a final maturity approximately eight years and
six months after the Bank Closing and will amortize in equal semi-annual
installments totalling $1.0 million in each of the first seven years after the
Bank Closing and totalling $68.0 million during the final 18 months prior to the
final maturity of the Tranche C Term Loans. The Tranche D Term Loans will have a
final maturity approximately nine years and six months after the Bank Closing
and will amortize in equal semi-annual installments totalling $1.0 million in
each of the first eight years after the Bank Closing and totalling $67.0 million
during the final 18 months prior to the final maturity of the Tranche D Term
Loans. The commitments under the Revolving Credit Facility terminate
approximately six years and six months after the Bank Closing. See "Description
of the Credit Facility."
Historically, the Company has funded working capital requirements, capital
expenditures and other cash requirements primarily through cash flow from
operations. Operating activities have generated cash of $80.3 million and $50.7
million, respectively, in each of the 40 weeks ended April 8, 1995 and April 9,
1994. Operating activities have generated $86.9 million, $87.8 million and $86.3
million, respectively, in cash flow for each of the three fiscal years in the
period ended July 2, 1994.
Cash flows used in investing activities were $16.1 million and $43.8 million
for the 40 weeks ended April 8, 1995 and April 9, 1994, respectively. Proceeds
from the sale of certain property totaled $23.4 million during the 40 weeks
ended April 8, 1995 compared to $8.9 million during the applicable period in the
prior year. There were no material gains or losses generated from these sales.
Capital expenditures were $39.6 million for the 40 weeks ended April 8,
1995, compared to $52.7 million for the 40 weeks ended April 9, 1994. Capital
expenditures for fiscal 1994 were $64.0 million compared with $131.7 million in
fiscal 1993 and $102.1 million in fiscal 1992. The increase in these
expenditures between fiscal 1992 and fiscal 1993 was the result of the
completion of an office building expansion, new store openings and purchases of
land for future store sites. The decrease in capital expenditures in fiscal 1994
and the first 40 weeks of fiscal 1995 results from the Company opening fewer
S-34
<PAGE>
new stores and focusing instead on expanding and remodeling existing stores.
Capital expenditures were primarily financed with internally generated funds and
the proceeds from the sale of other property.
The primary uses of cash in financing activities during the 40 weeks ended
April 8, 1995 were $53.6 million in long-term debt principal payments, $15.2
million in cash dividend payments, and the purchase of 595,000 shares of
treasury stock for $4.7 million. During the first quarter of fiscal 1994, the
Company redeemed its issue of 6.5% Convertible Subordinated Debentures with the
proceeds of a private placement of $100.0 million of 6.62% Series A Senior Notes
due 2003 and $100.0 million of 7.09% Series B Senior Notes due 2008. In
addition, during the 40 weeks ended April 9, 1994, the Company paid off its line
of credit borrowings of $35.0 million and paid cash dividends of $14.1 million.
The Company paid cash dividends of $18.7 million, $17.4 million and $16.4
million during each of the three fiscal years in the period ended July 2, 1994,
respectively. Following the Merger, the payment of regular quarterly dividends
on the Company's Common Stock will be discontinued.
The Company does not expect any significant impact on its cash flow as a
result of the change in accounting estimate to increase reserves by $22.2
million ($13.8 million on an after-tax basis) with respect to self-insurance for
workers' compensation and general liability claims.
S-35
<PAGE>
BUSINESS
The Company is a leading supermarket operator in the Southeastern United
States and is the largest supermarket operator in the state of Alabama. The
Company operates 252 supermarkets of which 124 are located in Alabama, 86 in
Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi and 5 in South
Carolina. Seventy-nine of the store sites are owned directly by the Company or
through joint ventures. The Company also operates two primary distribution
facilities, one in Birmingham, Alabama and one in Vidalia, Georgia, which total
2.1 million square feet. The Company operates stores under three principal
formats, each addressed to a different market segment: every day low price
("EDLP") stores aimed at the value conscious shopper, upscale stores targeted to
customers seeking service and selection, and neighborhood stores stressing
convenience in a community setting. Under the EDLP and upscale formats, the
Company also operates 16 Supercenter stores that offer an expanded mix of higher
margin perishables and general merchandise products as well as various one-stop
shopping conveniences, such as in-store pharmacies, banks, photo development
services and optical centers. Through its 60 years of operations, the Company
has developed a valuable and strategically located store base, strong name
recognition, customer loyalty and a reputation as a quality and service leader
among supermarket competitors. The Company believes that these factors have
enabled it to establish a leading market share in most of its principal markets,
including market shares of approximately 50% in Birmingham and 30% throughout
Alabama.
On April 20, 1995, the Company and Crimson entered into the Merger
Agreement, which was amended on May 18, 1995. As of the date hereof, Crimson is
a wholly-owned subsidiary of Crimson Associates, a partnership organized by KKR.
KKR is a private investment firm with extensive experience in the acquisition of
supermarket operators. Pursuant to the Merger Agreement, Crimson will be merged
with and into the Company, with the Company continuing as the surviving
corporation. Upon completion of the Merger, Crimson Associates will own
20,833,333 shares, or approximately 83.33%, of the Company's Common Stock
expected to be outstanding after the Merger, and warrants to purchase an
additional 10,000,000 shares. The remaining shares of the Company's Common Stock
will be held by current shareholders of the Company.
Affiliates of KKR have organized partnerships which currently own
significant positions in supermarket chains with approximately 1,650 stores and
combined sales of $27.5 billion in their latest fiscal years, including
controlling positions in Safeway and Stop & Shop. Safeway is a West Coast-based
supermarket chain of 1,062 stores which was acquired by an affiliate of KKR in
1986. From 1986 to 1994, Safeway increased its EBITDA margin (operating income
plus depreciation and amortization as a percentage of sales) from 4.2% to 6.0%.
Stop & Shop, a chain of 128 stores operating in the New England market, was
acquired by a KKR affiliate in 1988 and its supermarket division realized an
improvement in EBITDA margin from 4.9% in 1988 to 8.3% in 1994. No assurance can
be given that the Company will experience similar margin improvements after the
Merger.
STORE FORMATS
EVERY DAY LOW PRICE ("EDLP") FORMATS. The Company's two EDLP formats, Food
World and FoodMax, on a combined basis account for 125 of the Company's 252
stores and, for the 40 weeks ended April 8, 1995, contributed sales of $1.3
billion, or 57% of total sales. Both Food World (82 stores) and FoodMax (43
stores) are widely regarded as low price leaders, and both formats are
recognized for the breadth and high quality of their product offerings. Eight of
the EDLP stores are Supercenters. EDLP stores generated average weekly sales of
$248,000 for the 40 weeks ended April 8, 1995.
Food World. Food World stores are typically high volume stores designed
to appeal to a broad spectrum of customers. With a primary emphasis on
value, these stores offer every day low pricing along with an extensive
variety of name-brand merchandise and specialty departments. Food World
stores are promoted through television, newspaper, and radio advertising.
The Company's
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<PAGE>
Food World stores average approximately 44,000 total square feet. Since June
30, 1990, the number of Food World stores has increased from 74 to 82
stores.
FoodMax. FoodMax stores are large stores with an open design,
warehouse-style ceilings, and expanded perishables departments. These stores
emphasize low prices and an extensive product selection while achieving low
overhead through reduced staffing. These stores enhance their EDLP image
through unadvertised in-store specials. The Company's FoodMax stores average
approximately 51,000 total square feet. Since June 30, 1990, the number of
FoodMax stores has increased from 28 to 43 stores.
UPSCALE FORMATS. The Company's upscale formats, which operate primarily
under the Bruno's name, account for 39 of the Company's 252 stores and, for the
40 weeks ended April 8, 1995, contributed sales of $456 million, or 21% of total
sales. Bruno's stores are widely regarded as quality, service, and perishables
leaders in the markets the Company serves, and generally have a substantial
breadth and depth of product offerings. These stores typically contain expanded
produce, bakery, delicatessen, and gourmet foods not generally found in
conventional supermarkets, a variety of health and beauty care products normally
found in large drug stores, and a wide range of general merchandise items.
Bruno's stores are generally located in suburban markets. Eight of the upscale
stores are Supercenters. The upscale stores average approximately 51,000 total
square feet. Since June 30, 1990, the number of upscale stores has increased
from 18 to 39 stores. Upscale stores generated average weekly sales of $305,000
for the 40 weeks ended April 8, 1995.
NEIGHBORHOOD FORMATS. The Company has two principal neighborhood formats,
Piggly Wiggly and Food Fair. The neighborhood format, on a combined basis,
accounts for 88 of the Company's 252 stores, and, for the 40 weeks ended April
8, 1995, contributed sales of $477 million, or 22% of total sales. Piggly Wiggly
(54 stores) and Food Fair (31 stores) are generally smaller than the Company's
other supermarkets and emphasize friendly service and promotional pricing. For
its neighborhood stores, which are generally located in small to medium-sized
towns and suburban neighborhoods, the Company advertises primarily through
direct mail. Neighborhood stores generated average weekly sales of $131,000 for
the 40 weeks ended April 8, 1995.
Piggly Wiggly. Piggly Wiggly stores are located in medium to small towns
in central and southern Georgia. Piggly Wiggly stores are promoted primarily
through weekly advertised specials. Piggly Wiggly stores average
approximately 30,000 total square feet. Since June 30, 1990, the number of
Piggly Wiggly stores has decreased from 76 to 54 stores.
Food Fair. Food Fair stores, like Piggly Wiggly, are designed to operate
with lower overhead and competitive pricing in suburban neighborhoods and
towns that will not support the volume necessary for a larger supermarket.
Food Fair stores are located in Alabama and average approximately 29,000
total square feet. Since June 30, 1990, the number of Food Fair stores has
increased from 28 to 31 stores.
POST-MERGER BUSINESS STRATEGY
Crimson has initiated a search for a new chief executive officer who is
expected to be appointed shortly after the Merger. Ronald G. Bruno, the chief
executive officer of the Company, and the other four senior executive officers
will remain with the Company for up to one year following the Merger to
accomplish the transition of ownership and management in an orderly fashion. Mr.
Bruno has agreed to remain on the Board of Directors of the Company for three
years after the Merger, subject to his customary right to resign. Crimson
expects that the new chief executive officer will select key executives to
replace the departing executives.
Crimson has developed a business strategy based on its review of the
Company's operations and the experience of its affiliates in the supermarket
industry. In concert with the new senior management
S-37
<PAGE>
team, Crimson intends to continue certain strategies that have been successfully
employed by the Company and, additionally, to: (i) expand the Company's
franchise in the Southeast region, (ii) improve working capital management,
(iii) grow the Company's private label business, (iv) continue development of
the Company's management information systems and (v) continue improvement of the
Company's store and product mix.
Expand Company Franchise. Through its 60 years of operations in the
Southeast region, the Company has developed a valuable franchise which Crimson
believes can be expanded and enhanced through opening new stores both in
existing and potential new markets while continuing to upgrade the quality of
the Company's existing store base. Crimson intends to implement this strategy
while maintaining the Company's high level of product quality and customer
service.
Improve Working Capital Management. Crimson believes that the Company can
improve its working capital management. For example, the Company's ratio of
accounts payable to inventories, typically used as a measure of the level of
vendor financing for a supermarket or retail chain, is currently approximately
43% and the Company's ratio of cost of goods sold to inventory is currently 8.4
to 1. Both of these ratios are below the industry averages. Under the control of
Crimson affiliates, Safeway and Stop & Shop have achieved improvements in
working capital management, although there can be no assurance that similar
improvements can be achieved by the Company.
Grow Private Label Business. Private label products provide a substantially
higher gross margin to the Company and provide consumers with quality products
at lower prices than national brands. Recently, the Company has been focusing on
expanding and enhancing its private label program to provide additional products
and is evaluating the addition of a premium line of private label goods.
According to an industry analyst's survey, the industry average for private
label products as a percentage of total grocery sales is approximately 18.6%,
which is greater than the percentage of total grocery sales that is currently
contributed by the Company's private label program. Crimson intends to continue
the Company's increased emphasis on the higher margin private label business to
increase its contribution to overall Company sales and profitability.
Continue Development of Management Information Systems. In recent years, the
Company has increased its investment in MIS and is currently in the process of
implementing various new software applications and upgrading certain of its
computer hardware. The Company's POS technology includes scanning systems and
SwipeOut(R), the Company's electronic payment system. However, opportunities
exist for operational improvements through MIS upgrades. Crimson intends to
upgrade the Company's POS technology and other systems to, among other things,
improve the monitoring of distribution center inventory levels and labor
scheduling. Crimson believes that these upgrades should result in performance
and operating improvements. Crimson intends to lease these enhanced management
information systems, which is expected to result in increased store operating,
selling and administrative expenses.
Improve Store and Product Mix. Crimson intends to continue the Company's
strategy of optimizing the mix of stores across the Company's store formats
through an emphasis on opening and remodeling stores that are closely tailored
to customer needs in a specific market. Crimson will continue the strategy of
emphasizing higher margin specialty products, general merchandise and
value-added services.
After the Merger, Crimson and the new management team may decide to alter or
discontinue certain of the strategies outlined above and will continually assess
whether other strategies should be adopted to complement or replace such
strategies. In addition, there can be no assurance that the strategies outlined
in this Prospectus Supplement, if implemented, will be successful or achieve the
expected level of operating improvement, or that sufficient financial resources
will be available to implement the strategies described above. Moreover, there
can be no assurance that the successful implementation of these strategies will
result in improved operating results, and other conditions may
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<PAGE>
exist, such as increased competition or an economic downturn in the Southeast
region, to offset any improved earnings that are attributable to such
strategies.
STORE DEVELOPMENT
The Company's 60 year history in Birmingham and the Southeast has allowed
the Company to build its store locations selectively, and the Company believes
that many of its current store locations are in prime sites that offer
significant competitive advantages. In addition, the Company has been a leader
in introducing innovative marketing concepts to its store formats. In 1971, the
Company introduced its first EDLP format store into a market that had previously
competed on the basis of price promotions or loss leaders. As the EDLP format
expanded marketwide during the 1980s, the Company introduced the first Bruno's
Food and Pharmacy to provide customers with "one-stop shopping," and in 1992,
the Company opened the first of its Supercenters, which feature an expanded mix
of higher margin perishables and general merchandise products as well as various
one-stop shopping conveniences. The Company attempts to optimize operating
results by selecting a store format that is best suited to each store site's
demographics, local preferences and competition. Over the past five years, the
Company has focused on remodeling its existing store base, opening new stores,
and optimizing its mix of store formats. The result of these changes is a store
mix which emphasizes higher volume stores offering higher margin products to
position the Company for continued growth and enhanced profitability.
The Company has developed a modern, well-maintained store base. During the
five fiscal years ended July 1, 1995, the Company invested approximately $425
million in capital expenditures, which has been primarily directed to building
new stores and expanding and remodeling existing stores. During such period, a
portion of the Company's capital expenditures were also invested in improvements
to the Company's distribution centers, corporate headquarters and certain MIS
functions. In the five fiscal years ended July 1, 1995, the Company opened 77
new stores, closed or sold 55 stores and, over the last four fiscal years,
expanded or remodeled 81 existing stores. In addition, the Company has opened
all of its Supercenter stores since 1992. During fiscal 1992 and fiscal 1993,
the Company opened 44 new stores and expanded or remodeled 27 stores. Starting
in 1994, the Company shifted its strategy to focus on remodels as a lower cost
strategy to increase sales and profitability since new stores generally require
a start-up period prior to achieving profitability. In fiscal 1994 and 1995, the
Company remodeled a total of 54 stores and opened 14 stores. These investments
have resulted in an increase in total square footage of 15% since fiscal 1991
and an increase in average store size from 38,300 square feet to 41,200 square
feet over the same period. The following table sets forth additional information
concerning changes in the Company's store base for fiscal 1991 through fiscal
1995.
<TABLE><CAPTION>
FISCAL
------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning of period............................................ 230 240 253 257 257
Opened....................................................... 19 21 23 8 6
Closed/Sold.................................................. 9 8 19 8 11
---- ---- ---- ---- ----
End of period.................................................. 240 253 257 257 252
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Remodels....................................................... * 14 13 39 15
</TABLE>
- ------------
* Remodeling data for fiscal 1991 is not presented because the Company changed
its method of characterizing stores as "remodels" after such date.
S-39
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1990 AS OF JULY 1, 1995
----------------------- -----------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
EDLP FORMATS: STORES OF TOTAL STORES OF TOTAL
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Food World....................................... 74 32.2% 82 32.5%
FoodMax.......................................... 28 12.2 43 17.1
--- ----- --- ----------
Subtotal....................................... 102 44.4 125 49.6
UPSCALE FORMATS:
Bruno's.......................................... 17 7.4 38 15.1
Other............................................ 1 0.4 1 0.4
--- ----- --- ----------
Subtotal....................................... 18 7.8 39 15.5
NEIGHBORHOOD FORMATS:
Piggly Wiggly.................................... 76 33.0 54 21.4
Food Fair........................................ 28 12.2 31 12.3
Other............................................ 6 2.6 3 1.2
--- ----- --- ----------
Subtotal....................................... 110 47.8 88 34.9
--- ----- --- ----------
Total........................................ 230 100.0% 252 100.0%
--- ----- --- ----------
--- ----- --- ----------
</TABLE>
The Company continuously evaluates its existing markets and potential new
markets for their ability to support new or expanded stores. The Company
combines market research and its in-depth knowledge of the Southeast region in
evaluating market opportunities. In conducting market research for store sites,
the Company evaluates population shifts, zoning changes, traffic patterns, new
construction and the proximity of competitors' stores in an effort to determine
a site's sales potential. The Company has identified numerous sites which are
suitable for new stores and has either acquired such sites or is currently
negotiating to acquire or obtain rights to develop or lease such sites. The
Company also continuously evaluates its store base and has identified certain
stores to be remodeled.
MARKET AREA
The Southeast region is one of the fastest growing areas of the United
States in terms of population, income and employment, and the region, due to its
favorable business environment, has attracted significant additions to its
manufacturing base in recent years. In particular, the automobile industry has
increased its presence in the region and complementary businesses have followed.
According to the Bureau of the Census, the population of the Southeast region
has increased at an annual rate of 1.5% since 1990, compared to the national
average of 1.1% over the same period. Growth in retail sales of food in the
Southeast is outpacing national levels, with growth in the years 1993 and 1994
of 3.8% and 4.1% compared to national gains of 2.6% and 3.4%, respectively.
However, individual markets or regions within the Southeast where the Company
operates may experience economic and demographic trends which differ from those
of the region as a whole.
COMPETITION
The Company's competitors include national and regional supermarket chains,
independent and specialty grocers, drug and convenience stores, and the newer
"alternative format" food stores, including warehouse club stores and
supercenters. In addition to food retailers, nontraditional retailers such as
discount stores, drug stores and department stores are increasing their
selection of food products. The supermarket industry is highly competitive and
characterized by narrow profit margins and, accordingly, the Company's earnings
depend primarily on the efficiency of its operations and on its ability to
maintain a large sales volume. Supermarket chains compete based upon convenience
of store location, price, service, cleanliness, store condition, product variety
and product quality. The Company believes that its policies of pricing its
merchandise competitively and providing superior quality and customer service
are important competitive factors. The Company actively monitors its
competitors'
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<PAGE>
prices and adjusts its pricing and marketing strategy as management deems
appropriate in light of existing market conditions.
The Company's principal competitors include Winn-Dixie, Kroger, Publix,
WalMart, Delchamps and Bi-Lo. The Company has the leading market share in both
Birmingham and Alabama with market shares of approximately 52% and 30%,
respectively. The Company's closest competitor in Birmingham has an
approximately 13% market share. Throughout the other major markets in Alabama,
the Company is generally ranked either first or second in terms of market share.
In recent years, supermarket competition in the Southeast region has intensified
as new entrants have opened stores in certain principal markets of the Company.
The Company's traditional competitors in these markets have enhanced their
capabilities in response to the entry of these new chains. Certain of the
Company's competitors have significantly greater financial resources than the
Company.
ADVERTISING AND PROMOTION
The Company's advertising and promotions are specifically tailored to each
of its store formats. For EDLP stores, the Company's promotions emphasize
consistently low prices, and this image is reinforced through television and
radio advertising. The upscale format is typically advertised through newspapers
and newspaper inserts, with an emphasis placed on quality produce and
perishables and superior service at competitive prices. Upscale stores also
promote new products through in-store demonstrations and samplings. For its
neighborhood stores, which are often located in small to medium-sized towns and
suburban neighborhoods, the Company advertises primarily through direct mail. In
addition, to enhance its name recognition and image, the Company sponsors a
number of regional and local events, including the Bruno's Memorial Classic, a
Senior PGA Tour event. The Company spends approximately 68% of its marketing
budget on newsprint advertisements, including newspaper inserts, circulars
designed to promote the Company's various formats, and various coupon
promotions. The remainder of the Company's advertising budget is used for
television and radio advertising, as well as direct mail for special promotions.
PRIVATE LABEL PROGRAM
Through its private label program, the Company offers approximately 1,200
items under the Staff (dry groceries), Four Winds Farm (dairy and perishables),
Pharm (health and beauty care products) and Bay Harbor (frozen seafood) brand
names. These products provide quality comparable to that of national brands at
prices generally 20% to 30% lower. Gross margins on private label goods are
higher than on national brands. Private label products are available at each of
the Company's different formats, with a higher concentration in the EDLP and
neighborhood stores. Recently, the Company has been focusing on expanding and
enhancing its private label program to provide additional products and is
evaluating the addition of a premium line of private label goods.
PURCHASING, WAREHOUSING AND DISTRIBUTION
The Company has traditionally purchased merchandise from a large number of
third party suppliers. Approximately 37% of the Company's purchases, including
beverages, tobacco products, milk, bread and snack foods, are supplied directly
to the Company's stores by local distributors. The Company has utilized many
category management techniques, including contract buying and most recently, a
continuous replenishment system, which provides for automatic daily product
replenishment for certain products in its distribution centers based on
inventory level changes.
The Company currently operates two primary distribution facilities totaling
2.1 million square feet, located in Birmingham, Alabama and Vidalia, Georgia,
each of which has integrated warehousing and distribution capacity. The Company
owns these facilities subject to arrangements with local industrial development
agencies.
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<PAGE>
Each store submits orders to the distribution facilities through a
centralized processing system, and merchandise is normally received by the
stores on the next day. Merchandise is delivered from the distribution
facilities through a leased fleet of 140 tractors, 158 refrigerated trailers and
184 dry trailers. Stores are located within a 300-mile radius of each of the
distribution centers. The Company believes that its existing distribution
capacity will be sufficient to support its store growth strategy over the next
several years.
EMPLOYEES AND LABOR RELATIONS
The Company is one of the leading private employers in Alabama and, as of
June 14, 1995, the Company employed approximately 25,600 persons, of whom
approximately 44% were full-time and 56% were part-time employees. Of this
number, approximately 23,900 were employed in supermarkets, 1,350 were employed
in the warehousing operations and 350 were employed in the Company's business
office. The Company currently employs, on average, approximately 95 employees in
each store.
<TABLE>
<CAPTION>
EMPLOYEE TYPE UNION NON-UNION TOTAL
- ----------------------------------------------------------------- ------ --------- ------
<S> <C> <C> <C>
Salaried......................................................... -- 1,500 1,500
Hourly:
Full-time...................................................... 8,400 1,500 9,900
Part-time...................................................... 11,300 2,900 14,200
------ --------- ------
Total............................................................ 19,700 5,900 25,600
------ --------- ------
------ --------- ------
</TABLE>
The Company is currently a party to 19 separate collective bargaining
agreements with 6 locals that are affiliates of either the United Food and
Commercial Workers Union or the Retail, Wholesale and Department Store
International Union. The contracts are generally negotiated in three- or four-
year cycles. The Company is currently negotiating with the union representing
the employees of its 62 Food World stores in Alabama. This contract expires on
September 30, 1995. There are three additional collective bargaining agreements
due to be renegotiated by the end of fiscal 1996, none of which affects more
than two stores. The remaining contracts expire after fiscal 1996. The Company
believes that the union-based hourly rates paid to its employees are comparable
to those paid by the Company's non-union competitors. Pursuant to the collective
bargaining agreements, the Company contributes to various union-sponsored
multi-employer pension plans. In general, the Company believes its relationship
with its employees is good.
