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Filed pursuant to Rule 424(b)(3)
Registration No. 333-30557
DI GIORGIO CORPORATION
OFFER TO EXCHANGE
ALL OUTSTANDING
10% SERIES A SENIOR NOTES DUE 2007
($155,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 10% SERIES B SENIOR NOTES DUE 2007
The Exchange Offer (as defined) and withdrawal rights will expire at 5:00
p.m., New York City time, on October 6, 1997 (as such date may be extended, the
"Expiration Date").
Di Giorgio Corporation, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus, as it may be amended and supplemented from time to time (the
"Prospectus"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal," and together with the Prospectus, the "Exchange Offer"), to
exchange $1,000 in principal amount of its 10% Series B Senior Notes due 2007
(the "New Notes") for each $1,000 in principal amount of its outstanding 10%
Series A Senior Notes due 2007 (the "Old Notes") (the Old Notes and the New
Notes are collectively referred to herein as the "Notes") held by Eligible
Holders (as defined), of which an aggregate principal amount of $155 million is
outstanding. See "The Exchange Offer." For purposes of this Exchange Offer,
"Eligible Holder" shall mean the registered owner of any Registrable Securities
(as defined) as reflected on the records of The Bank of New York, a New York
banking corporation, as registrar for the Old Notes (in such capacity, the
"Registrar"), or any person whose Registrable Securities are held of record by
the Depositary (as defined), as of the Record Date (as defined). For purposes of
the Exchange Offer, "Registrable Securities" means each Old Note until the
earliest to occur of (i) the date on which such Old Note has been exchanged for
a New Note in the Exchange Offer, (ii) the date on which a registration
statement of the Company which covers the Old Note has been declared effective
under the Securities Act of 1933, as amended (the "Securities Act"), and the
Notes are disposed of in accordance with such registration statement, (iii) the
date on which such Old Note is sold to the public pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the Securities Act, or
(iv) the date on which the Old Note ceases to be outstanding.
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain customary conditions, which may be
waived by the Company, and to the terms and provisions of the Registration
Rights Agreement, dated as of June 20, 1997 (the "Registration Rights
Agreement"), among the Company and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and BT Securities Corporation (the "Initial
Purchasers"). The Old Notes may be tendered only in multiples of $1,000. See
"The Exchange Offer."
(continued on next page)
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SEE "RISK FACTORS" ON PAGES 17 THROUGH 20 FOR A DISCUSSION OF CERTAIN RISKS THAT
SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFER.
------------------------
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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is September 3, 1997
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An aggregate of $155 million principal amount of Old Notes were sold by the
Company to the Initial Purchasers on June 20, 1997 (the "Closing Date") without
registration under the Securities Act, in reliance upon exemptions therefrom,
pursuant to a Purchase Agreement, dated June 13, 1997 (the "Purchase
Agreement"), among the Company and the Initial Purchasers. The Initial