The Company has an incentive compensation plan covering its key management
staff. Incentive compensation for store operations managers is based upon the
profitability of the operations within the scope of their management
responsibility.
S-42
<PAGE>
PROPERTIES
The Company operates a total of 252 supermarkets, of which 124 are located
in Alabama, 86 in Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi and
5 in South Carolina. In addition, the Company operates nine liquor stores
located adjacent to Food World stores in Florida.
<TABLE>
<CAPTION>
NUMBER OF AVERAGE TOTAL
EDLP FORMATS: STORES OWNED/LEASED SQUARE FOOTAGE
--------- ------------ --------------
<S> <C> <C> <C>
Food World........................................... 82 26/56 44,000
FoodMax.............................................. 43 15/28 51,000
Subtotal............................................. 125 41/84
UPSCALE FORMATS:
Bruno's.............................................. 38 10/28 52,000
Other................................................ 1 0/1 32,000
Subtotal............................................. 39 10/29
NEIGHBORHOOD FORMATS:
Piggly Wiggly........................................ 54 18/36 30,000
Food Fair............................................ 31 9/22 29,000
Other................................................ 3 1/2 37,000
Subtotal............................................. 88 28/60
Total............................................ 252 79/173
</TABLE>
The Company owns 79 of its 252 food stores. Of these 79 stores, 39 are
situated on tracts of land owned by the Company, 10 are located on leased land
and 30 are located in Company-owned shopping centers, with the remaining
shopping center space leased to commercial tenants. Eleven of the stores are
owned by a joint venture between the Company and Metropolitan Life Insurance
Company, which leases such stores back to the Company. The Company also owns
several sites that can be used for future store and warehouse development, as
well as certain non-operating real estate assets. The Company believes that the
fair market value of its owned real estate assets exceeds the book value of such
assets.
The Company leases 173 of its 252 stores under standard commercial leases
which generally obligate the Company to pay its proportionate share of real
estate taxes, common area maintenance charges and insurance costs. In addition,
such leases generally provide for percentage of sales rent when sales from the
store exceed a certain dollar amount. Generally these leases are long-term, with
one or more renewal options. The Company owns the fixtures and equipment in each
leased location and has made various leasehold improvements to the store sites.
The approximately 1,375,000 square foot Birmingham warehouse, distribution
center and office complex is located on a 200-acre site in the Oxmoor West
Industrial Park in Birmingham, Alabama. Approximately 100 acres of the site are
currently undeveloped land. The Company owns the Birmingham facility subject to
certain arrangements with The Industrial Development Board of the City of
Birmingham. The approximately 686,000 square foot Vidalia warehouse and
distribution center is located on a 90-acre site in Vidalia, Georgia and is
owned by the Company subject to a similar industrial development authority
arrangement with respect to a portion of the facility.
TRADE NAMES, SERVICE MARKS, TRADEMARKS AND FRANCHISES
The Company uses a variety of trade names, service marks and trademarks.
Except for "Bruno's," "Food World," "FoodMax," "Piggly Wiggly," and "Food Fair,"
the Company does not believe any of such trade names, service marks or
trademarks are material to its business. The Company licenses the "Piggly
Wiggly" trade name and trademark.
S-43
<PAGE>
The Company's Piggly Wiggly stores are operated pursuant to a franchise
agreement that is restricted to certain areas of central and southern Georgia.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposal or other releases of hazardous materials. The Company believes
that it currently conducts its operations, and in the past has operated its
business, in substantial compliance with applicable environmental laws and
regulations. From time to time, operations of the Company have resulted or may
result in noncompliance with or liability for cleanup pursuant to environmental
laws and regulations. However, the Company believes that any such noncompliance
or liability under current environmental laws and regulations would not have a
material adverse effect on its results of operations and financial condition.
The Company has not incurred material capital expenditures for environmental
controls during the previous three years, nor does the Company anticipate
incurring such expenditures during the current fiscal or the succeeding fiscal
year.
GOVERNMENT REGULATION
The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the United States Food & Drug Administration, the
United States Department of Agriculture, and other federal, state and local
agencies.
LEGAL PROCEEDINGS
In 1991, the Company received a favorable termination letter with respect to
the termination of the employee pension plan of a supermarket chain acquired by
the Company in 1989. Pursuant to that termination, distributions were made to
all participants of that employee pension plan. After all of the benefit
liabilities were paid, there remained a balance of $2,716,795, which was
transferred to the Company as a reversion of excess pension assets. On June 15,
1992, the Company received a letter from the Pension Benefit Guaranty
Corporation ("PBGC") contending that inappropriate actuarial assumptions were
used to determine the value of the employee's benefits distributed and that
additional distributions must be made to numerous former participants of said
plan. In August 1994, the Company filed suit in the U.S. District Court for the
Northern District of Alabama challenging the PBGC's determination. In April
1995, the District Court entered summary judgment against the Company and in
favor of the PBGC. The Company has appealed the District Court's ruling to the
U.S. Court of Appeals for the Eleventh Circuit. The Company believes its
liability, if any, in connection with this matter will not exceed $2,716,795,
plus accrued interest.
Except for this matter, the Company is not a party to any material pending
legal proceedings, other than ordinary litigation incidental to the conduct of
its business and the ownership of its property.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF CRIMSON
At the present time, the directors of Crimson are Paul E. Raether, James H.
Greene, Jr. and Nils P. Brous, who hold the elected offices of Chief Executive
Officer, President and Vice President, respectively. Directors of Crimson are
elected for a term of one year or until their successors are elected and
qualified. Executive officers of Crimson are chosen by its Board of Directors
and serve at its discretion.
The following table sets forth certain information regarding Messrs.
Raether, Greene and Brous. Except as otherwise noted, the address of each person
is 9 West 57th Street, New York, New York 10019. Each person has had the
principal occupation or employment listed for more than five years except as
otherwise noted.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
- ---------------------------- --- --------------------------------------------------------
<S> <C> <C>
Paul E. Raether............. 48 Director and Chief Executive Officer of Crimson and
General Partner, KKR. Member of the Board of Directors
of Duracell International Inc., Flagstar Companies,
Inc., Flagstar Corporation, Fred Meyer, Inc., IDEX
Corporation, and The Stop & Shop Companies, Inc.
James H. Greene, Jr......... 44 Director and President of Crimson and General Partner,
2800 Sand Hill Road KKR. Member of the Board of Directors of Owens-Illinois,
Suite 200 Inc., Owens-Illinois Group, Inc., Safeway Inc., The Stop
Menlo Park, CA 94025 & Shop Companies, Inc., Union Texas Petroleum Holdings,
Inc. and The Vons Companies, Inc.
Nils P. Brous............... 30 Director and Vice President of Crimson and, since 1992,
Executive of KKR. Prior thereto, Associate, Goldman,
Sachs & Co. Member of the Board of Directors of Canadian
General Insurance Group Limited and Granum
Communications, Inc.
</TABLE>
OWNERSHIP OF CRIMSON CAPITAL SECURITIES
Crimson, an Alabama corporation and, as of the date hereof, a wholly owned
subsidiary of Crimson Associates, was organized by KKR in connection with the
Merger and has not carried on any activities to date other than those incident
to its formation and the transactions contemplated by the Merger Agreement.
Crimson Associates is a Delaware limited partnership, the general partner of
which is KKR Associates, an affiliate of KKR.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY FOLLOWING THE MERGER
The Merger Agreement provides that the directors of Crimson at the Effective
Time of the Merger will be the directors of the Company following the Merger.
See "--Directors and Executive Officers of Crimson." It is also contemplated
that Ronald G. Bruno will continue to serve as a director of the Company for
three years following the Effective Time of the Merger, subject to the customary
right of a director to resign. The Board of Directors of the Company will be
subject to change from time to time.
Although the Merger Agreement also provides that the officers of Crimson at
the Effective Time of the Merger will be officers of the Company following the
Merger, it is not expected that the officers of Crimson will continue as ongoing
officers of the Company following the Merger. The five current executive
officers of the Company, Messrs. R. Bruno, Garrison, Griffin, K. Bruno and
Conley (the "Executive Officers"), will remain, in general, as officers of the
Company until one year following the Effective Time of the Merger or for such
shorter time as may be determined by the Board of Directors of the Company
following the Merger in order to accomplish, in an orderly fashion, the
transition of ownership and management contemplated by the Merger Agreement.
They are not expected to remain
S-45
<PAGE>
employed by the Company beyond this transition period. Crimson expects the new
chief executive officer will select key executives to replace the departing
Executive Officers.
EXECUTIVE COMPENSATION FOLLOWING THE MERGER
Commencing upon the Effective Time of the Merger, the Executive Officers
will receive a monthly salary, based upon 13 pay periods, equal to the average
monthly base salary and bonus to which such Executive Officer was entitled for
the fiscal year ended July 1, 1995. Following the Effective Time of the Merger,
the Company may also grant to members of management options to purchase the
Company's Common Stock, although no decision has been made with respect to the
granting of any such stock options.
Employment and Deferred Compensation Agreements. The Executive Officers are
parties to Employment and Deferred Compensation Agreements (the "Deferred
Compensation Agreements") with the Company. The Deferred Compensation Agreements
provide for monthly payments of retirement benefits to such persons equal to 5%
of the average annual compensation for the three fiscal years ended immediately
prior to the initial payment date for a period of 180 months upon the earlier of
retirement after age 65, retirement after 25 years of service, disability, death
or the occurrence of an event which would entitle the employee to receive
benefits under his Employment Continuity Agreement (as discussed below). As a
result of the Merger, the Executive Officers will be paid, in lump sum amounts,
the present value of retirement benefits that would have been payable to them
under the terms of their respective Deferred Compensation Agreements based on a
discount rate of 8% per annum, if such Executive Officers remain, in general, in
the employ of the Company until one year following the Effective Time of the
Merger or for such shorter period as may be determined by the Board of Directors
of the Company following the Merger.
Employment Continuity Agreements. The Executive Officers and 14 other
employees of the Company are parties to Employment Continuity Agreements with
the Company which provide for lump sum cash payments equal to three times, in
the case of Ronald G. Bruno, two times, in the case of the other Executive
Officers, and one time, in the case of the 14 other employees, the sum of such
person's annual base salary at the time of termination, plus his incentive
compensation bonus for the year preceding termination. Benefits under the
Employment Continuity Agreements are payable if a covered employee's employment
is terminated by the employee for "good reason" or by the Company without
"cause" within one year following a "change of control." Upon consummation of
the Merger, the five Executive Officers will be entitled to any amounts to which
they would have been entitled under the terms of their respective Employment
Continuity Agreements if such five Executive Officers remain, in general, in the
employ of the Company until one year following the Effective Time of the Merger
or for such shorter period as may be determined by the Board of Directors of the
Company following the Merger.
Stock Option Plans. At the Effective Time of the Merger (x) each employee or
director stock option to purchase shares of the Company's Common Stock ("Company
Stock Options") granted under any stock option or stock purchase plan, program
or arrangement of the Company, including the Employee Incentive Stock Option
Plan, the Second Amended and Restated Employee Stock Option Plan and the
Non-Employee Director Stock Option Plan (collectively, the "Stock Plans")
outstanding immediately prior to the Effective Time of the Merger, will vest as
a consequence of the Merger and (y) with respect to any person not subject to
Section 16(a) of the Exchange Act (generally directors, certain executive
officers and beneficial owners of 10% or more of a class of capital stock), each
Company Stock Option having an exercise price of less than $12.00 will be
cancelled in exchange for a payment from the Company after the Merger (subject
to any applicable withholding taxes) equal to the product of (1) the total
number of shares of the Company's Common Stock subject to such Company Stock
Option and (2) the excess of $12.00 over the exercise price per share of the
Company's Common Stock subject to such Company Stock Option, payable in cash
immediately following the Effective Time of the Merger, representing
approximately $5,332,114 in the aggregate.
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<PAGE>
The Stock Plans will terminate as of the Effective Time of the Merger, and
following the Effective Time of the Merger no holder of a Company Stock Option
nor any participant in any Stock Plan will have any right thereunder to acquire
equity securities of the Company following the Merger. Furthermore, no holder of
a Company Stock Option may exercise such Company Stock Option after August 17,
1995 (the "Exercise Period"). Unless exercised within the Exercise Period (or
cancelled in exchange for a cash payment pursuant to clause (y) of the preceding
paragraph), each Company Stock Option will become non-exercisable at the end of
the Exercise Period. With respect to any person subject to Section 16(a) of the
Exchange Act, no such person will be entitled to a cash payment in the manner
described in clause (y) of the preceding paragraph.
As a result of the Merger, the five Executive Officers will be entitled to
any amounts to which they would have been entitled under the terms of their
respective Employment Continuity Agreements, together with the retirements
benefits that would have been payable to them under the terms of their
respective Deferred Compensation Agreements as of the end of the Company's
fiscal year ended July 1, 1995, if such Executive Officers remain, in general,
in the employ of the Company until one year following the Effective Time of the
Merger or for such shorter period as may be determined by the Board of Directors
of the Company following the Merger. In connection with its approval of the
Merger and as agreed by Crimson, the Board of Directors of the Company has
approved the payment to each of the Executive Officers of a lump sum payment, on
termination of employment, of the benefits payable under the Deferred
Compensation Agreements based on a discount rate of 8% per annum.
The following table reflects the estimated value of the payments, based upon
certain assumptions with respect to annual compensation, to which the Executive
Officers will be entitled under the Employment Continuity Agreements, the
Deferred Compensation Agreements and the stock options which will vest, subject
to the terms of such agreements and the Merger Agreement, as of the end of the
fiscal year ended July 1, 1995.
<TABLE>
<CAPTION>
VALUE OF
EMPLOYMENT CONTINUITY DEFERRED COMPENSATION OPTIONS TO
NAME AGREEMENT AGREEMENT(1) VEST
- ------------------------------------------ --------------------- --------------------- ----------
<S> <C> <C> <C>
Ronald G. Bruno........................... $ 895,000 $ 2,077,000 $152,000
Paul F. Garrison.......................... 818,000 1,813,000 70,000
Glenn J. Griffin.......................... 722,000 1,628,000 70,000
Kenneth J. Bruno.......................... 257,000 1,102,000 70,000
R. Michael Conley......................... 405,000 759,000 50,000
</TABLE>
- ------------
(1) Present value of 180 month payout based on a discount rate of 8% per annum.
The estimated total value of all such payments to Executive Officers is
$10,888,000.
The definitive amounts to be payable to the Executive Officers under their
Employment Continuity Agreements or Deferred Compensation Agreements will depend
upon the total compensation paid by the Company to these individuals for the
Company's fiscal year ending July 1, 1995, which will include bonuses to be paid
based on the Company's 1995 earnings. Although the amounts shown above are based
on the assumption that the maximum bonuses will be paid for fiscal 1995, only
amounts based on actual bonuses earned will be paid.
Shares of the Company's Common Stock held by officers and directors of the
Company will be converted into the right to receive the same consideration as
shares of the Company's Common Stock held by other shareholders. Company Stock
Options held by officers and directors of the Company will be treated in the
same manner as Company Stock Options held by other shareholders, except that no
such officers or directors will be entitled to a cash payment of the excess of
$12.00 over the exercise price per share subject to such Company Stock Options
as described above.
Company Stock Options held by the five directors of the Company who are not
employed by the Company (Benny M. LaRussa, Jr., Richard Cohn, Judy M. Merritt,
J. Mason Davis, Jr. and Bart Starr), which have not as yet vested, will vest as
a result of the Merger, providing a benefit above the exercise price of those
options of approximately $77,500 to each of such non-employee Directors for an
aggregate gain of approximately $387,500.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the ownership of the Company's Common Stock
by each person known by the Company to be the owner of 5% or more of the
Company's Common Stock, by each person who is a director or named executive
officer of the Company and by all directors and executive officers of the
Company as a group.
<TABLE><CAPTION>
AMOUNT & NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OF COMMON
BENEFICIAL OWNER OWNERSHIP STOCK
- --------------------------------------------------------------- ------------------ ----------
<S> <C> <C>
KKR Associates................................................. 34,736,579(1) 37.1%
9 West 57th Street
New York, NY 10019
Estate of Lee J. Bruno......................................... 6,085,595(2) 7.8%
P.O. Box 2486
Birmingham, AL 35201
Joseph S. Bruno................................................ 4,233,926(3) 5.4%
P.O. Box 2486
Birmingham, AL 35201
Ronald G. Bruno................................................ 6,111,125(4) 7.8%
P.O. Box 2486
Birmingham, AL 35201
Paul F. Garrison............................................... 141,750(5) *
P.O. Box 2486
Birmingham, AL 35201
Glenn J. Griffin............................................... 163,231(6) *
P.O. Box 2486
Birmingham, AL 35201
Kenneth J. Bruno............................................... 2,783,409(7) 3.6%
P.O. Box 2486
Birmingham, AL 35201
R. Michael Conley.............................................. 55,853(8) *
P.O. Box 2486
Birmingham, AL 35201
Benny M. LaRussa, Jr........................................... 358,683(9) *
924 Surrey Road
Birmingham, AL 35223
Richard Cohn................................................... 29,015(10) *
P.O. 55727
Birmingham, AL 35255
Judy M. Merritt................................................ 20,200(11) *
440 Sun Valley Road
Birmingham, AL 35215
J. Mason Davis, Jr............................................. 20,700(12) *
P.O. Box 55727
Birmingham, AL 35255
Bart Starr..................................................... 20,100(13) *
One Chase Corporate Drive
Suite 450
Birmingham, Al 35244
All officers and directors as a group (11 persons)............. 13,937,992(14) 17.8%
</TABLE>
- ------------
* Owns less than 1% of the total outstanding Common Stock.
(Footnotes continued on following page)
S-48
<PAGE>
(Footnotes continued from preceding page)
(1) Pursuant to Rule 13d-3 of the Exchange Act, Crimson may be deemed to own
beneficially (i) 15,541,570 shares of the Company's Common Stock underlying
the Option Agreement and (ii) 19,195,009 shares of the Company's Common
Stock subject to the Stockholders Agreement. Crimson is controlled by
Crimson Associates, of which KKR Associates is the sole general partner and
as to which KKR Associates possesses sole voting and investment power. KKR
Associates is a limited partnership, the general partners of which are
Henry R. Kravis, George R. Roberts, Robert I. MacDonnell, Paul E. Raether,
Michael W. Michelson, Saul A. Fox, Michael T. Tokarz, James H. Greene, Jr.,
Perry Golkin, Clifton S. Robbins, Scott M. Stuart and Edward A. Gilhuly.
Such individuals may be deemed to share beneficial ownership of the shares
shown as beneficially owned by KKR Associates. Such individuals disclaim
beneficial ownership of any such shares.
(2) Includes 3,594,338 shares owned directly by the Estate of Lee J. Bruno; and
in addition, 2,491,257 shares owned in the aggregate by the executors of
the Estate of Lee J. Bruno, as to which they individually have sole or
shared voting or investment power.
(3) Includes (i) 2,975,276 shares owned directly by Joseph S. Bruno, (ii)
143,850 shares owned by the Joseph Bruno Foundation and 530,000 shares
owned by the Joseph S. Bruno Charitable Foundation, private charitable
foundations of which he is president and a director, with respect to which
he disclaims any beneficial interest but as to which he shares voting and
investment power, and (iii) 584,800 shares held in the name of his wife, as
to which he may be deemed to share voting and investment power.
(4) Includes (i) 1,140,950 shares owned directly by Ronald G. Bruno (of which
150,000 are represented by options exercisable within sixty days); (ii)
10,000 shares held jointly with his wife, as to which he shares voting and
investment power; (iii) 6,192 shares held in the name of his wife, as to
which he may be deemed to share voting and investment power; (iv) 7,242
shares held in his name as trustee for his minor child as to which he has
sole voting and investment power; (v) 2,634,018 shares owned by family
members as to which he has sole voting power through proxies held by him,
but as to which he has no investment power; (vi) 200,000 shares held as
co-executor of the Estate of Angelo J. Bruno; 1,775,196 shares held as
co-trustee of trusts for family members (1,175,096 of which are held as
co-trustee with Kenneth J. Bruno), as to which he shares voting and
investment power; (vii) 337,527 shares owned by the Ann and Angelo Bruno
Foundation, a private charitable foundation of which he is a Director (with
Kenneth J. Bruno), with respect to which he disclaims any beneficial
interest but as to which he has sole voting power and shares investment
power.
(5) Includes (i) 108,000 shares owned directly by Paul F. Garrison (of which
75,000 are represented by options exercisable within sixty days); (ii)
4,050 shares held as trustee as to which he has sole voting and investment
power; (iii) 2,100 shares held jointly with his wife as to which he shares
voting and investment power; and (iv) 27,600 shares held in the name of his
wife, as to which he may be deemed to share voting and investment power.
(6) Includes (i) 160,831 shares owned directly by Glenn J. Griffin (of which
75,000 are represented by options exercisable within sixty days); (ii) 800
shares held in his name as custodian for minor children as to which he has
sole voting and investment power; and (iii) 1,600 shares held in the name
of his wife, as to which he may be deemed to share voting and investment
power.
(7) Includes (i) 1,207,269 shares owned directly by Kenneth J. Bruno (of which
75,000 are represented by options exercisable within sixty days); (ii)
1,050 shares held in the name of his wife, as to which he may be deemed to
share voting and investment power; (iii) 39,467 shares held as co-trustee
of a trust for a family member as to which he shares voting and investment
power; (iv) 1,175,096 shares held as co-trustee (with Ronald G. Bruno) of
trusts for family members, as to which he shares voting and investment
power; (v) 337,527 shares owned by the Ann and Angelo Bruno Foundation, a
private charitable foundation of which he is a Director (with Ronald G.
Bruno), with respect to which he disclaims any beneficial interest but as
to which he shares investment power; and (vi) 23,000 shares owned by the
Kenneth J. Bruno Foundation, a private charitable foundation of which he is
president and a director, with respect to which he disclaims any beneficial
interest but as to which he shares voting and investment power.
(Footnotes continued on following page)
S-49
<PAGE>
(Footnotes continued from preceding page)
(8) Includes 55,853 shares owned directly by R. Michael Conley (of which 52,500
are represented by options exercisable within sixty days).
(9) Includes (i) 91,869 shares owned directly by Benny M. LaRussa, Jr. (of
which 20,000 are represented by options exercisable within sixty days);
(ii) 10,100 shares held as trustee of trusts for his minor children as to
which he has sole voting and investment power; (iii) 256,744 shares held
jointly with his wife as to which he shares voting and investment power;
and (iv) 150 shares held in the name of his wife, as to which he may be
deemed to share voting and investment power.
(10) Includes (i) 22,515 shares owned directly by Richard Cohn (of which 20,000
are represented by options exercisable within sixty days), and (ii) 6,500
shares held by the Cohn Family Partnership, as to which he has sole voting
power. He also serves as co-trustee of certain trusts of which neither he
nor any member of his family is a beneficiary, which own in the aggregate
1,235,996 shares, as to which he may be deemed to share voting and
investment power and as to which he disclaims any beneficial ownership and
which are not included in the number shown as owned in the above chart.
(11) Includes 20,200 shares owned directly by Judy M. Merritt (of which 20,000
are represented by options exercisable within sixty days).
(12) Includes 20,700 shares owned directly by J. Mason Davis, Jr. (of which
20,000 are represented by options exercisable within sixty days).
(13) Includes 20,100 shares owned directly by Bart Starr (of which 20,000 are
represented by options exercisable within sixty days).
(14) Shares owned beneficially by the group include 527,500 shares upon which
are represented by options exercisable within sixty days.
Ronald G. Bruno and Kenneth J. Bruno are brothers and are nephews of Joseph
S. Bruno. Benny M. LaRussa is the grandson of Joseph S. Bruno. As shown above,
Joseph S. Bruno beneficially owns approximately 5.4%, Ronald G. Bruno
beneficially owns approximately 7.8%, Kenneth J. Bruno beneficially owns 3.6%,
and Benny M. LaRussa, Jr. beneficially owns 0.5% of the total outstanding Common
Stock, for an aggregate of 13,487,143 shares, constituting 17.3% of the total
outstanding Common Stock.
S-50
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Senior Subordinated Notes and the Discount Debentures will be issued by
the Company pursuant to the Indenture between the Company and Marine Midland
Bank, as trustee (the "Trustee").
The terms of the Securities include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as in effect on the date of the Indenture.
The Securities are subject to all such terms, and holders of Securities are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
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. The definitions
of certain terms used in the following summary are set forth below under
"--Certain Definitions."
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Securities
will be subordinated in right of payment, as set forth in the Indenture, to the
prior payment in full of all Senior Indebtedness, whether outstanding on the
date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the documents relating to the applicable Senior
Indebtedness) before the Holders of Securities will be entitled to receive any
payment with respect to the Securities, and until all Obligations with respect
to Senior Indebtedness are paid in full, any distribution to which the Holders
of Securities would be entitled shall be made to the holders of Senior
Indebtedness (except that Holders of Securities may receive (i) securities that
are subordinated at least to the same extent as the Securities to Senior
Indebtedness and any securities issued in exchange for Senior Indebtedness and
(ii) payments made from the trust described under "--Legal Defeasance and
Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Securities (except in such subordinated securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the Company
or the holders of any Designated Senior Indebtedness. Payments on the Securities
may and shall be resumed (a) in the case of a payment default, upon the date on
which such default is cured or waived or shall have ceased to exist or all
Obligations in respect of such Designated Senior Indebtedness shall have been
discharged or paid in full and (b) in case of a nonpayment default, the earlier
of (x) the date on which such nonpayment default is cured or waived, (y) 179
days after the date on which the applicable Payment Blockage Notice is received
or (z) such Payment Blockage Period shall be terminated by written notice to the
Trustee from the holders of a majority of the outstanding principal amount of
such Designated Senior Indebtedness or their representative who delivered such
notice (the "Payment Blockage Period"), after which the Company shall resume
making any and all required payments in respect of the Securities, including any
missed payments. No new period of payment blockage may be commenced unless and
until 365 days have elapsed since the effectiveness of the immediately prior
S-51
<PAGE>
Payment Blockage Notice. However, if any Payment Blockage Notice within such
365-day period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the agent under the Credit Facility), the agent under
the Credit Facility may give another Payment Blockage Notice within such period.
In no event, however, may the total number of days during which any Payment
Blockage Period or Periods is in effect exceed 179 days in the aggregate during
any 365 consecutive day period. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been cured or waived for a period of not less than 180
days.
If the Company fails to make any payment on the Securities when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the Holders of the Securities to
accelerate the maturity thereof.
The Indenture will further require that the Company promptly notify holders
of Senior Indebtedness if payment of the Securities is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Securities may recover less ratably than
creditors of the Company who are holders of Senior Indebtedness. On a pro forma
basis, after giving effect to the Offering and the application of the proceeds
therefrom, the principal amount of Senior Indebtedness outstanding at April 8,
1995 would have been approximately $575.2 million. The Indenture will limit,
subject to certain financial tests, the amount of additional Indebtedness,
including Senior Indebtedness, that the Company and its Restricted Subsidiaries
can incur. See "--Certain Covenants--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock."
"Designated Senior Indebtedness" means (i) Indebtedness under the Credit
Facility so long as any Obligations under the Credit Facility are outstanding
and (ii) any other Senior Indebtedness permitted under the Indenture the
principal amount of which is $25 million or more and that has been designated by
the Company as Designated Senior Indebtedness.
"Senior Indebtedness" means (i) the Indebtedness under the Credit Facility
and (ii) any other Indebtedness permitted to be incurred by the Company under
the terms of the Indenture, unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Securities. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness will not include (1) any liability for
federal, state, local or other taxes owed or owing by the Company, (2) any
obligation of the Company to any of its Subsidiaries, (3) any accounts payable
or trade liabilities arising in the ordinary course of business (including
instruments evidencing such liabilities), (4) any Indebtedness that is incurred
in violation of the Indenture, (5) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to the Company, (6) any Indebtedness, Guarantee or
obligation of the Company which is subordinate or junior to any other
Indebtedness, Guarantee or obligation of the Company, (7) Indebtedness evidenced
by the Securities and (8) Capital Stock.
The Securities will rank pari passu or senior in right of payment to all
Subordinated Indebtedness of the Company. The Senior Subordinated Notes and the
Discount Debentures will rank pari passu with each other. At the Issuance Date,
the only Subordinated Indebtedness of the Company will be the Securities.
PRINCIPAL, MATURITY AND INTEREST OF THE SENIOR SUBORDINATED NOTES
The Senior Subordinated Notes will be general unsecured obligations of the
Company, limited in aggregate principal amount to $250 million and will mature
on the Senior Subordinated Note Maturity Date. Each Senior Subordinated Note
will bear interest at the Senior Subordinated Note Rate per
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<PAGE>
annum of the principal amount then outstanding from the Issuance Date to the
date of payment of such principal amount of such Senior Subordinated Note.
Installments of interest will become due and payable semi-annually in arrears on
each Senior Subordinated Note Interest Payment Date to the holders of record at
the close of business on the preceding Senior Subordinated Note Record Date
beginning with the first such date after the issuance of the Senior Subordinated
Notes.
The Senior Subordinated Notes will be payable both as to principal and
interest at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest may be made by check mailed to the Holders of the Senior
Subordinated Notes at their respective addresses set forth in the register of
Holders of Senior Subordinated Notes. Until otherwise designated by the Company,
its office or agency in New York will be the office or agency of the Trustee
maintained for such purpose. The Senior Subordinated Notes will be issued in
registered form, without coupons, and in denominations of $1,000 and integral
multiples thereof.
PRINCIPAL, MATURITY AND INTEREST OF THE DISCOUNT DEBENTURES
The Discount Debentures will be general unsecured obligations of the
Company, limited in aggregate principal amount at maturity to $ million and
will mature on the Discount Debenture Maturity Date. The Discount Debentures are
being offered at a substantial discount from their principal amount at maturity.
Until the Full Accretion Date, no interest will be paid in cash on the Discount
Debentures, but the Accreted Value will accrete (representing the amortization
of original issue discount) between the Issuance Date and the Full Accretion
Date, on a semi-annual bond equivalent basis using a 360-day year comprised of
twelve 30-day months such that the Accreted Value shall be equal to the full
principal amount at maturity of the Discount Debentures on the Full Accretion
Date. Beginning on the Full Accretion Date, each Discount Debenture will bear
interest at the Discount Debenture Rate per annum of the principal amount at
maturity. Installments of interest will become due and payable semi-annually in
arrears on each Discount Debenture Interest Payment Date to the holders of
record at the close of business on the preceding Discount Debenture Record Date
beginning with the first such date after the Full Accretion Date.
The Discount Debentures will be payable both as to principal and interest at
the office or agency of the Company maintained for such purpose within the City
and State of New York or after the Full Accretion Date, at the option of the
Company, payment of interest may be made by check mailed to the Holders of the
Discount Debentures at their respective addresses set forth in the register of
Holders of Discount Debentures. Until otherwise designated by the Company, its
office or agency in New York will be the office or agency of the Trustee
maintained for such purpose. The Discount Debentures will be issued in
registered form, without coupons, and in denominations of $1,000 and integral
multiples thereof.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemptions or sinking
fund payments prior to maturity with respect to the Securities.
OPTIONAL REDEMPTION
SENIOR SUBORDINATED NOTES. Except as described below, the Senior
Subordinated Notes are not redeemable at the Company's option prior to
, 2000. From and after , 2000, the Senior
Subordinated Notes will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' written
notice, at the Senior Subordinated Note Redemption Prices (expressed as
percentages of principal amount) set
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<PAGE>
forth below, plus accrued and unpaid interest, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on of
each of the years indicated below:
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
- ------------------------------------------------------------ ----------------
2000........................................................ %
2001........................................................
2002........................................................
2003 and thereafter......................................... 100%
Prior to , 1998, the Company may, at its option, on any one or
more occasions redeem up to 40% of the aggregate face amount of Senior
Subordinated Notes originally offered in the Offering at a redemption price
equal to % of the principal amount thereof, plus accrued and unpaid interest
thereon to the redemption date, with the net proceeds of an underwritten public
offering of Common Stock of the Company; provided that at least 60% of the
original aggregate principal amount of Senior Subordinated Notes remains
outstanding immediately after the occurrence of such redemption; and provided,
further, that such redemption shall occur within 60 days of the date of the
closing of such underwritten public offering of Common Stock of the Company.
DISCOUNT DEBENTURES. Except as described below, the Discount Debentures are
not redeemable at the Company's option prior to , 2000. From and after
, 2000, the Discount Debentures will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' written notice, at the Discount Debenture Redemption Prices (expressed
as percentages of principal amount) set forth below, plus accrued and unpaid
interest, if any, thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on of each of the years indicated below:
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
- ------------------------------------------------------------ ----------------
2000........................................................ %
2001........................................................
2002........................................................
2003........................................................
2004 and thereafter......................................... 100%
Prior to , 1998, the Company may, at its option, on any one or
more occasions redeem up to 40% of the aggregate face amount of Discount
Debentures originally offered in the Offering at a redemption price equal to %
of the Accreted Value, with the net proceeds of an underwritten public offering
of Common Stock of the Company; provided that at least 60% of the principal
amount of the Discount Debentures originally issued remains outstanding
immediately after the occurrence of such redemption; and provided, further, that
such redemption shall occur within 60 days of the date of the closing of such
underwritten public offering of Common Stock of the Company.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL. The Indenture will provide that, upon the occurrence of a
Change of Control, the Company will make an offer to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of the Securities pursuant to
the offer described below (the "Change of Control Offer") at a price in cash
(the "Change of Control Payment") equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(or, if such Change of Control Offer is with respect to Discount Debentures,
101% of the Accreted Value thereof on the date of purchase, if prior to the Full
Accretion Date). The Indenture will provide that within 30 days following any
Change of Control, the Company will mail a notice to each Holder of Securities
issued under the Indenture, with a copy to the Trustee, with the following
information: (1) a Change of Control Offer is being made pursuant to the
covenant entitled "Change of Control," and that all Securities properly
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<PAGE>
tendered pursuant to such Change of Control Offer will be accepted for payment;
(2) the purchase price and the purchase date, which will be no earlier than 30
days nor later than 60 days from the date such notice is mailed, except as may
be otherwise required by applicable law (the "Change of Control Payment Date");
(3) any Security not properly tendered will remain outstanding and continue to
accrue interest; (4) unless the Company defaults in the payment of the Change of
Control Payment, all Securities accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control Payment
Date; (5) Holders electing to have any Securities purchased pursuant to a Change
of Control Offer will be required to surrender the Securities, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Securities
completed, to the paying agent specified in the notice 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) Holders will be entitled to withdraw
their tendered Securities and their election to require the Company to purchase
such Securities, provided, that the paying agent receives, not later than the
close of business on the last day of the offer period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Securities tendered for purchase, and a statement that such
Holder is withdrawing his tendered Securities and his election to have such
Securities purchased; and (7) that Holders whose Securities are being purchased
only in part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof.
The Indenture will provide that, prior to complying with the provisions of
this covenant, but in any event within 30 days following a Change of Control,
the Company will either repay all outstanding amounts under the Credit Facility
or offer to repay in full all outstanding amounts under the Credit Facility and
repay the Obligations held by each lender who has accepted such offer or obtain
the requisite consents, if any, under the Credit Facility to permit the
repurchase of the Securities required by this covenant.
The Company 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 or regulations are applicable in connection with the repurchase
of the Securities pursuant to a Repurchase Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Indenture will provide that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (1) accept for payment all
Securities or portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the paying agent an amount equal to the
aggregate Change of Control Payment in respect of all Securities or portions
thereof so tendered and (3) deliver, or cause to be delivered, to the Trustee
for cancellation the Securities so accepted together with an Officers'
Certificate stating that such Securities or portions thereof have been tendered
to and purchased by the Company. The Indenture will provide that the paying
agent will promptly mail to each Holder of Securities the Change of Control
Payment for such Securities, and the Trustee will promptly authenticate and mail
to each Holder a new Security equal in principal amount to any unpurchased
portion of the Securities surrendered, if any, provided, that each such new
Security will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Credit Facility currently prohibits the Company from purchasing any
Securities, and also provides that certain change of control events with respect
to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Securities, the Company could seek the consent of its lenders to the
purchase of Securities or could attempt to refinance the
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borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing Securities. In such case, the Company's failure to purchase tendered
Securities would constitute an Event of Default under the Indenture. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Securities.
The existence of a Holder's right to require the Company to repurchase such
Holder's Securities upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
ASSET SALES. The Indenture will provide that the Company will not, and will
not permit any of its Restricted Subsidiaries to, cause, make or suffer to exist
an Asset Sale, unless (w) no Default or Event of Default exists or is continuing
immediately prior to or after giving effect to such Asset Sale and (x) the
Company, or its Restricted Subsidiaries, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Company) of the assets sold or
otherwise disposed of; provided however that the Company shall have the right to
exclude from the provisions of this paragraph and the succeeding paragraph Asset
Sales subsequent to the Issuance Date the proceeds of which are derived from the
sale and substantially concurrent lease-back of a supermarket and/or related
assets or equipment which is acquired or constructed by the Company or a
Restricted Subsidiary subsequent to the date that is six months prior to the
Issuance Date; provided that such sale and substantially concurrent lease-back
occurs within 365 days following such acquisition or the completion of such
construction, as the case may be.
Within 365 days after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale to either (i) permanently reduce
Obligations under the Credit Facility (and to correspondingly reduce commitments
with respect thereto) or other Senior Indebtedness or Pari Passu Indebtedness,
(ii) use such Net Proceeds to secure Letter of Credit Obligations to the extent
related letters of credit have not been drawn upon or returned undrawn, (iii)
invest in any one or more business, capital expenditure or other tangible asset
of the Company or any Restricted Subsidiary, in each case, engaged, used or
useful in the Principal Business, with no concurrent obligation to make an offer
to purchase any Securities, (iv) invest in properties or assets that replace the
properties and assets that are the subject of such Asset Sale and (v) in the
case of a sale of a store or stores, deem such Net Proceeds to have been applied
to the extent of any capital expenditures made to acquire or construct a
replacement store in the general vicinity of the store sold within 365 days
preceding the date of the Asset Sale. Pending the final application of any such
Net Proceeds, the Company or such Restricted Subsidiary may temporarily reduce
Indebtedness under a revolving credit facility, if any, or otherwise invest such
Net Proceeds in Cash Equivalents which shall be pledged to the Trustee as
security for the Securities. The Indenture will provide that any Net Proceeds
from the Asset Sale that are not invested as provided and within the time period
set forth in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $20
million, the Company shall make an offer to all Holders of Securities (an "Asset
Sale Offer") to purchase the maximum principal amount of Securities, that is an
integral multiple of $1,000, that may be purchased out of the Excess Proceeds at
an offer price in cash in an amount equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any (or, if such Asset Sale Offer
is with respect to Discount Debentures, 100% of the Accreted Value thereof on
the date of purchase, if prior to the Full Accretion Date), to the date fixed
for the closing of such offer, in accordance with the procedures set forth in
the Indenture. The Company will commence an Asset Sale Offer with respect to
Excess Proceeds within ten business days after the date that Excess Proceeds
exceeds $20 million by mailing the notice required pursuant to the terms of the
Indenture, with a copy to the Trustee. To the extent that the aggregate amount
of Securities tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Securities surrendered
by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
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select the Securities to be purchased in the manner described under the caption
"Selection and Notice" below. Upon completion of any such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
SELECTION AND NOTICE. If less than all of the Senior Subordinated Notes or
Discount Debentures, as the case may be, are to be redeemed at any time,
selection of such Securities for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Securities are listed, or, if such Securities are not so
listed, on a pro rata basis, by lot or by such other method as the Trustee shall
deem fair and appropriate (and in such manner as complies with applicable legal
requirements), provided that no Securities of $1,000 or less shall be redeemed
in part.
If less than all of the Senior Subordinated Notes and the Discount
Debentures are to be purchased in an Asset Sale Offer at any time, selection of
such Securities for purchase will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
such Securities are listed, or if such Securities are not so listed, on a pro
rata basis, by lot or by such other method as the Trustee shall deem fair and
appropriate (and in such manner as complies with applicable legal requirements),
provided that no Securities of $1,000 or less shall be purchased in part and
provided further that the Senior Subordinated Notes and the Discount Debentures
shall be treated as a single class of securities for such selection purposes,
with an amount of Accreted Value of the Discount Debentures given the same
weight as an equal amount of principal of the Senior Subordinated Notes.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Securities to be purchased or redeemed at such
Holder's registered address. If any Security is to be purchased or redeemed in
part only, any notice of purchase or redemption that relates to such Security
shall state the portion of the principal amount thereof that has been or is to
be purchased or redeemed.
A new Security in principal amount equal to the unpurchased or unredeemed
portion of any Security purchased or redeemed in part will be issued in the name
of the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date, unless the Company defaults in payment of the
purchase or redemption price, interest shall cease to accrue on Securities or
portions thereof purchased or called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS. The Indenture will provide that the Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests (other
than (1) dividends or distributions by the Company payable in Equity Interests
(other than Disqualified Stock) of the Company; or (2) dividends or
distributions by a Restricted Subsidiary of the Company so long as, in the case
of any dividend or distribution payable on or in respect of any class or series
of securities issued by a Subsidiary other than a Wholly Owned Subsidiary, the
Company or a Restricted Subsidiary of the Company receives at least its pro rata
share of such dividend or distribution in accordance with its Equity Interests
in such class or series of securities); (ii) purchase, redeem, defease or
otherwise acquire or retire for value any Equity Interests of the Company; or
(iii) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iii) 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; and
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(b) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issuance Date (including Restricted Payments permitted by clause
(i) of the next succeeding paragraph, but excluding all other Restricted
Payments permitted by the next succeeding paragraph), is less than the sum
of (V) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the fiscal quarter that first begins
after the Issuance Date to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the
time of such Restricted Payment (or, in the case such Consolidated Net
Income for such period is a deficit, minus 100% of such deficit), plus (W)
100% of the aggregate net cash proceeds and the fair market value, as
determined in good faith by the Board of Directors, of marketable securities
received by the Company since the Issuance Date from the issue or sale of
Equity Interests (including Retired Capital Stock (as defined below)) or
debt securities of the Company that have been converted into such Equity
Interests of the Company (other than Refunding Capital Stock (as defined
below) or Equity Interests or convertible debt securities of the Company
sold to a Restricted Subsidiary of the Company and other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock),
plus (X) 100% of the aggregate amounts contributed to the capital of the
Company, plus (Y) 100% of the aggregate amounts received in cash and the
fair market value of marketable securities (other than Restricted
Investments) received from (i) the sale or other disposition of Restricted
Investments made by the Company and its Subsidiaries or (ii) the sale of the
stock of an Unrestricted Subsidiary or the sale of all or substantially all
of the assets of an Unrestricted Subsidiary to the extent that a liquidating
dividend is paid to the Company or any Subsidiary from the proceeds of such
sale plus (Z) $40 million.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) (a) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary (the
"Retired Capital Stock") in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of Equity Interests of the Company (other than any Disqualified
Stock) (the "Refunding Capital Stock"), and (b) if immediately prior to such
retirement of Retired Capital Stock the declaration and payment of dividends
thereon was permitted under clause (v) of this paragraph, the declaration
and payment of dividends on the Refunding Capital Stock in an aggregate
amount per year no greater than the aggregate amount of dividends per annum
that was declarable and payable on such Retired Capital Stock immediately
prior to such retirement; provided that at the time of the declaration of
any such dividends, no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof.
(iii) a Restricted Payment to pay for the repurchase, retirement or
other acquisition or retirement for value of any Equity Interests of the
Company held by any future, present or former employee or director of the
Company or any Subsidiary pursuant to any management equity plan or stock
option plan or any other agreement, provided that the aggregate Restricted
Payments made under this clause (iii) does not exceed the sum of (A) $10
million in any fiscal year (provided that any unused amounts may be carried
over to any subsequent fiscal year subject to a maximum amount of $20
million in any fiscal year) plus (B) cash proceeds from the sale of Equity
Interests to members of management of the Company and its Subsidiaries;
(iv) the payment of any amounts in connection with the Merger under the
Merger Agreement, the Employment Continuity Agreements, the Deferred
Compensation Agreements and the documents executed in connection therewith,
including without limitation, appraisal or similar rights;
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(v) the declaration and payment of dividends to holders of any class or
series of Preferred Stock (other than Disqualified Stock) issued after the
Issuance Date (including, without limitation, the declaration and payment of
dividends on Refunding Capital Stock in excess of the dividends declarable
and payable thereon pursuant to clause (ii); provided that at the time of
such issuance the Fixed Charge Coverage Ratio of the Company, after giving
effect to such issuance, would be greater than 1.50 to 1.00;
(vi) Investments in Unrestricted Subsidiaries in an aggregate amount not
to exceed $40 million at any one time outstanding;
(vii) the payment of dividends on the Company's Common Stock, following
the first public offering of the Company's Common Stock after the Issuance
Date, of up to 6% per annum of the net proceeds received by the Company in
such public offering, other than public offerings with respect to the
Company's Common Stock registered on Form S-8; and
(viii) a Restricted Payment to pay for the repurchase, retirement or
other acquisition or retirement for value of Equity Interests of the Company
in existence on the Issuance Date which are not held by the Permitted Holder
on the Issuance Date (including any Equity Interests issued in respect of
such Equity Interests as a result of a stock split, recapitalization,
merger, combination, consolidation or otherwise, but excluding any
management equity plan or stock option plan or similar agreement), provided
that the aggregate Restricted Payments made under this clause (viii) shall
not exceed $50 million, provided further that notwithstanding the foregoing
proviso, the Company shall be permitted to make additional Restricted
Payments under this clause (viii) if the Fixed Charge Coverage Ratio of the
Company, after giving effect to such Restricted Payment, would be greater
than 1.50 to 1.00;
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iii), (v), (vi), (vii) and
(viii), no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and provided further that for
purposes of determining the aggregate amount expended for Restricted
Payments in accordance with clause (b) of the immediately preceding
paragraph, only the amounts expended under clause (i) shall be included.
The Company will not permit any Unrestricted Subsidiary to become a
Restricted Subsidiary except pursuant to the last sentence of the definition of
"Unrestricted Subsidiary." Unrestricted Subsidiaries will not be subject to any
of the restrictive covenants set forth in the Indenture.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED
STOCK. The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, Guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur" and correlatively, an "incurrence" of) any
Indebtedness (including Acquired Indebtedness) or any shares of Disqualified
Stock; provided, however, that the Company or its Restricted Subsidiaries may
incur Indebtedness or issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for the Company and its Restricted Subsidiaries for the most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date of such incurrence would have been
(x) at least 1.75 to 1.0 if such date is prior to , 1998 and (y) 2.0
to 1.0 if such date is on or after , 1998 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 had been
issued, as the case may be, and application of proceeds had occurred at the
beginning of such four-quarter period.
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The foregoing limitations will not apply to:
(a) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness under the Credit Facility and the issuance of letters of
credit thereunder (with letters of credit being deemed to have a principal
amount equal to the maximum face amount thereunder) up to an aggregate
principal amount of $750 million outstanding at any one time, less principal
repayments in accordance with the schedule of required principal repayments
under the Credit Facility in effect at the Issuance Date;
(b) the incurrence by the Company or any of its Restricted Subsidiaries
of any Existing Indebtedness;
(c) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by the Securities or a Subsidiary Guarantee;
(d) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets); provided that, in the case of Indebtedness exceeding $2
million for any such obligation or transaction, such Indebtedness exists at
the date of such purchase or transaction or is created within 180 days
thereafter;
(e) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(f) Guarantees incurred in the ordinary course of business, by the
Company or a Restricted Subsidiary, of Indebtedness of any other Person in
the aggregate not to exceed $15 million outstanding at any time;
(g) Guarantees by the Company or a Restricted Subsidiary of Indebtedness
incurred by a Restricted Subsidiary so long as the incurrence of such
Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture;
(h) Indebtedness arising from Guarantees of Indebtedness of the Company
or any Restricted Subsidiary or other agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than Guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided that the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(i) intercompany Indebtedness between or among the Company and any
Restricted Subsidiaries and Guarantees by a Restricted Subsidiary of the
Company of Indebtedness of any other Restricted Subsidiary of the Company or
the Company;
(j) Hedging Obligations that are incurred (1) for the purpose of fixing
or hedging interest rate risk with respect to any Indebtedness that is
permitted by the terms of the Indenture to be outstanding or (2) for the
purpose of fixing or hedging currency exchange rate risk with respect to any
currency exchanges;
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(k) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(l) Indebtedness not otherwise permitted hereunder in an amount under
this clause (l) not to exceed $150 million at any one time; and
(m) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness which serves to refund, refinance or restructure its
Existing Indebtedness or any other Indebtedness incurred as permitted under
the first paragraph of this covenant and clauses (b), (c), (d), (e), (h),
(j) and (k) above, or any Indebtedness issued to so refund, refinance or
restructure such Indebtedness including additional Indebtedness incurred to
pay premiums and fees in connection therewith (the "Refinancing
Indebtedness") prior to its respective maturity; provided however that such
Refinancing Indebtedness (a) has a Weighted Average Life to Maturity at the
time such Refinancing Indebtedness is incurred which is not less than the
remaining Weighted Average Life to Maturity of Indebtedness being refunded
or refinanced and (b) to the extent such Refinancing Indebtedness refinances
Indebtedness subordinated or pari passu to the Securities, such Refinancing
Indebtedness is subordinated or pari passu to the Securities at least to the
same extent as the Indebtedness being refinanced or refunded; and provided
further that subclauses (a) and (b) of this clause (m) will not apply to any
refunding or refinancing of any Senior Indebtedness.
LIENS. The Indenture will provide that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Subordinated Indebtedness on any asset or property of the Company or such
Restricted Subsidiary, or any income or profits therefrom, or assign or convey
any right to receive income therefrom, unless the Securities are equally and
ratably secured with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. The
Indenture will provide that the Company may not consolidate or merge with or
into or wind up into (whether or not the Company 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, any Person unless (i) the Company is the surviving corporation
or the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition will have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof; (ii) the Person formed by or surviving any
such consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made assumes all the obligations of the Company under the Indenture
pursuant to a supplemental indenture or other documents or instruments in form
reasonably satisfactory to the Trustee under the Securities and the Indenture;
(iii) immediately after such transaction no Default or Event of Default exists;
and (iv) the Company or any Person formed by or surviving any such consolidation
or merger, or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made will, 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 described under "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock." The foregoing provisions shall
not apply to the Merger. Notwithstanding the foregoing clauses (iii) and (iv),
(a) any Restricted Subsidiary may consolidate with, merge into or transfer all
or part of its properties and assets to the Company and (b) the Company may
merge with an Affiliate incorporated solely for the purpose of reincorporating
the Company in another jurisdiction.
TRANSACTIONS WITH AFFILIATES. The Indenture will provide that the Company
will not, and will not permit any of its Restricted Subsidiaries to, sell,
lease, transfer or otherwise dispose of any of its
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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 (each of the foregoing, an "Affiliate
Transaction") involving aggregate consideration in excess of $5 million, unless:
(a) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and
(b) the Company delivers to the Trustee with respect to any Affiliate
Transaction involving aggregate payments in excess of $15 million, a
resolution adopted by a majority of the disinterested directors of the Board
of Directors approving such Affiliate Transaction and set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies
with clause (a) above.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries that are
Subsidiary Guarantors or between or among the Restricted Subsidiaries that are
Subsidiary Guarantors; (ii) Restricted Payments permitted by the provisions of
the Indenture described above under the covenant "--Restricted Payments"; (iii)
the payment of all fees, expenses and other amounts as disclosed in the
proxy/prospectus relating to the Merger; (iv) the payment of customary annual
management, consulting and advisory fees and related expenses to KKR and its
Affiliates; (v) the payment of reasonable and customary regular fees paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary; (vi) the transfer or
provision of inventory, goods or services by the Company or any Restricted
Subsidiary in the ordinary course of business to any Restricted Subsidiary on
terms that are customary in the industry or consistent with past practices;
(vii) payments by the Company or any of its Restricted Subsidiaries to KKR and
its Affiliates made pursuant to any financial advisory, financing, underwriting
or placement agreement or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or divestitures
which are approved by the Board of Directors in good faith; (viii) transactions
in which the Company or any of its Restricted Subsidiaries, as the case may be,
delivers to the holders of the Securities a written opinion of an Independent
Financial Advisor stating that such transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ix) payments or loans to
employees or consultants which are approved by the Board of Directors of the
Company in good faith; (x) any agreement as in effect as of the Issuance Date or
any amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto so long as any such amendment is not
disadvantageous to the Holders of the Securities in any material respect); (xi)
the existence of, or the performance by the Company or any of its Restricted
Subsidiaries of its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the Issuance Date and any similar
agreements which it may enter into thereafter, provided, however, that the
existence of, or the performance by the Company or any Restricted Subsidiaries
of obligations under any future amendment to any such existing agreement or
under any similar agreement entered into after the Issuance Date shall only be
permitted by this clause (xi) to the extent that the terms of any such amendment
or new agreement are not otherwise disadvantageous to the Holders of the
Securities in any material respect; (xii) transactions permitted by, and
complying with, the provisions of the covenant described under "--Merger,
Consolidation, or Sale of All or Substantially All Assets"; and (xiii)
transactions with suppliers or other purchases or sales of goods or services, in
each case in the ordinary course of business (including, without limitation,
pursuant to joint venture agreements) and otherwise in compliance with the terms
of the Indenture which are fair to the Company or its Restricted Subsidiaries,
in the reasonable determination of the Board of Directors of the Company or the
senior management thereof, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture will provide that the Company will not, and will not permit any of its
Restricted Subsidiaries that are not Subsidiary
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Guarantors to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or consensual restriction on the ability of
any such Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or any other
interest or participation in, or measured by, its profits or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries that are Subsidiary Guarantors; or
(c) sell, lease, or transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries that are Subsidiary
Guarantors,
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(1) contractual encumbrances or restrictions in effect on the Issuance
Date, including pursuant to the Credit Facility and its related
documentation;
(2) the Indenture and the Securities;
(3) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any Restricted Subsidiary as in effect at the
time of such acquisition;
(4) by reason of customary non-assignment or subletting provisions in
leases entered into in the ordinary course of business and consistent with
past practices;
(5) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(6) applicable law or any applicable rule or order;
(7) Existing Indebtedness;
(8) other Indebtedness permitted to be incurred subsequent to the
Issuance Date pursuant to the provisions of the covenant described under
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; provided that any such restrictions are ordinary and customary with
respect to the type of Indebtedness being incurred (under the relevant
circumstances);
(9) any Mortgage Financing or Mortgage Refinancing that imposes
restrictions on the real property securing such Indebtedness;
(10) any Permitted Investment;
(11) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
(12) secured Indebtedness otherwise permitted to be incurred pursuant to
the covenants described under "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock" and "--Liens" that limit the right of
the debtor to dispose of the assets securing such Indebtedness;
(13) customary net worth provisions contained in leases and other
agreements entered into in the ordinary course of business;
(14) customary provisions in joint venture agreements and other similar
agreements; and
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(15) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (14) above, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Company's Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the dividend
or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture will
provide that neither the Company nor any Subsidiary Guarantor will, directly or
indirectly, incur any Indebtedness (including Acquired Indebtedness) that is
subordinate in right of payment to any Indebtedness of the Company or such
Subsidiary Guarantor unless such Indebtedness is either (a) pari passu in right
of payment with the Securities or the Subsidiary Guarantee, as the case may be,
or (b) subordinate in right of payment to the Securities, in the same manner and
at least to the same extent as the Securities are subordinate to Senior
Indebtedness.
SEC REPORTS. Under the terms of the Indenture, the Company will file with
the Trustee and provide Holders of Securities, within 15 days after it files
them with the Commission, copies of their annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rule or regulation prescribe) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the Commission, the Indenture will require the Company to continue to file with
the Commission and provide the Trustee and Holders with, without cost to each
Holder, (a) within 90 days after the end of each fiscal year, annual reports on
Form 10-K (or any successor or comparable form) containing the information
required to be contained therein (or required in such successor or comparable
form); (b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, reports on Form 10-Q (or any successor or
comparable form); and (c) promptly from time to time after the occurrence of an
event required to be therein reported, such other reports on Form 8-K (or any
successor or comparable form) containing the information required to be
contained therein (or required in any successor or comparable form); provided,
however, that the Company shall not be so obligated to file such reports with
the Commission if the Commission does not permit such filings. The Company will
in all cases, without cost to each recipient, provide copies of such information
to the Holders of the Securities and, if they are not permitted to file such
reports with the Commission, shall make available such information to
prospective purchasers and to securities analysts and broker-dealers upon their
request.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal or premium, if any, on the
Securities or under any Subsidiary Guarantee;
(ii) default for 30 days or more in the payment when due of interest on
the Securities or under any Subsidiary Guarantee;
(iii) failure by the Company or any Subsidiary Guarantor for 30 days
after receipt of written notice given by the Trustee or the Holders of at
least 30% in principal amount of the Securities then outstanding to comply
with any of its other agreements in the Indenture or the Securities;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any
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of its Restricted Subsidiaries or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries (other than Indebtedness owed
to the Company or a Restricted Subsidiary), whether such Indebtedness or
Guarantee now exists or is created after the Issuance Date, if both (A) such
default either (1) results from the failure to pay any such Indebtedness at
its stated final maturity (after giving effect to any applicable grace
periods) or (2) relates to an obligation other than the obligation to pay
such Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at stated final maturity (after giving effect
to any applicable grace periods), or the maturity of which has been so
accelerated, aggregate $30 million or more at any one time outstanding;
(v) failure by the Company or any of its Significant Subsidiaries that
is a Subsidiary Guarantor to pay final judgments aggregating in excess of
$30 million, which final judgments remain unpaid, undischarged and unstayed
for a period of more than 60 days after such judgment becomes final; or
(vi) certain events of bankruptcy or insolvency with respect to the
Company.
If any Event of Default (other than by reason of bankruptcy or insolvency)
occurs and is continuing under the Indenture, the Trustee or the Holders of at
least 30% in principal amount of the then outstanding Securities may declare the
principal, premium, if any, interest and any other monetary obligations on all
the then outstanding Securities to be due and payable immediately (with respect
to the Discount Debentures, prior to the Full Accretion Date, principal and
interest shall mean the Accreted Value). Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company or any Subsidiary Guarantor that is a
Significant Subsidiary, all outstanding Securities will become due and payable
without further action or notice. Holders of Securities may not enforce the
Indenture or the Securities except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Indenture provides that the Trustee may withhold from Holders of
Securities 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 addition, the
Trustee shall have no obligation to accelerate the Securities if in the best
judgment of the Trustee acceleration is not in the best interest of the Holders
of such Securities.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the then outstanding Securities issued thereunder by notice to the
Trustee may on behalf of the Holders of all of such Securities waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
premium, if any, or the principal of, any such Security held by a non-consenting
Holder.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Company, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or the Subsidiary Guarantors, as such, shall have any liability for any
obligations of the Company or the Subsidiary Guarantors under the Securities,
any Subsidiary Guarantee or the Indenture, as applicable, or for any claim based
on, in respect of, or by reason of such obligations or their creation. Each
Holder of the
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Securities by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Securities
and the Subsidiary Guarantees. 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 is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Subsidiary Guarantors under the
Indenture will terminate (other than certain obligations) and will be released
upon payment in full of all of the Securities. The Company may, at its option
and at any time, elect to have all of its and any Subsidiary Guarantor's
obligations discharged with respect to the outstanding Securities and any
Subsidiary Guarantees ("Legal Defeasance") and cure all then existing Events of
Default except for (i) the rights of holders of outstanding Securities to
receive payments in respect of the principal of, premium, if any, and interest
on such Securities when such payments are due solely out of the trust created
pursuant to the Indenture, (ii) the Company's and any Subsidiary Guarantor's
obligations with respect to Securities concerning issuing temporary Securities,
registration of such Securities, mutilated, destroyed, lost or stolen Securities
and the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and the Company's and any Subsidiary Guarantor's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and any Subsidiary Guarantor 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 Securities. In the event
Covenant Defeasance occurs, certain events (not including non-payment on other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Securities.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Securities,
(i) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Securities, 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 due on the outstanding Securities on the stated maturity
date or on the applicable redemption date, as the case may be, of such
principal, premium, if any, or interest on the outstanding Securities;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (A) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (B)
since the Issuance Date of the Indenture, there has been a change in the
applicable U.S. federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel in the United States shall confirm
that, subject to customary assumptions and exclusions, the Holders of the
outstanding Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such Legal Defeasance and will be
subject to U.S. 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, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Securities will
not recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to such 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;
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(iv) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the date of such
deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any
Subsidiary Guarantor is a party or by which the Company or any Subsidiary
Guarantor is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions 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 under
any applicable U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of
the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Securities issued thereunder, when either (a) all such Securities
theretofore authenticated and delivered (except lost, stolen or destroyed
Securities which have been replaced or paid and Securities for whose payment
money has theretofore been deposited in trust and thereafter repaid to the
Company) have been delivered to the Trustee for cancellation; or (b) (i) all
such Securities not theretofore delivered to such Trustee for cancellation have
become due and payable by reason of the making of a notice of redemption or
otherwise or will become due and payable within one year and the Company has
irrevocably deposited or caused to be deposited with such Trustee as trust funds
in trust an amount of money sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee for
cancellation for principal, premium, if any, and accrued interest to the date of
maturity or redemption; (ii) no Default or Event of Default with respect to the
Indenture or the Securities shall have occurred and be continuing on the date of
such deposit or shall occur as a result of such deposit and such deposit will
not result in a breach or violation of, or constitute a default under, any other
instrument to which the Company is a party or by which it is bound; (iii) the
Company has paid all sums payable by it under such Indenture; and (iv) the
Company has delivered irrevocable instructions to the Trustee under such
Indenture to apply the deposited money toward the payment of such Securities at
maturity or the redemption date, as the case may be. In addition, the Company
must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee
stating that all conditions precedent to satisfaction and discharge have been
satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
Securities issued thereunder or the Subsidiary Guarantees, if any, issued in
connection with the foregoing may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Securities then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Securities), and any existing default or compliance with
any provision of the Indenture, the Securities or the Subsidiary Guarantees, if
any, may be waived with the consent of the
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Holders of a majority in principal amount of the outstanding Securities
(including consents obtained in connection with a tender offer or exchange offer
for the Securities).
The Indenture will provide that without the consent of each Holder affected,
an amendment or waiver may not (with respect to any Securities held by a
nonconsenting Holder of the Securities): (i) reduce the principal amount of the
Securities whose Holders must consent to an amendment, supplement or waiver,
(ii) reduce the principal of or change the fixed maturity of any such Security
or alter or waive the provisions with respect to the redemption of the
Securities (other than provisions relating to the covenants described under
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Security, (iv) waive a Default or Event of
Default in the payment of principal of, premium, if any, or interest on the
Securities (except a rescission of acceleration of the Securities by the Holders
of at least a majority in aggregate principal amount of such Securities and a
waiver of the payment default that resulted from such acceleration), (v) make
any Security payable in money other than that stated in such Securities, (vi)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of such Securities to receive payments of
principal of or premium, if any, or interest on such Securities, or (vii) make
any change in the foregoing amendment and waiver provisions.
The Indenture will provide that, notwithstanding the foregoing, without the
consent of any Holder of Securities, the Company and the Trustee together may
amend or supplement the Indenture, the Securities or the Subsidiary Guarantees,
if any, (i) to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Securities in addition to or in place of certificated Securities,
(iii) to comply with the covenant relating to mergers, consolidations and sales
of assets, (iv) to provide for the assumption of the Company's obligations to
Holders of such Securities, (v) to make any change that would provide any
additional rights or benefits to the Holders of the Securities (including
providing for additional Subsidiary Guarantees pursuant to the Indenture), or
that does not adversely affect the legal rights under the Indenture of any such
Holder, (vi) to add covenants for the benefit of the Holders or to surrender any
right or power conferred upon the Company, or (vii) to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, 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 will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Indenture will provide that the Holders of a majority in principal
amount of the outstanding Securities issued thereunder will 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 will provide 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 person 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 Indenture at the request of any Holder of
such Securities, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
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GOVERNING LAW
The Indenture and the Securities will be, subject to certain exceptions,
governed by and construed in accordance with the internal laws of the State of
New York, without regard to the choice of law rules thereof.
SUBSIDIARY GUARANTEES
At any time commencing one year after the Issuance Date, and at the option
of the Company, the Company's obligations under the Senior Subordinated Notes
may be unconditionally guaranteed on a senior subordinated basis, jointly and
severally (each a "Note Guarantee" and, together, the "Note Guarantees"), by any
Restricted Subsidiary of the Company, now existing or formed hereafter,
designated by the Company pursuant to the terms of the Indenture (each a
"Subsidiary Guarantor" and, together, the "Subsidiary Guarantors"). At any time
commencing one year after the Issuance Date and at the option of the Company,
the Company's obligations under the Discount Debentures may also be
unconditionally guaranteed on a senior subordinated basis, jointly and severally
(each a "Debenture Guarantee" and, together, the "Debenture Guarantees" and,
together with the Note Guarantees, the "Subsidiary Guarantees"), by any
Subsidiary Guarantor designated by the Company pursuant to the terms of the
Indenture. There are currently no Subsidiary Guarantors and the Company has no
present intention to designate any subsidiary as a Subsidiary Guarantor.
Each Subsidiary Guarantee will be a senior subordinated obligation of the
respective Subsidiary Guarantor and Obligations in respect thereof will be pari
passu or senior in right of payment to all Subordinated Indebtedness of the
respective Subsidiary Guarantor. Each Subsidiary Guarantee will be subordinated
to Senior Indebtedness of such Subsidiary Guarantor on a basis substantially
equivalent to the subordination of the Securities to Senior Indebtedness of the
Company. The obligations of each Subsidiary Guarantor, if any, under its
Subsidiary Guarantee will be limited to the extent necessary under any
applicable corporate law to ensure it does not constitute a fraudulent
conveyance under applicable law.
Except for the sale of a Subsidiary Guarantor by way of merger or
consolidation, the Indenture will provide that no Subsidiary Guarantor shall
consolidate with or merge with or into (whether or not such Subsidiary Guarantor
is the surviving Person) another Person, whether or not affiliated with such
Subsidiary Guarantor, unless (i) subject to the provisions of the following
paragraph and certain other provisions of the Indenture, the Person formed by or
surviving any such consolidation or merger (if other than such Subsidiary
Guarantor) assumes all the obligations of such Subsidiary Guarantor pursuant to
a supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Person shall unconditionally guarantee, on a senior subordinated
basis, all of such Subsidiary Guarantor's obligations under such Subsidiary
Guarantor's Subsidiary Guarantee and the Indenture on the terms set forth in the
Indenture; and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
The Indenture will provide that in the event of (i) a sale or other
disposition of all or substantially all of the assets of any Subsidiary
Guarantor or the sale of a Subsidiary Guarantor by way of merger, consolidation
or otherwise, (ii) a Restricted Subsidiary becoming an Unrestricted Subsidiary
pursuant to the terms of the Indenture, (iii) a sale or other disposition of all
of the capital stock of any Subsidiary Guarantor or (iv) if at any time such
Subsidiary Guarantor does not guarantee any Obligations under the Credit
Facility, then such Subsidiary Guarantor shall be released and relieved of any
obligations under its Subsidiary Guarantee; provided that (x) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof, (y) the Net
Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture and (z) if such Subsidiary Guarantor is
to become an Unrestricted Subsidiary, all Investments by the Company or any
other Restricted Subsidiary in such
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Subsidiary Guarantor shall be deemed a Restricted Investment (to the extent not
previously included as a Restricted Investment) made on the date of such
designation in the amount of the book value of such Investment. See
"--Repurchase at Option of Holders--Asset Sales" and "--Certain Covenants--
Restricted Payments." For purposes of the Indenture, any Subsidiary Guarantor
whose guarantee of the Securities is released pursuant to clause (iv) and which
remains a Restricted Subsidiary shall be deemed a Subsidiary Guarantor for all
purposes of the Indenture so long as it remains a Restricted Subsidiary and does
not guarantee any Obligations under the Credit Facility.
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. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"Accreted Value" means, as of any date of determination prior to the Full
Accretion Date, the sum of (a) the initial offering price of each Discount
Debenture and (b) the portion of the excess of the principal amount of each
Discount Debenture over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis at the Discount Debenture Rate per annum of the initial offering price of
the Discount Debentures, compounded semi-annually on each Discount Debenture
Interest Payment Date from the date of issuance of the Discount Debentures
through the date of determination; provided that on and after the Full Accretion
Date the Accreted Value shall be equal to the principal amount of the
outstanding Discount Debenture.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted 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 Restricted Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by 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 beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary (each referred to in this definition as a
"disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions),
in each case, other than:
(a) a disposition of Cash Equivalents or inventory or goods held for
sale in the ordinary course of business or obsolete equipment in the
ordinary course of business consistent with past practices of the Company;
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(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above
under "--Merger, Consolidation or Sale of All or Substantially All Assets"
or any disposition that constitutes a Change of Control pursuant to the
Indenture;
(c) any disposition that is a Restricted Payment or that is a dividend
or distribution permitted under the covenant described above under
"--Restricted Payments" or any Investment that is not prohibited thereunder
or any disposition of cash or Cash Equivalents;
(d) any disposition, or related series of dispositions, of assets with
an aggregate fair market value of less than $1 million;
(e) the lease, assignment of a lease or sub-lease of any real or
personal property in the ordinary course of business;
(f) dispositions, which together with other dispositions, result in Net
Proceeds not to exceed $20 million; or
(g) foreclosures on assets.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet in accordance with GAAP.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations 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, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within one year after the date of acquisition, (vi) investment
funds investing 95% of their assets in securities of the types described in
clauses (i)-(v) above, (vii) readily marketable direct obligations issued by any
state of the United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from either Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group and (viii)
Indebtedness or Preferred Stock issued by Persons with a rating of "A" or higher
from Standard & Poor's Ratings Group or "A2" or higher from Moody's Investors
Service, Inc.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of transactions, of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole;
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
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successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holder and its
Related Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision) of 35% or more of the total
voting power of the Voting Stock of the Company and beneficially owns more
than the Permitted Holder and its Related Parties;
(iii) the first day within any two-year period on which a majority of
the members of the Board of Directors of the Company are not Continuing
Directors; or
(iv) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other
property, other than (A) any such transaction where (1) the outstanding
Voting Stock of the Company is converted into or exchanged for (I) Voting
Stock (other than Disqualified Stock) of the surviving or transferee
corporation and/or (II) cash, securities and other property in an amount
which could be paid by the Company as a Restricted Payment under the
Indenture and (2) the "beneficial owners" of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less
than a majority of the Voting Stock of the surviving or transferee
corporation immediately after such transaction or (B) any such transaction
as a result of which the Permitted Holder or its Affiliates own a majority
of the total Voting Stock and Capital Stock of the surviving or transferee
corporation immediately after the transaction.
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense and other noncash charges (excluding any noncash item that represents an
accrual, reserve or amortization of a cash expenditure for a future period) of
such Person and its Restricted Subsidiaries for such period on a consolidated
basis and otherwise determined in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, the sum
of: (a) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (except to the extent
accrued in a prior period), to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue discount,
non-cash interest payments, the interest component of Capitalized Lease
Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; provided, however, that (i) the Net Income for such period of any
Person that is not a Subsidiary, or is an Unrestricted 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 or other payments paid in
cash (or to the extent converted into cash) to the referent Person or a Wholly
Owned Subsidiary thereof in respect of such period, (ii) the Net Income of any
Person acquired in a pooling of interests transaction shall not be included for
any period prior to the date of such acquisition and (iii) the Net Income for
such period of any Restricted Subsidiary that is not a Subsidiary Guarantor
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of its Net Income is not at
the date of determination permitted without any prior governmental approval
(which has not been obtained) or, directly or
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indirectly, by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, unless such
restriction with respect to the payment of dividends or in similar distributions
has been legally waived.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors who (i) was a member of such Board of Directors on the
Issuance Date or (ii) was nominated for election or elected to such Board of
Directors with, or whose election to such Board of Directors was approved by,
the affirmative vote of a majority of the Continuing Directors who were members
of such Board of Directors at the time of such nomination or election or (iii)
is any designee of the Permitted Holder or its Affiliates or was nominated by
the Permitted Holder or its Affiliates or any designees of the Permitted Holder
or its Affiliates on the Board of Directors.
"Credit Facility" means, that certain credit facility, dated as of
, 1995, among the Company and the lenders thereto, including any related
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and such Credit Facility shall include any amendment,
extension, renewal, restatement or refunding thereof or any credit facility that
replaces, refunds or refinances any part of the loans or commitments thereunder.
"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 any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is puttable or 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 Senior Subordinated Note
Maturity Date (in the case of the Senior Subordinated Notes) or the Discount
Debenture Maturity Date (in the case of the Discount Debentures); provided,
however, that if such Capital Stock is either (i) redeemable or repurchaseable
solely at the option of such Person or (ii) issued to employees of the Company
or its Subsidiaries or to any plan for the benefit of such employees, such
Capital Stock shall not constitute Disqualified Stock unless so designated.
"EBITDA" 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 Asset Sale
(to the extent such losses were deducted in computing Consolidated Net Income),
plus (b) provision for taxes based on income or profits of such Person for such
period deducted in computing Consolidated Net Income and any provision for taxes
utilized in computing net loss under clause (a), plus (c) Consolidated Interest
Expense of such Person for such period, plus (d) Consolidated Depreciation and
Amortization Expense of such Person for such period to the extent such
depreciation and amortization were deducted in computing Consolidated Net
Income, in each case, on a consolidated basis for such Person and its Restricted
Subsidiaries and otherwise determined in accordance with GAAP, plus (e) LIFO
charges (credit) of such Person and its consolidated Subsidiaries for such
period, plus (f) the amount of any restructuring charge or reserve recorded
during such period in accordance with GAAP, including any reserve or charge
related to the Merger, plus (g) without duplication, any other non-cash charges
reducing Consolidated Net Income for such period (excluding any such charge
which requires an accrual of a cash reserve for anticipated cash charges for any
future period), less, without duplication, (h) non-cash items increasing
Consolidated Net Income of such Person for such period (excluding any items
which represent the reversal of any accrual of, or cash reserve for, anticipated
cash charges in any prior period) in each case determined in accordance with
GAAP, less (i) the amount of all cash payments made by such Person or its
Restricted Subsidiaries during such period to the extent that such cash payment
has been provided for in a restructuring charge or reserve referred to in clause
(f) above (and was not otherwise deducted in the computation of Consolidated Net
Income of such Person for such period).
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"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 the Company or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Securities as described
in this Prospectus Supplement until such amounts are repaid.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
(other than revolving credit borrowings with respect to which the related
commitment remains outstanding) or issues or redeems Preferred Stock 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 Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of Preferred Stock, as if the same had occurred at the beginning of
the applicable four-quarter period. For purposes of making the computation
referred to above, Investments, acquisitions, dispositions which constitute all
or substantially all of an operating unit of a business and discontinued
operations (as determined in accordance with GAAP) that have been made by the
Company or any of its Restricted Subsidiaries, including all mergers,
consolidations and dispositions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, discontinued operations, mergers, consolidations
(and the reduction of any associated fixed charge obligations resulting
therefrom) had occurred on the first day of the four-quarter reference period.
If since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Investment,
acquisition, disposition which constitutes all or substantially all of an
operating unit of a business, discontinued operation, merger or consolidation
that would have required adjustment pursuant to this definition, then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect thereto for
such period as if such Investment, acquisition, disposition, discontinued
operation, merger or consolidation had occurred at the beginning of the
applicable four-quarter period. For purposes of this definition, whenever pro
forma effect is to be given to a transaction, the pro forma calculations shall
be made in good faith by a responsible financial or accounting officer of the
Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated as
if the rate in effect on the Calculation Date had been the applicable rate for
the entire period (taking into account any Hedging Obligations applicable to
such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed
to accrue at an interest rate reasonably determined by a responsible financial
or accounting officer of the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP. Interest on Indebtedness
that may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rate,
shall be deemed to have been based upon the rate actually chosen, or, if none,
then based upon such optional rate chosen as the Company may designate.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of Preferred Stock of such Person.
"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 have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date. For the purposes of the
Indenture, the term
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"consolidated" with respect to any Person shall mean such Person consolidated
with its Restricted Subsidiaries, and shall not include any Unrestricted
Subsidiary.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a holder of the Securities.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (iii) representing the
balance deferred and unpaid of the purchase price of any property (including
Capitalized Lease Obligations), except any such balance that constitutes an
accrued expense or trade payable or any other monetary obligation of a trade
creditor (whether or not an Affiliate), or (iv) representing any Hedging
Obligations, if and to the extent of any of the foregoing Indebtedness (other
than letters of credit and Hedging Obligations) that would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP, (b) to the
extent not otherwise included, any obligation by such Person to be liable for,
or to pay, as obligor, guarantor or otherwise, on the Indebtedness of another
Person (other than by endorsement of negotiable instruments for collection in
the ordinary course of business) and (c) to the extent not otherwise included,
Indebtedness of another Person secured by a Lien on any asset owned by such
Person (whether or not such Indebtedness is assumed by such Person).
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the judgment of the
Company's Board of Directors, qualified to perform the task for which it has
been engaged.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
Guarantees), advances or capital contributions (excluding advances to customers,
commission, travel 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 issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other
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investments included in this definition to the extent such transactions involve
the transfer of cash or other property.
"Issuance Date" means the closing date for the sale and original issuance of
the Securities under the Indenture.
"Letter of Credit Obligations" means Indebtedness of the Company or any of
its Restricted Subsidiaries with respect to letters of credit issued pursuant to
the Credit Facility which shall be deemed to consist of (a) the aggregate
maximum amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), and (b) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit.
"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 financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction); provided that in
no event shall an operating lease be deemed to constitute a Lien.
"Mortgage Financing" means the incurrence by the Company or a Subsidiary of
the Company of any Indebtedness secured by a mortgage or other Lien on real
property acquired or improved by the Company or any Subsidiary of the Company
after the date of the Indenture.
"Mortgage Refinancing" means the incurrence by the Company or a Subsidiary
of the Company of any Indebtedness secured by a mortgage or other Lien on real
property subject to a mortgage or other Lien existing on the date of the
Indenture or created or incurred subsequent to the date of the Indenture as
permitted by the terms of the Indenture and owned by the Company or any
Subsidiary of the Company.
"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 or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition of any
capital stock or marketable securities.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted 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 brokerage 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 principal, premium (if any) and interest on Indebtedness
required (other than required by clause (i) of the second paragraph of
"--Repurchase at the Option of Holders--Asset Sales") to be paid as a result of
such transaction and any deduction of appropriate amounts to be provided by the
Company as a reserve in accordance with GAAP against any liabilities associated
with the asset disposed of in such transaction and retained by the Company after
such sale or other disposition thereof, including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
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"Officers' Certificate" means a certificate signed on behalf of the Company
or a Subsidiary Guarantor, as the case may be, by two officers of the Company or
a Subsidiary Guarantor, as the case may be, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company or a Subsidiary Guarantor, as the
case may be, that meets the requirements set forth in the Indenture.
"Pari Passu Indebtedness" means Indebtedness which ranks pari passu in right
of payment to the Securities or Subsidiary Guarantees in respect thereof,
including without limitation, the Senior Subordinated Notes and the Discount
Debentures.
"Permitted Holder" means Crimson Associates and any of its Affiliates.
"Permitted Investments" means (a) any Investments in the Company or any
Restricted Subsidiary that is a Subsidiary Guarantor; (b) any Investments in
cash and Cash Equivalents; (c) Investments by the Company or any Restricted
Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Restricted Subsidiary that is a Subsidiary Guarantor or
(ii) such Person, in one transaction or a series of related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary that is a Subsidiary Guarantor; (d) any Related Business
Investment; (e) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of "--Repurchase at the Option of Holders--Asset Sales" or any other
disposition of assets not constituting an Asset Sale; (f) Investments existing
on the Issue Date; (g) any transaction to the extent it constitutes an
Investment that is permitted by and made in accordance with the provisions of
the second paragraph of the covenant described under "--Certain
Covenants--Transactions with Affiliates" (except transactions described in
clauses (ii) and (viii) of such paragraph); (h) Investments by Restricted
Subsidiaries that are Subsidiary Guarantors in other Restricted Subsidiaries
that are Subsidiary Guarantors and Investments by Subsidiaries which are not
Restricted Subsidiaries in other Subsidiaries which are not Restricted
Subsidiaries; (i) advances to employees not in excess of $10 million outstanding
at any one time; (j) Obligations or Equity Interests received in connection with
any good faith settlement or bankruptcy proceeding; (k) Hedging Obligations; (l)
Investments by the Company or any Restricted Subsidiary consisting of the
transfer, assignment or other disposition of any property, lease or other asset
in existence on the Issuance Date and used primarily in the operations of Piggly
Wiggly to a Restricted Subsidiary; (m) Investments by the Company or any
Restricted Subsidiary in Restricted Subsidiaries that are not Subsidiary
Guarantors in an aggregate amount not to exceed $15 million at any one time
outstanding; and (n) additional Investments in an aggregate amount not exceeding
$25 million.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Principal Business" means the supermarket and retail and wholesale food
sale and distribution business and any activity or business incidental, directly
related or similar thereto, or any business or activity that is a reasonable
extension, development or expansion thereof or ancillary thereto.
"Related Business Investment" means (i) any Investment by a Person in any
other Person that is not a Subsidiary of the Company and a majority of whose
revenues are derived from the operation of one or more retail grocery stores or
supermarkets or any other line of business engaged in by the Company or any of
its Subsidiaries as of the Issuance Date or in the business of owning and/or
leasing real estate related to such activities; (ii) any Investment by such
Person in any cooperative or other
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supplier, including, without limitation, any joint venture which is intended to
supply any product or service useful to the business of the Company and its
Subsidiaries as it is conducted as of the Issuance Date and as such business may
thereafter evolve or change, and any capital expenditure or Investment, in each
case reasonably related to the business of the Company and its Subsidiaries as
it is conducted as of the Issuance Date and as such business may thereafter
evolve or change; and (iii) any Investment in PM Associates or any successor
thereto by way of merger, consolidation, combination or the sale of all or
substantially all of its assets; provided that such Investment is for the
purpose of the activities described in clause (i).
"Related Parties" means any Person controlled by the Permitted Holder,
including any partnership of which the Permitted Holder or its Affiliates is the
general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or any
portion of a Holder's Senior Subordinated Notes or Discount Debentures, as the
case may be, pursuant to the provisions described under the covenants entitled
"--Repurchase at the Option of Holders--Change of Control" or "--Repurchase at
the Option of Holders--Asset Sales."
"Restricted Investment" means (i) an Investment other than a Permitted
Investment, (ii) any sale, conveyance, lease, transfer or other disposition of
assets at less than fair market value to an Unrestricted Subsidiary, provided
that the amount of such Restricted Investment under this clause (ii) shall be
such difference in value or (iii) the designation of a Restricted Subsidiary to
be an Unrestricted Subsidiary, provided that the amount of such Restricted
Investment under this clause (iii) should be the portion (proportionate to the
Company's direct or indirect equity interest in such Subsidiary) of the book
value of the shareholders' investment (excluding retained earnings) set forth on
the balance sheet of such Subsidiary in accordance with GAAP as of the most
recently ended fiscal quarter for which internal financial statements are
available.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; provided,
however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be
an Unrestricted Subsidiary, such Subsidiary shall be included in the definition
of "Restricted Subsidiary."
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issuance
Date.
"Subordinated Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries which is expressly by its terms subordinated in
right of payment to any other Indebtedness.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) 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 of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership of
which more than 50% of the partnership's capital accounts, distribution rights
or general or limited partnership interests are owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person or a combination thereof.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any Subsidiary and any newly
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acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such subsidiary owns any Equity Interests of, or owns, or holds any Lien on, any
property of, any Subsidiary of the Company (other than any Subsidiary of the
Subsidiary to be so designated), provided that (a) any Unrestricted Subsidiary
must be an entity of which shares of the capital stock or other equity interests
(including partnership interests) entitled to cast at least a majority of the
votes that may be cast by all shares or equity interests having ordinary voting
power for the election of directors or other governing body are owned, directly
or indirectly, by the Company, (b) the Company certifies that such designation
complies with the covenants described under "--Certain Covenants--Restricted
Payments" and (c) each of (I) the Subsidiary to be so designated and (II) its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that, immediately after giving effect to
such designation, the Company could incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test described under
"--Certain Covenants--Limitations on Incurrence of Indebtedness and Disqualified
Stock" on a pro forma basis taking into account such designation.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the number of years
obtained by dividing (a) the sum of the products obtained by multiplying (x) the
amount of each then remaining installment, sinking fund, serial maturity or
other 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,
by (b) the then outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Stock, as the case may be.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
95% 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 and one or
more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF THE CREDIT FACILITY
In connection with the Merger, the Company will enter into the Credit
Facility which will be comprised of a Term Loan Facility and a Revolving Credit
Facility. The following summary of certain provisions of the Credit Facility is
generalized, does not purport to be complete, and is subject to and is qualified
in its entirety by reference to the provisions of the Credit Facility, a copy of
which will be filed as an exhibit to the Registration Statement of which this
Prospectus Supplement is a part. Capitalized terms that are used but not
otherwise defined herein shall have the meanings assigned to them in the Credit
Facility and those definitions are incorporated herein by reference.
General. The Credit Facility will consist of a $550.0 million Term Loan
Facility and a $100.0 million 78-month Revolving Credit Facility. The Term Loan
Facility is comprised of $325.0 million of Tranche A Term Loans amortizing over
78 months, $75.0 million of Tranche B Term Loans amortizing over 90 months,
$75.0 million of Tranche C Term Loans amortizing over 102 months, and $75.0
million of Tranche D Term Loans amortizing over 114 months. Up to $50.0 million
of the Revolving Credit Facility will be available for the issuance of letters
of credit and up to $25.0 million of the Revolving Credit Facility will be
available for short-term borrowings in lower minimum amounts (the "Swingline
Loans").
The proceeds of the Credit Facility will be used to finance certain amounts
payable by the Company in connection with the Merger and to refinance certain
existing debt of the Company. The Revolving Credit Facility, in addition to
being drawn upon to pay certain amounts in connection with the Merger, will be
available for general corporate purposes after the Merger.
Interest Rate; Fees. Borrowings made as: (i) Revolving Credit Loans,
Swingline Loans and Tranche A Term Loans will bear interest at a rate equal to
the eurodollar rate (as adjusted) plus 2.50% or the prime rate (as adjusted)
plus 1.50%; (ii) Tranche B Term Loans will bear interest at a rate equal to the
eurodollar rate (as adjusted) plus 3.00% or the prime rate (as adjusted) plus
2.00%; (iii) Tranche C Term Loans will bear interest at a rate equal to the
eurodollar rate (as adjusted) plus 3.50% or the prime rate (as adjusted) plus
2.50%; and (iv) Tranche D Term Loans will bear interest at a rate equal to the
eurodollar rate (as adjusted) plus 4.00% or the prime rate (as adjusted) plus
3.00%. Overdue amounts will bear interest at the applicable interest rate plus
2.00% per annum.
The Company will pay a commitment fee calculated at a rate equal to 1/2 of
1.00% per annum of the available unused Revolving Credit Commitments in effect
on such day. Such a fee will be payable on the Bank Closing, quarterly in
arrears after the Bank Closing and on the Final Date.
The Company will pay a letter of credit fee calculated at a rate equal to
2.375% per annum of the face amount of each letter of credit and a fronting fee
calculated at a rate equal to 0.125% per annum of the face amount of each letter
of credit. Such fees will be payable in arrears at the end of each quarter and
upon the termination of the Credit Facility. In addition, the Company will pay
customary administrative charges in connection with the letters of credit.
The applicable interest rate for Revolving Credit Loans, Swingline Loans and
Tranche A Term Loans and the above fees will be reduced if the Company satisfies
certain financial performance tests.
Amortization; Prepayments. The final scheduled maturity of the Tranche A
Term Loans will be the date that is six years and six months after the Bank
Closing, and such loans will be subject to interim scheduled amortization in the
amounts of (i) $25.0 million on the date that is twelve months after the Bank
Closing, (ii) $25.0 million on the date that is twenty-four months after the
Bank Closing, (iii) in equal semi-annual installments totalling $40.0 million in
the third year after the Bank Closing, (iv) in equal semi-annual installments
totalling $50.0 million in the fourth year after the Bank Closing, (v) in equal
semi-annual installments totalling $75.0 million in each of the fifth and sixth
years after the Bank Closing and (vi) $35.0 million in the final six months
prior to final maturity of the Tranche A Term
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Loans. The final scheduled maturity of the Tranche B Term Loans will be the date
that is seven years and six months after the Bank Closing, and such loans will
be subject to interim scheduled amortization (i) in equal semi-annual
installments totalling $1.0 million in each of the first six years after the
Bank Closing and (ii) in equal semi-annual installments totalling $69.0 million
in the final 18 months prior to final maturity of the Tranche B Term Loans. The
final scheduled maturity of the Tranche C Term Loans will be the date that is
eight years and six months after the Bank Closing, and such loans will be
subject to interim scheduled amortization (i) in equal semi-annual installments
totalling $1.0 million in each of the first seven years after the Bank Closing
and (ii) in semi-annual installments totalling $68.0 million in the final 18
months prior to final maturity of the Tranche C Term Loans. The final scheduled
maturity of the Tranche D Term Loans will be the date that is nine years and six
months after the Bank Closing, and such loans will be subject to interim
scheduled amortization (i) in equal semi-annual installments totalling $1.0
million in each of the first eight years after the Bank Closing and (ii) in
semi-annual installments totalling $67.0 million in the final 18 months prior to
final maturity of the Tranche D Term Loans. The commitments under the Revolving
Credit Facility terminate approximately six years and six months after the Bank
Closing.
The Company will be required to make certain mandatory prepayments with (i)
100% of the Net Cash Proceeds from sales or other dispositions of property not
in the ordinary course of business or the incurrence of indebtedness, subject to
certain exceptions, and (ii) 50% of the Excess Cash Flow for each fiscal year.
Such mandatory prepayments will be allocated among the tranches of the Term Loan
Facility on a pro rata basis. However, each Lender under the Tranche B Term
Loans, the Tranche C Term Loans and Tranche D Term Loans will have the right to
refuse any such prepayment and 50% of any prepayment so refused will be applied
to the Tranche A Term Loans and the remaining 50% may be retained by the
Company. Optional prepayments will be permitted without premium or penalty.
Guarantees; Security. All obligations of the Company under the Credit
Facility will be guaranteed by existing and subsequently formed or acquired
domestic Subsidiaries of the Company.
The Credit Facility and the related Guarantees will be secured by a
perfected first priority pledge of and security interest in (i) all of the
common stock owned by the Company in each existing and subsequently formed or
acquired direct domestic Subsidiary of the Company and (ii) 65% of the common
stock owned by the Company in each existing and subsequently formed or acquired
direct foreign Subsidiary of the Company.
Certain Covenants. The Credit Facility contains numerous operating and
financial covenants, including, without limitation, requirements to maintain
ratios of earnings to interest and fixed charges and maximum levels of
indebtednes in relation to earnings. In addition, the Credit Facility includes
customary covenants relating to the delivery of financial statements, reports,
notices, and other information, access to information and properties,
maintenance of insurance, payment of taxes, maintenance of assets, nature of
business, corporate existence and rights, compliance with applicable laws,
transactions with affiliates, use of proceeds, limitations on indebtedness,
limitations on liens, limitations on certain mergers and sales of assets,
limitations on investments, limitations on dividends and other distributions and
limitations on debt payments, including prepayment or redemption of the
Securities.
Events of Default. The Credit Facility contains certain events of default
after expiration of applicable grace periods, including failure to make payments
under the Credit Facility, breach of representations and warranties, breach of
covenants, default under other agreements or conditions relating to
indebtedness, certain events of insolvency or bankruptcy with respect to the
Company or any Specified Subsidiary, certain ERISA violations, invalidity or
disaffirmance of the Guarantee or any Pledge Agreement, certain judgements and
certain events relating to changes in control of the Company.
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Upon the occurrence of an Event of Default, the Administrative Agent or the
Lenders may terminate the Commitments, declare all amounts under the Credit
Facility to be due and payable and take certain other actions.
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain material United States ("U.S.")
federal income tax consequences relevant to the purchase, ownership and
disposition of Securities as of the date hereof. Unless otherwise indicated,
this summary deals only with United States Holders who acquire Securities
pursuant to the original issuance of such Securities by the Company and who hold
such Securities as capital assets. The following discussion does not purport to
deal with all aspects of U.S. federal income taxation that may be relevant to
such holders, nor does it address U.S. federal income tax consequences which may
be relevant to certain types of holders, such as dealers in securities or
currencies, financial institutions, life insurance companies, persons holding
Securities as a part of a hedging or conversion transaction or a straddle or
United States Holders whose "functional currency" is not the U.S. dollar, that
are subject to special treatment under the Code. Furthermore, the discussion
below is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations, rulings and judicial decisions thereunder
as of the date hereof, and such authorities may be repealed, revoked or modified
so as to result in U.S. federal income tax consequences different from those
discussed below. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF
SECURITIES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
As used herein, a "United States Holder" of a Security means a holder that
is a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source. A
"Non-United States Holder" is any holder that is not a United States Holder.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST AND ORIGINAL ISSUE DISCOUNT
Senior Subordinated Notes. Interest on a Senior Subordinated Note generally
will be taxable to a United States Holder as ordinary income at the time it is
paid or accrued in accordance with the United States Holder's method of
accounting for tax purposes.
Discount Debentures. The Discount Debentures will be issued with original
issue discount ("OID") within the meaning of Section 1273(a) of the Code. The
amount of such OID will equal the difference between (i) the sum of all amounts
payable on the Discount Debentures (including the interest payable on such
debentures) and (ii) the "issue price" of the Discount Debentures. The "issue
price" of the Discount Debentures will be the first price at which a substantial
amount of the Discount Debentures is sold (excluding sales to bond houses,
brokers or similar persons acting in the capacity of underwriter, placement
agent or wholesaler).
A United States Holder of the Discount Debentures must include such OID in
income on an economic accrual basis (using the constant-yield-to-maturity method
of accrual described in Section 1272(a) of the Code) and in advance of the
receipt of the cash to which such OID is attributable, regardless of such
holder's method of tax accounting. Under that method, a United States Holder
generally will have to include in income increasingly greater amounts of OID in
successive accrual periods. The Company is required to provide information
returns stating the amount of OID accrued on Discount Debentures held of record
by persons other than corporations and other exempt holders.
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In addition, if the yield-to-maturity on the Discount Debentures equals or
exceeds the sum of (x) the "applicable federal rate" (as determined under
Section 1274(d) of the Code) in effect for the month in which the Discount
Debentures are issued (the "AFR") and (y) 5%, the Discount Debentures will be
considered "applicable high yield discount obligations" under Section 163(i) of
the Code. Consequently, the Company will not be allowed to take a deduction for
interest (including OID) accrued on the Discount Debentures for U.S. federal
income tax purposes until such time as the Company actually pays such interest
(including OID) in cash or in other property (other than stock or debt of the
Company or a person deemed to be related to the Company under Section 453(f)(1)
of the Code).
Moreover, if the yield-to-maturity on the Discount Debentures exceeds the
sum of (x) the AFR and (y) 6% (such excess shall be referred to hereinafter as
the "Disqualified Yield"), the deduction for interest (including OID) accrued on
the Discount Debentures will be permanently disallowed (regardless of whether
the Company actually pays such interest or OID in cash or in other property) for
U.S. federal income tax purposes to the extent such interest or OID is
attributable to the Disqualified Yield on the Discount Debentures
("Dividend-Equivalent Interest"). For purposes of the dividends-received
deduction, such Dividend-Equivalent Interest will be treated as a dividend to
the extent it is deemed to have been paid out of the Company's current or
accumulated earnings and profits. Accordingly, a United States Holder of a
Discount Debenture that is a corporation may be entitled to take a dividends-
received deduction with respect to any Dividend-Equivalent Interest received by
such corporate holder on such Discount Debenture.
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF SECURITIES
A United States Holder will recognize gain or loss on the sale, retirement
or other taxable disposition of a Security equal to the difference between the
amount realized by the United States Holder upon such sale, retirement or
disposition (less any portion of such amount that is allocable to accrued
interest or OID, which amount generally will be taxable to a Holder as ordinary
income) and the United States Holder's adjusted tax basis in such Security. Such
gain or loss will be capital gain or loss and will be long-term capital gain or
loss if at the time of such sale, retirement or disposition, the United States
Holder held the Security for more than one year. Under current law, net capital
gains of individuals are, under certain circumstances, taxed at lower rates than
items of ordinary income. The deductibility of capital losses is subject to
limitations.
NON-UNITED STATES HOLDERS
U.S. Withholding Taxes. Subject to the discussion of backup withholding set
forth below, payments of principal, premium, if any, and interest (including
OID) on the Securities to a Non-United States Holder who is the beneficial owner
of a Security will not be subject to the 30% U.S. withholding tax; provided, in
the case of a payment of premium, if any, and interest (including OID) that (i)
the beneficial owner of the Note does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of section 871(h)(3) of the Code and the
regulations thereunder, (ii) such beneficial owner is not a controlled foreign
corporation that is related to the Company through stock ownership, (iii) such
beneficial owner is not a bank whose receipt of interest on a Security is
described in section 881(c)(3)(A) of the Code and (iv) such beneficial owner
satisfies the statement requirement (described generally below) set forth in
section 871(h) (in the case of individuals) or section 881(c) (in the case of
foreign corporations) of the Code and the regulations thereunder.
To satisfy the statement requirement referred to in (iv) above, the
beneficial owner of a Security, or a financial institution holding the Security
on behalf of such owner, must provide, in accordance with specified procedures,
the Company or its paying agent, as the case may be, with a statement to the
effect that the beneficial owner is not a U.S. person. Pursuant to current
temporary Treasury regulations,
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those requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a U.S. person
(which certification may be made on an Internal Revenue Service Form W-8 (or
successor form)) or (2) a financial institution holding the Security on behalf
of the beneficial owner certifies, under penalties of perjury, that such
statement has been received by it and furnishes the Company or its paying agent,
as the case may be, with a copy thereof.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described above, payments of premium, if any, and
interest (including OID) made to Non-U.S. Holders by the Company (or its paying
agent) with respect to the Securities will be subject to a 30% U.S. withholding
tax unless the beneficial owner of the Security provides the Company or its
paying agent, as the case may be, with, and keeps current, (i) a properly
executed Internal Revenue Service Form 1001 (or successor form) claiming an
exemption from U.S. withholding tax under a U.S. income tax treaty or (ii) a
properly executed Internal Revenue Service Form 4224 (or successor form)
claiming such premium and/or interest is exempt from U.S. withholding tax
because such premium and/or interest is effectively connected with the conduct
of a U.S. trade or business by the Non-U.S. Holder.
No U.S. withholding taxes will be imposed on any gain realized by a Non-U.S.
Holder upon the sale, retirement or other taxable disposition of its Securities.
U.S. Federal Income Taxes. If a Non-United States Holder of a Security is
engaged in a trade or business in the United States and premium, if any, or
interest (including OID) paid on such Security is effectively connected with the
conduct of such U.S. trade or business, the Non-United States Holder, although
exempt from the U.S. withholding tax discussed above, will be subject to U.S.
federal income tax on such effectively connected income on a net income basis in
the same manner as if such Holder were a United States Holder. See "United
States Holders" above. In addition, if such Non-United States Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such premium, if any, and interest (including
OID) will be included in such foreign corporation's effectively connected
earnings and profits.
Any gain realized by a Non-United States Holder on the sale, retirement or
other taxable disposition of a Security generally will not be subject to U.S.
federal income tax unless (i) such gain is effectively connected with a trade or
business carried on in the U.S. by such Non-United States Holder, or (ii) in the
case of a Non-United States Holder who is an individual, such individual is
present in the United States for 183 days or more in the taxable year of such
sale, retirement or disposition, and certain other conditions are met.
U.S. Estate Taxes. A Security beneficially owned by an individual who is a
Non-United States Holder at the time of his or her death generally will not be
subject to U.S. federal estate tax as a result of such individual's death,
provided that (i) such individual does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of section 871(h)(3) of the Code, and (ii)
interest payments (including payments of OID) with respect to such Security
would not have been, if received at the time of such individual's death,
effectively connected with the conduct of a U.S. trade or business by such
individual.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium paid on Securities and to the
proceeds of sale of a Security made to United States Holders other than certain
exempt recipients (such as corporations). A 31% backup withholding tax will
apply to such payments if the United States Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status or
fails to report in full dividend and interest income.
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No information reporting or backup withholding will be required with respect
to payments made by the Company or any paying agent to Non-United States Holders
if a statement described in (iv) under "--Non-United States Holders--U.S.
Withholding Taxes" has been received and the payor does not have actual
knowledge that the beneficial owner is a United States Person.
In addition, backup withholding and information reporting will not apply if
payments of principal, interest, OID or premium on a Security are paid or
collected by a foreign office of a custodian, nominee or other foreign agent on
behalf of the beneficial owner of such Security, or if a foreign office of a
broker (as defined in applicable Treasury regulations) pays the proceeds of the
sale of a Security to the owner thereof. If, however, such nominee, custodian,
agent or broker is, for United States federal income tax purposes, a U.S.
Person, a controlled foreign corporation or a foreign person that derives 50% or
more of its gross income for certain periods from the conduct of a trade or
business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
custodian, nominee, agent or broker has documentary evidence in its records that
the beneficial owner is not a U.S. Person and certain other conditions are met
or (2) the beneficial owner otherwise establishes an exemption. Temporary
Treasury regulations provide that the Treasury is considering whether backup
withholding will apply with respect to such payments of principal, interest or
the proceeds of a sale that are not subject to backup withholding under the
current regulations. Under proposed Treasury regulations not currently in
effect, backup withholding will not apply to such payments absent actual
knowledge that the payee is a United States Person.
Payments of principal, interest, OID and premium on a Security paid to the
beneficial owner of a Security by a United States office of a custodian, nominee
or agent, or the payment by the United States office of a broker of the proceeds
of sale of a Security, will be subject to both backup withholding and
information reporting unless the beneficial owner provides the statement
referred to in (iv) above and the payor does not have actual knowledge that the
beneficial owner is a United States Person or otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such Holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among the Company, BT Securities Corporation ("BT
Securities"), Chemical Securities Inc. ("Chemical Securities") and Salomon
Brothers Inc ("Salomon Brothers", and together with BT Securities and Chemical
Securities, the "Underwriters"), the Underwriters have agreed to purchase from
the Company, and the Company has agreed to sell to the Underwriters, the entire
principal amount of the Securities offered hereby.
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the Securities are subject to the approval of
certain legal matters by counsel and to various other conditions. The nature of
each Underwriter's obligations under the Underwriting Agreement is such that
each is severally committed to purchase the aggregate principal amount of the
Securities set forth opposite its name if any Securities are purchased.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF SENIOR AMOUNT OF
UNDERWRITER SUBORDINATED NOTES DISCOUNT DEBENTURES
- ---------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
BT Securities Corporation................................. $ $
Chemical Securities Inc...................................
Salomon Brothers Inc......................................
------------------ ----------
Total............................................... $250,000,000 $
------------------ ----------
------------------ ----------
</TABLE>
The Underwriters propose to offer the Securities directly to the public at
the public offering price set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such prices less a concession not in
excess of $ per $1,000 principal amount of the Securities. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $
per $1,000 principal amount of the Securities. After the initial public offering
of the Securities, the public offering price and other selling terms may be
changed by the Underwriters.
The Company does not intend to apply for listing of the Securities on a
national securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Underwriters have advised the Company that they currently intend to make a
market in the Securities, but are not obligated to do so and may discontinue any
such market making at any time without notice. Accordingly, there can be no
assurance that an active trading market will develop for, or as to the liquidity
of, the Securities.
The Company has been informed by the Underwriters that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority
without prior specific written consent.
The Company has agreed to indemnify the Underwriters against certain
liabilities and expenses, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
BT Securities is an affiliate of Bankers Trust Company, which will be a lead
manager under the Credit Facility. BT Securities is a wholly-owned subsidiary of
Bankers Trust New York Corporation, which has an indirect beneficial interest,
through certain limited partnerships organized by KKR, of less than 2% of the
Common Stock of the Company. Chemical Bank, an affiliate of Chemical Securities,
will be the administrative agent for the lenders and a lender under the Credit
Facility. In addition, an affiliate of Chemical Securities Inc. has an indirect
beneficial interest, through certain limited partnerships organized by KKR, of
approximately 1% of the Common Stock of the Company. See "Description of Credit
Facility."
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LEGAL MATTERS
Certain legal matters relating to the Offering will be passed upon for the
Company by Sirote & Permutt, P.C., Birmingham, Alabama. Certain legal matters
with respect to the Securities offered hereby will be passed upon for the
Underwriters by Latham & Watkins, New York, New York. As to matters of New York
law, Sirote & Permutt, P.C. will rely on the opinion of Simpson Thacher &
Bartlett, New York, New York (a partnership which includes professional
corporations). Latham & Watkins has in the past provided, and may continue to
provide, legal services to KKR, Crimson Associates, Crimson and their
affiliates. As of July 11, 1995, lawyers of Sirote & Permutt, P.C. who have
participated in the preparation of the Prospectus Supplement and/or serve as
members of the Board of Directors of the Company beneficially own 49,915 shares
of Common Stock of the Company individually or in various fiduciary capacities.
Although other members of that firm may also own securities of the Company, no
inquiry as to this has been made.
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FOR CALIFORNIA RESIDENTS ONLY
IN THE EVENT THAT ANY OF THE SECURITIES OF BRUNO'S, INC. ARE OFFERED HEREBY TO
CALIFORNIA RESIDENTS, SUCH SECURITIES MAY BE SOLD ONLY TO THE FOLLOWING
INDIVIDUALS: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF REGULATION D UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, (2) BANKS, SAVINGS AND LOAN
ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT SHARING
TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR
OTHER ENTITY'S AFFILIATES WHICH ARE UNDER COMMON CONTROL, HAVE A NET WORTH ON A
CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL
STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY AUDITED, BY
OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE
FOREGOING OR (3) PERSONS WHO HAVE EITHER: (I) A NET WORTH (EXCLUSIVE OF HOME,
HOME FURNISHINGS AND AUTOMOBILES) OF AT LEAST $250,000 AND AN ANNUAL GROSS
INCOME OF AT LEAST $75,000, OR (II) IRRESPECTIVE OF ANNUAL GROSS INCOME, A NET
WORTH OF AT LEAST $500,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS AND
AUTOMOBILES).
<PAGE>
PROSPECTUS
BRUNO'S, INC.
DEBT SECURITIES
COMMON STOCK
WARRANTS
Bruno's, Inc. (the "Company") intends to issue from time to time in one or
more series its (i) unsecured debt securities, which may either be senior (the
"Senior Debt Securities") or subordinated (the "Subordinated Debt Securities";
the Senior Debt Securities and the Subordinated Debt Securities being referred
to collectively as the "Debt Securities"), (ii) warrants to purchase the Debt
Securities (the "Debt Warrants"), (iii) shares of common stock, par value $.01
per share (the "Common Stock"), and (iv) warrants to purchase shares of Common
Stock ("Common Stock Warrants"; the Debt Warrants and Common Stock Warrants
being referred to herein collectively as the "Securities Warrants") having an
aggregate initial public offering price not to exceed $750,000,000 or the
equivalent thereof in one or more foreign currencies or composite currencies,
including ECU, on terms to be determined at the time of sale. The Debt
Securities, Common Stock and Securities Warrants offered hereby (collectively,
the "Offered Securities") may be offered, separately or as units with other
Offered Securities, in separate series in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered, such as, where applicable (i) in the case of Debt
Securities, the specific designation, aggregate principal amount, currency,
denomination, maturity, priority, interest rate (which may be variable or
fixed), terms of subordination, if any, time of payment of interest, terms for
optional redemption or repayment or for sinking fund payments, terms for
required offers to repurchase Debt Securities, terms for conversion into or
exchange for other Offered Securities, the designation of the Trustee acting
under the applicable Indenture, covenants and the initial public offering price;
(ii) in the case of Common Stock, the number of shares and the terms of the
offering and sale thereof; (iii) in the case of Securities Warrants, the
duration, offering price, exercise price and detachability thereof; and (iv) in
the case of all Offered Securities, whether such Offered Security will be
offered separately or as a unit with other Offered Securities, will be set forth
in the accompanying Prospectus Supplement. The Prospectus Supplement will also
contain information, where applicable, about certain United States federal
income tax considerations relating to any listing on a securities exchange and
any other special terms of the Offered Securities covered by the Prospectus
Supplement.
The Offered Securities may be sold directly to purchasers or through
underwriters, dealers or agents. If any underwriters, dealers or agents are
involved in the sale of any Offered Securities, their names and any applicable
fee, commission or discount arrangements will be set forth in the Prospectus
Supplement. The principal amount or number of shares of Offered Securities, the
purchase price thereof and the net proceeds to the Company from sales of Offered
Securities will be set forth in the Prospectus Supplement. The net proceeds to
the Company of the sale of Offered Securities will be the purchase price of such
Offered Securities less attributable issuance expenses, including underwriters',
dealers' or agents' compensation arrangements. See "Plan of Distribution" for
indemnification arrangements for underwriters, dealers and agents.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
The date of this Prospectus is July 26, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 or at its regional offices located at 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Offered Securities. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Offered Securities, reference is hereby made to the
Registration Statement and the exhibits and schedules filed therewith, which may
be obtained from the principal office of the Commission in Washington, D.C.,
upon the payment of fees prescribed by the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference: (i) Annual Report on Form 10-K for the fiscal
year ended July 2, 1994; (ii) Quarterly Reports on Form 10-Q for the fiscal
quarters ended September 24, 1994, December 31, 1994 and April 8, 1995; (iii)
Current Report on Form 8-K dated April 27, 1995, as amended by the Current
Report on Form 8-K/A dated May 30, 1995; (iv) Current Report on Form 8-K dated
May 18,
1995; (v) Current Report on Form 8-K dated June 12, 1995, as amended by the
Current Report on
Form 8-K/A dated July 17, 1995 and; (vi) Current Report on Form 8-K dated June
22, 1995.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and before the termination of the offering made hereby will be deemed to be
incorporated by reference herein and to be part hereof from the date of filing
of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document, which
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits, unless such exhibits specifically are
incorporated by reference into such documents or this Prospectus). Requests for
such documents should be submitted in writing, addressed to the Assistant
Secretary, Bruno's, Inc., 800 Lakeshore Parkway, Birmingham, Alabama 35211.
2
<PAGE>
THE COMPANY
GENERAL
The information set forth below is as of July 1, 1995 unless otherwise
indicated. The Company is a leading supermarket operator in the Southeastern
United States and is the largest supermarket operator in the state of Alabama.
The Company operates 252 supermarkets of which 124 are located in Alabama, 86 in
Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi and 5 in South
Carolina. Seventy-nine of the store sites are owned directly by the Company or
through joint ventures. The Company also operates two primary distribution
facilities, one in Birmingham, Alabama and one in Vidalia, Georgia, which total
2.1 million square feet. The Company operates stores under three principal
formats, each addressed to a different market segment: every day low price
("EDLP") stores aimed at the value conscious shopper, upscale stores targeted to
customers seeking service and selection, and neighborhood stores stressing
convenience in a community setting. Under the EDLP and upscale formats, the
Company also operates 16 Supercenter stores that offer an expanded mix of higher
margin perishables and general merchandise products as well as various one-stop
shopping conveniences, such as in-store pharmacies, banks, photo development
services and optical centers. Through its 60 years of operations, the Company
has developed a valuable and strategically located store base, strong name
recognition, customer loyalty and a reputation as a quality and service leader
among supermarket competitors. The Company believes that these factors have
enabled it to establish a leading market share in most of its principal markets,
including market shares of approximately 50% in Birmingham and 30% throughout
Alabama.
STORE FORMATS
EVERY DAY LOW PRICE ("EDLP") FORMATS. The Company's two EDLP formats, Food
World and FoodMax, on a combined basis account for 125 of the Company's 252
stores and, for the 40 weeks ended April 8, 1995, contributed sales of $1.3
billion, or 57% of total sales. Both Food World (82 stores) and FoodMax (43
stores) are widely regarded as low price leaders, and both formats are
recognized for the breadth and high quality of their product offerings. Eight of
the EDLP stores are Supercenters. EDLP stores generated average weekly sales of
$248,000 for the 40 weeks ended April 8, 1995.
Food World. Food World stores are typically high volume stores designed
to appeal to a broad spectrum of customers. With a primary emphasis on
value, these stores offer every day low pricing along with an extensive
variety of name-brand merchandise and specialty departments. Food World
stores are promoted through television, newspaper, and radio advertising.
The Company's Food World stores average approximately 44,000 total square
feet. Since June 30, 1990, the number of Food World stores has increased
from 74 to 82 stores.
FoodMax. FoodMax stores are large stores with an open design,
warehouse-style ceilings, and expanded perishables departments. These stores
emphasize low prices and an extensive product selection while achieving low
overhead through reduced staffing. These stores enhance their EDLP image
through unadvertised in-store specials. The Company's FoodMax stores average
approximately 51,000 total square feet. Since June 30, 1990, the number of
FoodMax stores has increased from 28 to 43 stores.
UPSCALE FORMATS. The Company's upscale formats, which operate primarily
under the Bruno's name, account for 39 of the Company's 252 stores and, for the
40 weeks ended April 8, 1995, contributed sales of $456 million, or 21% of total
sales. Bruno's stores are widely regarded as quality, service, and perishables
leaders in the markets the Company serves, and generally have a substantial
breadth and depth of product offerings. These stores typically contain expanded
produce, bakery, delicatessen, and gourmet foods not generally found in
conventional supermarkets, a variety of health and beauty care products normally
found in large drug stores, and a wide range of general merchandise items.
Bruno's stores are generally located in suburban markets. Eight of the upscale
stores are
3
<PAGE>
Supercenters. The upscale stores average approximately 51,000 total square feet.
Since June 30, 1990, the number of upscale stores has increased from 18 to 39
stores. Upscale stores generated average weekly sales of $305,000 for the 40
weeks ended April 8, 1995.
NEIGHBORHOOD FORMATS. The Company has two principal neighborhood formats,
Piggly Wiggly and Food Fair. The neighborhood format, on a combined basis,
accounts for 88 of the Company's 252 stores, and, for the 40 weeks ended April
8, 1995, contributed sales of $477 million, or 22% of total sales. Piggly Wiggly
(54 stores) and Food Fair (31 stores) are generally smaller than the Company's
other supermarkets and emphasize friendly service and promotional pricing. For
its neighborhood stores, which are generally located in small to medium-sized
towns and suburban neighborhoods, the Company advertises primarily through
direct mail. Neighborhood stores generated average weekly sales of $131,000 for
the 40 weeks ended April 8, 1995.
Piggly Wiggly. Piggly Wiggly stores are located in medium to small towns
in central and southern Georgia. Piggly Wiggly stores are promoted primarily
through weekly advertised specials. Piggly Wiggly stores average
approximately 30,000 total square feet. Since June 30, 1990, the number of
Piggly Wiggly stores has decreased from 76 to 54 stores.
Food Fair. Food Fair stores, like Piggly Wiggly, are designed to operate
with lower overhead and competitive pricing in suburban neighborhoods and
towns that will not support the volume necessary for a larger supermarket.
Food Fair stores are located in Alabama and average approximately 29,000
total square feet. Since June 30, 1990, the number of Food Fair stores has
increased from 28 to 31 stores.
The Company has approximately 25,600 employees in its stores, warehousing,
and business offices.
The principal executive offices of the Company are located at 800 Lakeshore
Parkway, Birmingham, Alabama 35211, and its telephone number is (205) 940-9400.
THE MERGER
The statements made under this heading relating to the Merger (as defined
below) are summaries of the agreements described therein, do not purport to be
complete and are qualified in their entirety by reference to such agreements,
which are incorporated herein by reference. See "Available Information."
Merger Agreement. The Company and Crimson Acquisition Corp. ("Crimson"), an
Alabama corporation and as of the date hereof, a wholly owned subsidiary of
Crimson Associates, L.P. ("Crimson Associates"), which is a partnership
organized by Kohlberg Kravis Roberts & Co. ("KKR"), entered into an Agreement
and Plan of Merger, dated as of April 20, 1995, and amended as of May 18, 1995
(as amended, the "Merger Agreement"), pursuant to which Crimson will be merged
with and into the Company ("the Merger"), with the Company continuing as the
surviving corporation. Upon consummation of the Merger, each share of the
Company's Common Stock outstanding immediately prior to the time the Merger
becomes effective (the "Effective Time of the Merger") will be converted at the
election of the holder thereof into either (i) the right to receive $12.00 in
cash from the Company following the Merger or (ii) the right to retain that
share of Common Stock. The Merger contemplates that approximately 94.7% of the
presently issued and outstanding shares of the Company's Common Stock will be
converted into cash, and that approximately 5.3% of the presently issued and
outstanding shares will be retained by shareholders. Because the Company's
existing shareholders will retain 4,173,682 shares of Common Stock, the right to
receive $12.00 in cash or to retain Common Stock will be subject to proration.
Such number of retained shares will represent approximately 16.67% of the Common
Stock expected to be outstanding after the Merger.
4
<PAGE>
As a result of the Merger, Crimson Associates will hold 20,833,333 shares,
or approximately 83.33%, of the Common Stock expected to be outstanding after
the Merger, and 10,000,000 warrants (the "Warrants") to purchase up to an
additional 10,000,000 shares of Common Stock in the aggregate at an exercise
price of $12.00 per share, subject to certain anti-dilution adjustments. Each
Warrant will be exercisable in whole or in part during the ten year period
following the Effective Time of the Merger and, upon exercise, may be exchanged,
at the option of the holder, for either (i) such number of shares of Common
Stock for which the Warrant is then exercisable upon payment by the holder to
the Company of the aggregate exercise price or (ii) that number of shares of
Common Stock having a value equal to the difference between the "fair market
value" at the time of exercise of such number of shares of Common Stock for
which the Warrant is then exercisable and the aggregate exercise price. If the
Warrants were exercised in full by the payment of the aggregate cash exercise
price immediately after the Merger, Crimson Associates would hold approximately
88% of the shares of Common Stock expected to be outstanding after the Merger.
The Company will submit the Merger Agreement to its shareholders for
approval at a special meeting, which is expected to be held on August 18, 1995
(the "Special Meeting"). In addition, the Company will submit to the
shareholders for their consent (i) a proposal to increase the Company's "bonded
indebtedness" under Alabama law to finance the conversion into cash of
approximately 94.7% of the issued and outstanding shares of Common Stock upon
the consummation of the Merger, to refinance certain outstanding indebtedness of
the Company and to provide for working capital requirements and (ii) a proposal
to amend and restate the Company's Articles of Incorporation to, among other
things, reduce the authorized shares of Common Stock from 200,000,000 to
60,000,000. The affirmative vote of the holders of two-thirds of the shares of
Common Stock entitled to vote thereon is required for approval and adoption of
the Merger Agreement and the transactions contemplated thereby. The affirmative
vote of the holders of a majority of the shares of Common Stock entitled to vote
thereon is required for approval and adoption of each of the increase in bonded
indebtedness and the Amended and Restated Articles of Incorporation. Approval of
the increase in bonded indebtedness and the Amended and Restated Articles of
Incorporation will be sought at the Special Meeting only if the shareholders
approve the Merger. Pursuant to a Stockholders Agreement, dated as of April 20,
1995 (the "Stockholders Agreement"), among Crimson and the shareholders parties
thereto, holders of approximately 24% of Common Stock have agreed, among other
things and subject to certain conditions, to vote in favor of the Merger
Agreement.
In addition to the obtaining of shareholder approval, the respective
obligations of the Company and Crimson to effect the Merger are subject to the
satisfaction, at or prior to the consummation thereof, of certain conditions,
including, but not limited to, (i) the termination or expiration of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended ("HSR Act"), (ii) the absence of any judicial order or legal
restraint preventing the consummation of the Merger and (iii) the effectiveness
of a registration statement on Form S-4 used in connection with the Merger and
the absence of any stop order or proceeding seeking a stop order suspending such
effectiveness. On June 20, 1995, the Federal Trade Commission and the Antitrust
Division of the Department of Justice granted early termination of the waiting
period under the HSR Act with respect to the Merger. On July 17, 1995, the
registration statement on Form S-4 was declared effective by the Commission. The
obligations of Crimson to effect the Merger are further subject to (i) the
receipt, in form and substance reasonably satisfactory to Crimson, of such
licenses (including beer, wine and/or liquor licenses), permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as are necessary in connection with the transactions
contemplated by the Merger Agreement, (ii) the absence of any pending or
threatened governmental suit, action or proceeding (or, with respect to any
person, any suit, action or proceeding which has a reasonable likelihood of
success) challenging any of the transactions contemplated in connection with the
Merger and (iii) the receipt of proceeds of financing on terms satisfactory to
Crimson in an amount sufficient to consummate the transactions contemplated by
the Merger Agreement, including, without limitation, (a) the payment of
5
<PAGE>
the cash merger consideration, (b) the refinancing of outstanding indebtedness
of the Company, (c) the payment of transaction fees and expenses associated with
the Merger and the financing thereof and (d) the provision of working capital
needs of the Company following the Merger.
The Merger Agreement contains customary representations and warranties as
well as covenants which, among other things, provide that the Company will, and
will cause its subsidiaries to, up to the Effective Time of the Merger, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice. In addition, the Company has agreed,
among other things and subject to certain exceptions, that it will not, and will
not permit any of its subsidiaries to, without the prior consent of Crimson, (i)
declare or pay any dividends on its capital stock (other than certain dividends
which have already been declared and paid); (ii) split or reclassify its capital
stock; (iii) acquire Common Stock; (iv) encumber its capital stock or that of
its subsidiaries; (v) acquire any new business; (vi) encumber or sell any of its
properties or assets; (vii) incur any indebtedness, except for short-term
borrowings and lease obligations; (viii) acquire any material assets or make any
capital expenditures; (ix) authorize a liquidation, merger or restructuring; (x)
except upon mutual agreement of the parties, enter into any collective
bargaining agreement; (xi) change any material accounting principle; or (xii)
settle any litigation. The Company has also agreed, subject to certain
exceptions, that neither it nor any of its subsidiaries will adopt or amend any
employee benefit plan, grant any new or modified severance or termination
arrangement, effectuate any plant closing or mass layoff, make any tax election
or settle any tax liability.
The Merger Agreement provides for termination thereof at any time prior to
the Effective Time of the Merger, whether before or after approval of the Merger
by the shareholders of the Company, (i) upon the mutual written consent of
Crimson and the Company, (ii) by Crimson or the Company, upon the taking of any
final and nonappealable action prohibiting the Merger by any federal, state or
local governmental authority, or if the Merger is not consummated on or before
October 31, 1995 and (iii) by Crimson, among other things, upon (a) the failure
to obtain Company shareholder approval, (b) the withdrawal, modification or
amendment of the Company's recommendation of the Merger to its shareholders and
(c) the taking of certain actions by the Company with respect to a third party
transaction proposal or the failure by the Company to take certain actions
during the pendency of such a proposal or in pursuance of the Merger Agreement.
If the Merger is consummated in accordance with the Merger Agreement, the
Company will pay KKR, on the closing date of the Merger, a fee of $15 million in
cash, and will also reimburse KKR for all of its expenses in connection with the
transactions contemplated by the Merger Agreement. If the Merger is not
consummated in accordance with the Merger Agreement, among other things and
subject to certain conditions, either (i) the Company will reimburse KKR for all
its expenses contemplated by the Merger Agreement, up to an aggregate of $3
million, or (ii) the Company will reimburse KKR for up to an aggregate of $12.5
million of its expenses and will pay KKR $30 million in addition to such
reimbursement if the Merger Agreement is terminated under certain circumstances
generally related to the presence of a third party transaction proposal or the
acquisition by a third party of Common Stock.
The Company expects that the Merger will be financed by the proceeds of term
loans ($550.0 million), debt securities ($350.0 million), revolving credit loans
($5.1 million) and an equity contribution by Crimson Associates ($250.0
million). The proceeds of such financings will be applied to cash merger
consideration ($880.1 million), repayment of historical debt ($200.0 million)
and fees and expenses ($75.0 million). The fees and expenses are anticipated to
consist of (i) fees and expenses related to financing the Merger, including bank
syndication and commitment fees and underwriting discounts and commissions, (ii)
fees in connection with the prepayment of historical debt and an interest rate
swap, (iii) professional, advisory and investment banking fees and expenses and
(iv) miscellaneous fees and expenses, such as printing and filing fees. Included
in the $75.0 million of estimated fees and expenses is the $15 million fee
payable by the Company to KKR in the event the Merger closes in
6
<PAGE>
accordance with the Merger Agreement. It is expected that the most substantial
portion of the remaining estimated fees and expenses will relate to financing
the Merger.
Stockholders Agreement. Pursuant to the Stockholders Agreement, holders of
approximately 24% of the Common Stock have agreed, among other things and
subject to certain conditions, to vote in favor of the Merger Agreement and to
refrain from soliciting competing transaction proposals and from taking certain
other actions. Except for certain covenants which will survive the Effective
Time of the Merger, the covenants and agreements in the Stockholders Agreement
terminate on the first to occur of (a) the Effective Time of the Merger and (b)
the date the Merger Agreement is terminated in accordance with its terms.
Stock Option Agreement. Pursuant to a Stock Option Agreement, dated as of
April 20, 1995, as amended as of May 18, 1995 (as amended, the "Option
Agreement"), between the Company and Crimson, the Company has granted to Crimson
an irrevocable option, expiring upon the first to occur of the Effective Time of
the Merger and April 30, 1996, which may be exercised by Crimson or its designee
(which may be an affiliate or a third party), in whole or in part, to purchase
up to 15,541,570 newly issued shares of Common Stock (or 16.6% of the
outstanding Common Stock after giving effect to the issuance of such shares) at
an exercise price of $12.00 per share in cash (the "Exercise Price"). Any such
issuance would dilute the proportionate holdings of all of the Company's
shareholders. Such shares would be cancelled and would not be entitled to be
converted into any merger consideration in the Merger. The terms of the Option
Agreement provide, among other things, for upward adjustment of the Exercise
Price in certain circumstances. The number and kind of securities subject to the
Option Agreement and the Exercise Price are also subject to adjustments in the
event of certain changes in the number of issued and outstanding shares of
Common Stock. The Option Agreement also includes customary provisions relating
to the registration and listing of such option shares.
USE OF PROCEEDS
The Offered Securities may be offered by the Company from time to time as
determined by the Company. Unless otherwise indicated in the applicable
Prospectus Supplement, the net proceeds from the sale of the Offered Securities
will be added to the Company's funds and be used for general corporate purposes,
including development, acquisition or capital improvement of its stores and
operations. If the Merger is consummated, the Company may use a portion of the
net proceeds from one or more series of the Offered Securities to (i) pay a
portion of the $880.1 million of cash merger consideration, (ii) refinance all
or a portion of $200.0 million of indebtedness and (iii) pay all or a portion of
an estimated $75.0 million of fees and expenses related to the Merger. The
indebtedness that may be refinanced consists of $100.0 million aggregate
principal amount of 6.62% Series A Senior Notes due 2003 and $100.0 million
aggregate principal amount of 7.09% Series B Senior Notes due 2008.
7
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
the Company and its consolidated subsidiaries for the periods indicated.
<TABLE>
<CAPTION>
PRO
FORMA
----------
JUNE 30, JUNE 29, JUNE 27, JULY 3, JULY 2, APRIL 9, APRIL 8, APRIL 8,
1990 1991 1992 1993 1994 1994 1995 1995
(52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (40 WEEKS) (40 WEEKS) (40 WEEKS)
---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges (1).... 4.59 5.08 4.09 3.20 2.91 2.77 2.03(2) 0.78(3)
<FN>
- ------------
(1) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of income before income taxes and extraordinary loss on
extinguishment of debt, plus fixed charges. "Fixed charges" consist of
interest expense and one-third of rental expense (the portion deemed
representative of the interest factor).
(2) The ratio of earnings to fixed charges for the 40 weeks ended April 8, 1995
reflects a $22.2 million charge ($19.0 million of which is nonrecurring) due
to a change in accounting estimate relating to the Company's self-insurance
reserves.
(3) The pro forma calculation of earnings to fixed charges for the 40 weeks
ended April 8, 1995 assumes that the Merger was completed on July 3, 1994
and (i) the issuance by the Company on such date of $555.1 million of term
loans and revolving credit loans (assumed 9.0% average rate), (ii) the
issuance by the Company of $350 million of other debt securities (assumed
10.75% average rate) and (iii) the repayment of $100 million of 6.62% Series
A Senior Notes due 2003 and $100 million of 7.09% Series B Senior Notes due
2008. On a pro forma basis, earnings were insufficient to cover fixed
charges by $18.1 million.
</TABLE>
DESCRIPTION OF THE DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
being offered (the "Offered Debt Securities"), the extent, if any, to which such
general provisions may apply to the Offered Securities and any modifications of
or additions to the general terms of the Debt Securities applicable in the case
of the Offered Debt Securities will be described in the Prospectus Supplement
relating to such Debt Securities.
The Senior Debt Securities are to be issued under an indenture to be dated
as of a date on or prior to the first issuance of Senior Debt Securities, as
supplemented from time to time (the "Senior Indenture"), between the Company and
First Trust of New York, National Association (the "Senior Debt Trustee"), and
the Subordinated Debt Securities are to be issued under an indenture to be dated
as of a date on or prior to the first issuance of Subordinated Debt Securities,
as supplemented from time to time (the "Subordinated Indenture"), between the
Company and Marine Midland Bank (the "Subordinated Debt Trustee"). The term
"Trustee" as used herein shall refer to either the Senior Debt Trustee or the
Subordinated Debt Trustee, as appropriate, for Senior Debt Securities or
Subordinated Debt Securities. The form of the Senior Indenture and the form of
the Subordinated Indenture (being referred to herein collectively as the
"Indentures" and individually as an "Indenture") are filed as exhibits to the
Registration Statement. The Indentures are subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made under this
heading relating to the Debt Securities and the Indentures are summaries of the
provisions thereof and are qualified in their entirety by reference to the
Indentures, including the definitions of certain terms therein and in the TIA.
Certain capitalized terms used below but not defined herein have the meanings
ascribed to them in the applicable Indenture.
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GENERAL
The Debt Securities will be direct, unsecured obligations of the Company.
The indebtedness represented by the Senior Debt Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
indebtedness represented by the Subordinated Debt Securities will be
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness of the Company (including the Senior Debt Securities) as described
under "Subordination" below. The Indentures provide that the Debt Securities may
be issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time in or pursuant to authority
granted by a resolution of the Board of Directors of the Company or as
established in one or more indentures supplemental to the Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series.
The Indentures provide that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indentures may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series. In the event that two or more persons are acting as Trustee with
respect to different series of Debt Securities, each such Trustee shall be a
Trustee of a trust under the Indenture separate and apart from the trust
administered by any other Trustee, and, except as otherwise indicated herein,
any action described herein to be taken by the Trustee may be taken by each such
Trustee with respect to, and only with respect to, the one or more series of
Debt Securities for which it is Trustee under the applicable Indenture.
The accompanying Prospectus Supplement will set forth the terms of the
Offered Debt Securities, which may include the following:
(1) The title of the Offered Debt Securities and whether they are
Senior Debt Securities or Subordinated Debt Securities (which shall
distinguish the Debt Securities of such Offered Debt Securities from all
other series of Debt Securities).
(2) The aggregate principal amount of the Offered Debt Securities and
any limit on the aggregate principal amount of the Offered Debt Securities
of such series.
(3) The percentage of the principal amount at which the Offered Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity or upon redemption thereof or the method by
which such portion shall be determined.
(4) The date or dates on which or periods during which the Offered Debt
Securities may be issued, and the date or dates, or the method by which such
date or dates will be determined, on which the principal of (and premium, if
any, on) the Offered Debt Securities are, or may be, payable (which may be
determined by the Company from time to time as set forth in the Prospectus
Supplement for such Offered Debt Securities).
(5) The rate or rates (which may be variable or fixed) at which the
Offered Debt Securities will bear interest, if any, or the method by which
such rate or rates shall be determined, the date or dates from which such
interest, if any, shall accrue or the method by which such date or dates
shall be determined, the interest payment dates on which such interest will
be payable (or the method of determination thereof) and the record dates, if
any, for the interest payable on such interest payment dates, and the
notice, if any, to holders regarding the determination of interest and the
manner of giving such notice, the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-day months and
any conditions or contingencies as to the payment of interest in cash or
otherwise, if any.
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(6) The place or places where the principal of (and premium, if any)
and interest on the Offered Debt Securities shall be payable; the extent to
which, or the manner in which, any interest payable on any Global Note (as
defined below) on an interest payment date will be paid, and the manner in
which any principal of, or premium, if any, on, any Global Note will be paid
and whether any Global Note will require any notation to evidence payment of
principal or interest.
(7) The obligation, if any, of the Company to redeem, repay, purchase
or offer to purchase the Offered Debt Securities pursuant to any mandatory
redemption, sinking fund or analogous provisions or upon other conditions or
at the option of the Holder thereof and the period or periods within which,
or the dates on which, the prices at which and the terms and conditions upon
which the Offered Debt Securities shall be redeemed, repaid, purchased or
offered to be purchased, in whole or in part, pursuant to such obligation.
(8) The right, if any, of the Company to redeem the Offered Debt
Securities at its option and the period or periods within which, or the date
or dates on which, the price or prices at which, and the terms and
conditions upon which Offered Debt Securities may be redeemed, if any, in
whole or in part, at the option of the Company or otherwise.
(9) If the coin or currency in which the Offered Debt Securities shall
be issuable is U.S. dollars, the denominations of the Offered Debt
Securities if other than denominations of $1,000 and any integral multiple
thereof.
(10) Whether the Offered Debt Securities are to be issued as original
issue discount securities ("Discount Securities") and the amount of discount
at which such Offered Debt Securities may be issued and, if other than the
principal amount thereof, the portion of the principal amount of Offered
Debt Securities which shall be payable upon declaration of acceleration of
the Maturity thereof upon an Event of Default.
(11) Provisions, if any, for the defeasance or discharge of certain of
the Company's obligations with respect to the Offered Debt Securities.
(12) Whether the Offered Debt Securities are to be issued as registered
securities ("Registered Securities") or bearer securities ("Bearer
Securities") or both, and, if Bearer Securities are issued, whether any
interest coupons appertaining thereto ("Coupons") will be attached thereto,
whether such Bearer Securities may be exchanged for Registered Securities
and the circumstances under which, and the place or places at which, any
such exchanges, if permitted, may be made.
(13) Whether provisions for payment of additional amounts or tax
redemptions shall apply and, if such provisions shall apply, such
provisions; and, if any of the Offered Debt Securities are to be issued as
Bearer Securities, the applicable procedures and certificates relating to
the exchange of temporary Global Notes for definitive Bearer Securities.
(14) If other than U.S. dollars, the currency, currencies or currency
units (the term "currency" as used herein will include currency units,
including European Currency Units ("ECU"), in which the Offered Debt
Securities shall be denominated or in which payment of the principal of (and
premium, if any) and interest on the Offered Debt Securities may be made,
and particular provisions applicable thereto and, if applicable, the amount
of the Offered Debt Securities which entitles the holder or its proxy to one
vote for purposes of the Indenture.
(15) If the principal of (and premium, if any) or interest on the
Offered Debt Securities are to be payable, at the election of the Company or
a Holder thereof, in a currency other than that in which the Offered Debt
Securities are denominated or payable without such election, in addition to
or in lieu of the applicable provisions of the Indentures, the period or
periods within which and the terms and conditions upon which, such election
may be made and the time and the manner of determining the exchange rate or
rates between the currency or currencies in which the Offered
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Debt Securities are denominated or payable without such election and the
currency or currencies in which the Offered Debt Securities are to be paid
if such election is made.
(16) The date as of which any Offered Debt Securities shall be dated.
(17) If the amount of payments of principal of (and premium, if any) or
interest on the Offered Debt Securities may be determined with reference to
an index, including, but not limited to, an index based on a currency or
currencies other than that in which the Offered Debt Securities are
denominated or payable, or any other type of index, the manner in which such
amounts shall be determined.
(18) If the Offered Debt Securities are denominated or payable in a
foreign currency, any other terms concerning the payment of principal of
(and premium, if any) or any interest on the Offered Debt Securities
(including the currency or currencies of payment thereof).
(19) The designation of the original currency determination agent, if
any.
(20) The applicable overdue interest rate, if any.
(21) If the Offered Debt Securities do not bear interest, applicable
dates for determining record holders of Offered Debt Securities.
(22) Any addition to, or modification or deletion of, any Events of
Default, covenants or terms of the subordination provided for in the
applicable Indenture with respect to the Offered Debt Securities.
(23) If any of the Offered Debt Securities are to be issued as Bearer
Securities, (x) whether interest in respect of any portion of a temporary
Debt Security in global form payable in respect of any interest payment date
prior to the exchange of such temporary Offered Debt Security for definitive
Offered Debt Securities shall be paid to any clearing organization with
respect to the portion of such temporary Offered Debt Security held for its
account and, in such event, the terms and conditions (including any
certification requirements) upon which any such interest payment received by
a clearing organization will be credited to the persons entitled to interest
payable on such interest payment date, (y) the terms upon which interests in
such temporary Offered Debt Security in global form may be exchanged for
interests in a permanent Global Note or for definitive Offered Debt
Securities and the terms upon which interests in a permanent Global Note, if
any, may be exchanged for definitive Offered Debt Securities and (z) the
cities and publications designated for the purposes of giving notices to
Holders.
(24) Whether the Offered Debt Securities shall be issued in whole or in
part in the form of one or more Global Notes and, in such case, the
depositary or any common depositary for such Global Notes; and if the
Offered Debt Securities are issuable only as Registered Securities, the
manner in which and the circumstances under which Global Notes representing
Offered Debt Securities may be exchanged for Registered Securities in
definitive form.
(25) The designation, if any, of any depositaries, trustees (other than
the applicable Trustee), paying agents, authenticating agents, security
registrars (other than the Trustee) or other agents with respect to the
Offered Debt Securities.
(26) If the Offered Debt Securities are to be issuable in definitive
form only upon receipt of certain certificates or other documents or upon
satisfaction of certain conditions, the form and terms of such certificates,
documents or conditions.
(27) Whether the Offered Debt Securities will be convertible into shares
of Common Stock and, if so, the terms and conditions, which may be in
addition to or in lieu of the provisions
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contained in the Indentures, upon which such Offered Debt Securities will be
so convertible, including the conversion price and the conversion period.
(28) The portion of the principal amount of the Offered Debt Securities
which will be payable upon declaration of acceleration of the maturity
thereof, if other than the principal amount thereof.
(29) The nature, content and dates for reports by the Company to the
holders of the Offered Debt Securities or the Trustees.
(30) Any other terms of the Offered Debt Securities not specified in the
Indenture under which such Offered Debt Securities are to be issued.
Each Indenture provides that the aggregate principal amount of Debt
Securities that may be issued thereunder is unlimited. The Debt Securities may
be issued in one or more series thereunder, in each case as authorized from time
to time by the Board of Directors of the Company, or any committee thereof or
any duly authorized officer.
In the event that Discount Securities are issued, the Federal income tax
consequences and other special considerations applicable to such Discount
Securities will be described in the Prospectus Supplement relating thereto.
The general provisions of the Indentures do not contain any provisions that
would limit the ability of the Company or its Subsidiaries to incur indebtedness
or that would afford holders of Debt Securities protection in the event of a
highly leveraged or similar transaction involving the Company or its
Subsidiaries. Reference is made to the accompanying Prospectus Supplement for
information with respect to any deletions from, modifications of or additions,
if any, to the Events of Default of the Company described below that are
applicable to the Offered Debt Securities or any covenants or other provisions
providing event risk or similar protection.
All of the Debt Securities of a series need not be issued at the same time,
and may vary as to interest rate, maturity and other provisions and unless
otherwise provided, a series may be reopened for issuance of additional Debt
Securities of such series.
The Debt Securities of certain series may be issued under the Indentures
upon the exercise of Securities Warrants issued with other Debt Securities or
upon exchange or conversion of exchangeable or convertible Debt Securities. The
specific terms of any such Securities Warrants, the specific terms of exchange
or conversion of any such Debt Securities and the specific terms of the Debt
Securities issuable upon the exercise of any such Securities Warrants or upon
any such exchange or conversion will be described in the Prospectus Supplement
relating to any Debt Securities issued with Securities Warrants or any such
exchangeable or convertible Debt Securities.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless specified in the Prospectus Supplement, the Debt Securities of any
series shall be issuable only as Registered Securities in denominations of
$1,000 and any integral multiple thereof and shall be payable only in U.S.
dollars. The Indentures also provide that Debt Securities of a series may be
issuable in global form. See "Book-Entry Debt Securities."
Unless otherwise indicated in the Prospectus Supplement, Bearer Securities
(other than in global form) will have Coupons attached.
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of like aggregate principal amount and
of like Stated Maturity and with like terms and conditions. If so specified in
the Prospectus Supplement, at the option of the Holder thereof, to the extent
permitted by law, any Bearer Security of any series which by its terms is
registrable as to
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principal and interest may be exchanged for a Registered Security of such series
of like aggregate principal amount and of a like Stated Maturity and with like
terms and conditions, upon surrender of such Bearer Security at the corporate
trust office of the applicable Trustee or at any other office or agency of the
Company designated for the purpose of making any such exchanges. Subject to
certain exceptions, any Bearer Security issued with Coupons surrendered for
exchange must be surrendered with all unmatured Coupons and any matured Coupons
in default attached thereto.
Notwithstanding the foregoing, the exchange of Bearer Securities for
Registered Securities will be subject to the provisions of United States income
tax laws and regulations applicable to Debt Securities in effect at the time of
such exchange.
Except as otherwise specified in the Prospectus Supplement, in no event may
Registered Securities, including Registered Securities received in exchange for
Bearer Securities, be exchanged for Bearer Securities.
Upon surrender for registration of transfer of any Registered Security of
any series at the office or agency of the Company maintained for such purpose,
the Company shall deliver, in the name of the designated transferee, one or more
new Registered Securities of the same series of like aggregate principal amount
of such denominations as are authorized for Registered Securities of such series
and of a like Stated Maturity and with like terms and conditions. No service
charge will be made for any transfer or exchange of Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company shall not be required (i) to register, transfer or exchange Debt
Securities of any series during a period beginning at the opening of business 15
days before the day of the transmission of a notice of redemption of Debt
Securities of such series selected for redemption and ending at the close of
business on the day of such transmission, or (ii) to register, transfer or
exchange any Debt Security so selected for redemption in whole or in part,
except the unredeemed portion of any Debt Security being redeemed in part.
EVENTS OF DEFAULT
Under the Indentures, "Event of Default" with respect to the Debt Securities
of any series means any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law, pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body): (1) default in the payment of any interest upon any Debt Security or any
payment with respect to the Coupons, if any, of such series when it becomes due
and payable, and continuance of such default for a period of 30 days; (2)
default in the payment of the principal of (and premium, if any, on) any Debt
Security of such series at its Maturity; (3) default in the deposit of any
sinking fund payment, when and as due by the terms of a Debt Security of such
series; (4) default in the performance, or breach, of any covenant or warranty
in the applicable Indenture (other than a covenant or warranty a default in
whose performance or whose breach is elsewhere specifically dealt with or which
expressly has been included in the applicable Indenture solely for the benefit
of Debt Securities of a series other than such series), and continuance of such
default or breach for a period of 30 days after there has been given by
registered or certified mail, to the Company by the applicable Trustee or to the
Company and the applicable Trustee by the Holders of at least 30% in principal
amount of the outstanding Debt Securities of such series, a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default"; (5) certain events of bankruptcy,
insolvency or reorganization with respect to the Company; or (6) any other Event
of Default provided with respect to Debt Securities of that series.
Each Indenture requires the Company to file with the applicable Trustee,
annually, an officers' certificate as to the Company's compliance with all
conditions and covenants under the applicable Indenture. Each Indenture provides
that the applicable Trustee may withhold notice to the Holders of a
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series of Debt Securities of any default (except payment defaults on such Debt
Securities) if it considers such withholding to be in the interest of the
Holders of such series of Debt Securities.
If an Event of Default with respect to Debt Securities of any series at the
time outstanding occurs and is continuing, then in every case the applicable
Trustee or the Holders of not less than 25% in principal amount of the
outstanding Debt Securities of such series may declare the principal amount (or,
if any Debt Securities of such series are Discount Securities, such portion of
the principal amount of such Discount Securities as may be specified in the
terms of such Discount Securities) of all the Debt Securities of such series to
be due and payable immediately, by a notice in writing to the Company (and to
the applicable Trustee if given by Holders), and upon any such declaration such
principal amount (or specified amount), plus accrued and unpaid interest (and
premium, if any) shall become immediately due and payable. Upon payment of such
amount in the currency in which such Debt Securities are denominated (except as
otherwise provided in the applicable Indenture or specified in the Prospectus
Supplement), all obligations of the Company in respect of the payment of
principal of the Debt Securities of such series shall terminate.
Subject to the provisions of each Indenture relating to the duties of the
applicable Trustee, in case an Event of Default with respect to Debt Securities
of a particular series shall occur and be continuing, the applicable Trustee
shall be under no obligation to exercise any of its rights or powers under such
Indenture at the request, order or direction of any of the Holders of Debt
Securities of that series, unless such Holders shall have offered to the
applicable Trustee reasonable security or indemnity against the costs, expenses
and liabilities which might be incurred by it in complying with such request or
direction. Subject to such provisions for the indemnification of the applicable
Trustee, the Holders of a majority in principal amount of the outstanding Debt
Securities of such series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the applicable
Trustee under such Indenture, or exercising any trust or power conferred on the
applicable Trustee with respect to the Debt Securities of that series.
At any time after such a declaration of acceleration with respect to Debt
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the applicable Trustee as provided
in the Indentures, the Holders of a majority in principal amount of the
outstanding Debt Securities of such series, by written notice to the Company and
the applicable Trustee, may rescind and annul such declaration and its
consequences, subject to any terms or conditions specified in the applicable
Prospectus Supplement.
MERGER OR CONSOLIDATION
Each Indenture provides that the Company may not consolidate with or merge
with or into or wind up into (whether or not the Company is the surviving
corporation) or sell, assign, convey, transfer or lease its properties and
assets substantially as an entirety to any Person, unless (1) the corporation
formed by such consolidation or into which the Company is merged or the Person
which acquires by conveyance or transfer, or which leases, the properties and
assets of the Company substantially as an entirety (the "successor corporation")
is a corporation organized and existing under the laws of the United States or
any State or territory thereof or the District of Columbia and expressly assumes
by a supplemental indenture the due and punctual payment of the principal of
(and premium, if any) and interest on all the Debt Securities and Coupons, if
any, issued under the applicable Indenture and the performance of every covenant
in the applicable Indenture on the part of the Company to be performed or
observed; (2) immediately after giving effect to such transaction, no Event of
Default under the applicable Indenture, and no event which, after notice or
lapse of time, or both, would become such an Event of Default, shall have
happened and be continuing; and (3) such other conditions as may be specified in
the applicable Prospectus Supplement.
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MODIFICATION OR WAIVER
Without prior notice to or consent of any Holders, the Company and the
applicable Trustee, at any time and from time to time, may modify the applicable
Indenture for any of the following purposes: (1) to evidence the succession of
another corporation to the rights of the Company and the assumption by such
successor of the covenants and obligations of the Company in the applicable
Indenture and in the Debt Securities and Coupons, if any, issued thereunder in
accordance with the terms of the applicable Indenture; (2) to add to the
covenants of the Company for the benefit of the Holders of all or any series of
Debt Securities and the Coupons, if any, appertaining thereto (and if such
covenants are to be for the benefit of less than all series, stating that such
covenants are expressly being included solely for the benefit of such series),
or to surrender any right or power conferred in the applicable Indenture upon
the Company; (3) to add any additional Events of Default (and if such Events of
Default are to be applicable to less than all series, stating that such Events
of Default are expressly being included solely to be applicable to such series);
(4) to add or change any of the provisions of the applicable Indenture to such
extent as shall be necessary to permit or facilitate the issuance thereunder of
Debt Securities of any series in bearer form, registrable or not registrable,
and with or without Coupons, to permit Bearer Securities to be issued in
exchange for Registered Securities, to permit Bearer Securities to be issued in
exchange for Bearer Securities of other authorized denominations or to permit
the issuance of Debt Securities of any series in uncertificated form, provided
that any such action shall not adversely affect the interests of the Holders of
Debt Securities of any series or any related Coupons in any material respect;
(5) to change or eliminate any of the provisions of the applicable Indenture,
provided that any such change or elimination will become effective only when
there is no outstanding Debt Security issued thereunder or Coupon of any series
created prior to such modification which is entitled to the benefit of such
provision and as to which such modification would apply; (6) to secure the Debt
Securities issued thereunder or to provide that any of the Company's obligations
under the Debt Securities or the applicable Indenture shall be guaranteed and
the terms and conditions for the release or substitution of such security or
guarantee; (7) to supplement any of the provisions of the applicable Indenture
to such extent as is necessary to permit or facilitate the defeasance and
discharge of any series of Debt Securities, provided that any such action will
not adversely affect the interests of the Holders of Debt Securities of such
series or any other series of Debt Securities issued under such Indenture or any
related Coupons in any material respect; (8) to establish the form or terms of
Debt Securities and Coupons, if any, as permitted by the applicable Indenture;
(9) to evidence and provide for the acceptance of appointment thereunder by a
successor Trustee with respect to one or more series of Debt Securities and to
add to or change any of the provisions of the applicable Indenture as is
necessary to provide for or facilitate the administration of the trusts
thereunder by more than one Trustee; or (10) to cure any ambiguity, to correct
or supplement any provision in the applicable Indenture which may be defective
or inconsistent with any other provision therein, to eliminate any conflict
between the terms of the applicable Indenture and the Debt Securities issued
thereunder and the TIA or to make any other provisions with respect to matters
or questions arising under the applicable Indenture which will not be
inconsistent with any provision of the applicable Indenture; provided such other
provisions shall not adversely affect the interests of the Holders of
outstanding Debt Securities or Coupons, if any, of any series created thereunder
prior to such modification in any material respect.
With the written consent of the Holders of not less than a majority in
principal amount of the outstanding Debt Securities of each series affected by
such modification voting separately, the Company and the applicable Trustee may
modify the applicable Indenture for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the applicable
Indenture or of modifying in any manner the rights of the Holders of Debt
Securities and Coupons, if any, under the applicable Indenture; provided,
however, that such modifications may not, without the consent of the Holder of
each outstanding Debt Security of each series affected, conflict with the
required provisions of the TIA or make any change or modification specified in
the applicable Prospectus Supplement.
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A modification which changes or eliminates any covenant or other provision
of the applicable Indenture with respect to one or more particular series of
Debt Securities and Coupons, if any, or which modifies the rights of the Holders
of Debt Securities and Coupons of such series with respect to such covenant or
other provision, shall be deemed not to affect the rights under the applicable
Indenture of the Holders of Debt Securities and Coupons, if any, of any other
series.
Each of the Indentures provides that the Holders of not less than a majority
in aggregate principal amount of the then outstanding Debt Securities of any
series, by notice to the relevant Trustee, may on behalf of the Holders of the
Debt Securities of such series waive any Default or Event of Default and its
consequences under the applicable Indenture, except (1) a continuing Default or
Event of Default in the payment of interest on, premium, if any, or the
principal of, any such Debt Security held by a non-consenting Holder or (2) a
default in respect of a covenant or provision hereof which cannot be modified or
amended without the consent of the Holder of each outstanding Debt Security of
each series affected.
SUBORDINATION
Upon any distribution of assets of the Company upon the dissolution, winding
up, liquidation or reorganization of the Company, the payment of the principal
of (and premium, if any) and interest on the Subordinated Debt Securities will
be subordinated to the extent provided in the Subordinated Indenture or as
described in the applicable Prospectus Supplement in right of payment to the
prior payment in full of all Senior Indebtedness, including Senior Debt
Securities, but the obligation of the Company to make payment of principal (and
premium, if any) or interest on the Subordinated Debt Securities will not
otherwise be affected. Unless otherwise indicated in a Prospectus Supplement, no
payment on account of principal (and premium, if any), sinking funds or interest
may be made on the Subordinated Debt Securities at any time when there is a
default in the payment of principal (and premium, if any), interest or certain
other obligations on Senior Indebtedness. In addition, the Prospectus Supplement
for each series of Subordinated Debt Securities may provide that payments on
account of principal (any premium, if any) or interest in respect of such
Subordinated Debt Securities may be delayed or not paid under the circumstances
and for the periods specified in such Prospectus Supplement. Unless otherwise
indicated in a Prospectus Supplement, in the event that, notwithstanding the
foregoing, any payment by the Company described in the foregoing sentence is
received by the Trustee under the Subordinated Indenture or the Holders of any
of the Subordinated Debt Securities before all Senior Indebtedness is paid in
full, such payment or distribution shall be paid over to the Holders of such
Senior Indebtedness or on their behalf for application to the payment of all
such Senior Indebtedness remaining unpaid until all such Senior Indebtedness
shall have been paid in full, after giving effect to any concurrent payment or
distribution to the Holders of such Senior Indebtedness. Subject to payment in
full of Senior Indebtedness, the Holders of the Subordinated Debt Securities
will be subrogated to the rights of the Holders of the Senior Indebtedness to
the extent of payments made to the Holders of such Senior Indebtedness out of
the distributive share of the Subordinated Debt Securities.
By reason of such subordination, in the event of a distribution of assets
upon insolvency, certain general creditors of the Company may recover more,
ratably, than holders of the Subordinated Debt Securities. The Subordinated
Indenture provides that the subordination provisions thereof shall not apply to
money and securities held in trust pursuant to the satisfaction and discharge
and the legal defeasance provisions of the Subordinated Indenture.
If this Prospectus is being delivered in connection with the offering of a
series of Subordinated Debt Securities, the accompanying Prospectus Supplement
or the information incorporated by reference therein will set forth the
approximate amount of Senior Indebtedness outstanding as of a recent date.
"Senior Indebtedness" with respect to any series of Subordinated Debt Securities
shall have the meaning specified in the applicable Prospectus Supplement for
such series.
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DISCHARGE, LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The applicable Indenture with respect to the Debt Securities of any series
may be discharged, subject to certain terms and conditions as specified in the
applicable Prospectus Supplement when either (A) all Debt Securities (with
certain exceptions as provided in the Indenture) and the Coupons, if any, of
such series have been delivered to the applicable Trustee for cancellation, (B)
all Debt Securities and the Coupons, if any, of such series not theretofore
delivered to the applicable Trustee for cancellation (i) have become due and
payable, (ii) will become due and payable at their Stated Maturity within one
year or (iii) are to be called for redemption within one year or (C) certain
events or conditions occur as specified in the applicable Prospectus Supplement.
In addition, each series of Debt Securities may provide additional or different
terms or conditions for the discharge or defeasance of some or all of the
obligations of the Company as may be specified in the applicable Prospectus
Supplement.
If provision is made for the defeasance of Debt Securities of a series, and
if the Debt Securities of such series are Registered Securities and denominated
and payable only in U.S. dollars, then the provisions of each Indenture relating
to defeasance shall be applicable except as otherwise specified in the
applicable Prospectus Supplement for Debt Securities of such series. Defeasance
provisions, if any, for Debt Securities denominated in a foreign currency or
currencies or for Bearer Securities may be specified in the applicable
Prospectus Supplement.
At the Company's option, either (a) the Company shall be deemed to have been
discharged from its obligations with respect to Debt Securities of any series
("legal defeasance option") or (b) the Company shall cease to be under any
obligation to comply with certain provisions of the applicable Indenture with
respect to the certain covenants, if any, specified in the applicable Prospectus
Supplement with respect to Debt Securities of any series ("covenant defeasance
option") at any time after the conditions set forth in the applicable Prospectus
Supplement have been satisfied.
PAYMENT AND PAYING AGENTS
The Company covenants and agrees for the benefit of each series of Debt
Securities and Coupons, if any, that it will duly and punctually pay the
principal of (and premium, if any) and interest on the Debt Securities in
accordance with the terms of the Debt Securities, the Coupons, if any, and the
applicable Indenture.
If Debt Securities of a series are issuable only as Registered Securities,
the Company will maintain in each Place of Payment for such series an office or
agency where Debt Securities of that series may be presented or surrendered for
payment, where Debt Securities of that series may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Debt Securities of that series and the applicable
Indenture may be served.
If Debt Securities of a series are issuable as Bearer Securities, the
Company will maintain or cause to be maintained (A) in the Borough of Manhattan,
The City and State of New York, an office or agency where any Registered
Securities of that series may be presented or surrendered for payment, where any
Registered Securities of that series may be surrendered for registration of
transfer, where Debt Securities of that series may be surrendered for exchange
or redemption, where notices and demands to or upon the Company in respect of
the Debt Securities of that series and the applicable Indenture may be served
and where Bearer Securities of that series and related Coupons may be presented
or surrendered for payment in the circumstances described in the following
paragraph (and not otherwise), (B) subject to any laws or registration
applicable thereto, in a Place of Payment for that series which is located
outside the United States, an office or agency where Debt Securities of that
series and related Coupons may be presented and surrendered for payment
(including payment of any additional amounts payable on Debt Securities of that
series, if so provided in such series; provided, however, that if the Debt
Securities of that series are listed on The Stock Exchange of the United Kingdom
and the Republic of Ireland, the Luxembourg Stock Exchange or any other stock
exchange
17
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located outside the United States and such stock exchange shall so require, the
Company will maintain a Paying Agent for the Debt Securities of that series in
London, Luxembourg or any other required city located outside the United States,
as the case may be, so long as the Debt Securities of that series are listed on
such exchange, and (C) subject to any laws or regulations applicable thereto, in
a Place of Payment for that series located outside the United States an office
or agency where any Registered Securities of that series may be surrendered for
registration of transfer, where Debt Securities of that series may be
surrendered for exchange or redemption and where notices and demands to or upon
the Company in respect of the Debt Securities of that series and the applicable
Indenture may be served. The Company will give prompt written notice to the
applicable Trustee of the locations, and any change in the locations, of such
offices or agencies. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the applicable Trustee with
the address thereof, such presentations, surrenders, notices and demands may be
made or served at the corporate trust office of the applicable Trustee, except
that Bearer Securities of that series and the related coupons may be presented
and surrendered for payment at the offices specified in the applicable Debt
Security and the Company has appointed the applicable Trustee (or in the case of
Bearer Securities, may appoint such other agent as may be specified in the
applicable Prospectus Supplement) as its agent to receive all presentations,
surrenders, notices and demands.
No payment of principal, premium or interest on Bearer Securities shall be
made at any office or agency of the Company in the United States or by check
mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that, if
the Debt Securities of a series are denominated and payable in U.S. dollars,
payment of principal of and any premium and interest on Debt Securities
(including any additional amounts payable on Securities of such series) of such
series, if specified in the applicable Prospectus Supplement, shall be made at
the office of the Company's Paying Agent in the Borough of Manhattan, the City
and State of New York, if (but only if) payment in U.S. dollars of the full
amount of such principal, premium, interest or additional amounts, as the case
may be, at all offices or agencies outside the United States maintained for the
purpose by the Company in accordance with the applicable Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions.
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in global
form that will be deposited with, or on behalf of, a depositary identified in
the Prospectus Supplement. Global Notes may be issued in either registered or
bearer form and in either temporary or permanent form (each a "Global Note").
CONVERSION RIGHTS
The terms and conditions, if any, upon which Debt Securities being offered
are convertible into Common Stock will be set forth in the Prospectus Supplement
relating thereto. Such terms will include the conversion price, the conversion
period, provisions as to whether conversion will be at the option of the Holder
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities.
CORPORATE EXISTENCE
Subject to the terms of the applicable Indenture, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights (charter and statutory) and franchises;
provided, however, that the Company shall not be required to preserve any such
right or franchise if the Company shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock, par value $.01 per share, of which 77,503,341 shares were
outstanding as of April 7, 1995. The Company is not authorized to issue
preferred stock. Upon the consummation of the Merger and adoption of the Amended
and Restated Articles of Incorporation, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, par value $.01 per
share, of which 25,715,000 shares of Common Stock will be outstanding and
10,000,000 shares of Common Stock will be reserved for issuance upon the
exercise of the Warrants. Although the Common Stock is currently traded on the
Nasdaq National Market, the Company anticipates that it will seek to have the
Common Stock delisted.
Voting Rights. The holders of the Common Stock are entitled to one vote per
share on all matters submitted for action by the shareholders. There is no
provision for cumulative voting with respect to the election of directors.
Accordingly, the holders of more than 50% of the shares of Common Stock can, if
they choose to do so, elect all of the directors. In such event, the holders of
the remaining shares will not be able to elect any directors.
Dividend Rights. All shares of Common Stock are entitled to share equally in
such dividends as the Board of Directors may declare from sources legally
available therefor.
Liquidation Rights. Upon liquidation or dissolution of the Company, whether
voluntary or involuntary, all shares of Common Stock are entitled to share
equally in the assets available for distribution to shareholders after payment
of all prior obligations of the Company.
Other Matters. The holders of the Common Stock have no preemptive rights.
All outstanding shares of Common Stock are, and the Common Stock offered hereby
will be, fully paid and non-assessable.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Debt
Securities or Common Stock. Securities Warrants may be issued independently or
together with Debt Securities or Common Stock offered by any Prospectus
Supplement and may be attached to or separate from any such Offered Securities.
Each series of Securities Warrants will be issued under a separate warrant
agreement (a "Securities Warrant Agreement") to be entered into between the
Company and a bank or trust company, as warrant agent (the "Securities Warrant
Agent"), all as set forth in the Prospectus Supplement relating to the
particular issue of Securities Warrants. The Securities Warrant Agent will act
solely as an agent of the Company in connection with the Securities Warrants and
will not assume any obligation or relationship of agency or trust for or with
any holders of Securities Warrants or beneficial owners of Securities Warrants.
The following summary of certain provisions of the Securities Warrants does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all provisions of the Securities Warrant Agreements.
Reference is made to the Prospectus Supplement relating to the particular
issue of Securities Warrants offered thereby for the terms of such Securities
Warrants, including, where applicable: (i) the designation, aggregate principal
amount, currencies, denominations, and terms of the series of Debt Securities
purchasable upon exercise of Debt Warrants and the price at which such Debt
Securities may be purchased upon such exercise; (ii) the number of shares of
Common Stock purchasable upon the exercise of Common Stock Warrants and the
price at which such number of shares of Common Stock may be purchased upon such
exercise; (iii) the date on which the right to exercise such Securities Warrants
shall commence and the date on which such right shall expire (the "Expiration
Date"); (iv) United States Federal income tax consequences applicable to such
Securities Warrants; and (v) any
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<PAGE>
other terms of such Securities Warrants. Common Stock Warrants will be offered
and exercisable for U.S. dollars only. Securities Warrants will be issued in
registered form only. The exercise price for Securities Warrants will be subject
to adjustment in accordance with the applicable Prospectus Supplement.
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or such number of shares of Common Stock at
such exercise price as shall in each case be set forth in, or calculable from,
the Prospectus Supplement relating to the Securities Warrants, which exercise
price may be subject to adjustment upon the occurrence of certain events as set
forth in such Prospectus Supplement. After the close of business on the
Expiration Date (or such later date to which such Expiration Date may be
extended by the Company), unexercised Securities Warrants will become void. The
place or places where, and the manner in which, Securities Warrants may be
exercised shall be specified in the Prospectus Supplement relating to such
Securities Warrants.
Prior to the exercise of any Securities Warrants to purchase Debt Securities
or Common Stock, holders of such Securities Warrants will not have any of the
rights of holders of the Debt Securities or Common Stock, as the case may be,
purchasable upon such exercise, including the right to receive payments of
principal of, premium, if any, or interest, if any, in the Debt Securities
purchasable upon such exercise or to enforce covenants in the applicable
Indenture, or to receive payments of dividends, if any, on the Common Stock
purchasable upon such exercise, or to exercise any applicable right to vote.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to which this Prospectus relates
to or for resale to the public through one or more underwriters, acting alone or
in underwriting syndicates led by one or more managing underwriters, and also
may sell such Offered Securities directly to other purchasers or dealers or
through agents.
The distribution of Offered Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed from
time to time, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, or at negotiated prices. Each Prospectus
Supplement will describe the method of distribution of the Offered Securities.
In connection with the sale of Offered Securities, such underwriters,
dealers, and agents may receive compensation from the Company, or from
purchasers of Offered Securities for whom they may act as agents, in the form of
discounts, concessions, or commissions. Underwriters, dealers, and agents that
participate in the distribution of Offered Securities and, in certain cases,
direct purchasers from the Company, may be deemed to be "underwriters" and any
discounts or commissions received by them and any profit on the resale of
Offered Securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriters, dealers, or agents
will be identified and any such compensation will be described in the applicable
Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters,
dealers, and agents who participate in the distribution of Offered Securities
may be entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act. The place and time of delivery
for Offered Debt Securities in respect of which this Prospectus is delivered
will be set forth in the applicable Prospectus Supplement.
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<PAGE>
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Sirote & Permutt, P.C., Birmingham, Alabama, and for any underwriters by
counsel to be specified in the accompanying Prospectus Supplement. As of July
11, 1995, lawyers of Sirote & Permutt, P.C. who have participated in the
preparation of the Registration Statement of which this Prospectus is a part
and/or serve as members of the Board of Directors of the Company beneficially
own 49,915 shares of Common Stock of the Company individually or in various
fiduciary capacities. Although other members of the firm may also own securities
of the Company, no inquiry as to such ownership has been made. As to matters of
New York law, Sirote & Permutt, P.C. will rely on the opinion of Simpson Thacher
& Bartlett (a partnership which includes professional corporations), New York,
New York.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of July 2, 1994 and
July 3, 1993 and for each of the three years in the period ended July 2, 1994,
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended July 2, 1994 have been audited by Arthur Andersen LLP, independent
public accountants as indicated in their report with respect thereto and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports.
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<PAGE>
[ PHOTO ] Bruno's FoodMax stores, which average 51,000
square feet, offer an extensive product selection
and expanded perishables departments.
The Company's 1,375,000 square foot
Birmingham distribution center efficiently
supplies 182 stores using a computerized [ PHOTO ]
inventory control system.
[ PHOTO ] Bruno's stores offer a wide variety
of freshly baked items, many of which
are prepared in the Company's in-store
bakeries.
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN ---------------------
THOSE CONTAINED IN THIS PROSPECTUS PROSPECTUS SUPPLEMENT
SUPPLEMENT AND PROSPECTUS IN CONNECTION ---------------------
WITH THE OFFER MADE BY THIS PROSPECTUS
SUPPLEMENT AND PROSPECTUS, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE
UNDERWRITERS OR ANY OTHER PERSON. THIS
PROSPECTUS SUPPLEMENT AND PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED BRUNO'S, INC.
BY THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS,
NOR DO THEY CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR
IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR $250,000,000 % SENIOR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO SUBORDINATED NOTES DUE 2005
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, $ % SENIOR
UNDER ANY CIRCUMSTANCES, CREATE ANY SUBORDINATED DISCOUNT DEBENTURES
IMPLICATION THAT INFORMATION HEREIN IS CORRECT DUE 2007
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.......... S-3
Risk Factors........................... S-13
Use of Proceeds........................ S-16
The Company............................ S-17
The Merger............................. S-17
Pro Forma Capitalization............... S-21
Pro Forma Consolidated Condensed
Financial Statements................... S-22
Selected Consolidated Historical
Financial Data....................... S-27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. S-29
Business............................... S-36
Management............................. S-45
Principal Shareholders................. S-48
Description of Securities.............. S-51
Description of the Credit Facility..... S-80
Description of Certain Federal Income
Tax Consequences..................... S-82
Underwriting........................... S-86
Legal Matters.......................... S-87
PROSPECTUS
Available Information.................. 2
Incorporation of Certain Information by
Reference............................ 2
The Company............................ 3
The Merger............................. 4 BT SECURITIES CORPORATION
Use of Proceeds........................ 7
Ratios of Earnings to Fixed Charges.... 8 CHEMICAL SECURITIES INC.
Description of the Debt Securities..... 8
Description of Capital Stock........... 19 SALOMON BROTHERS INC
Description of Securities Warrants..... 19
Plan of Distribution................... 20
Legal Matters.......................... 21
Independent Public Accountants......... 21
, 1995
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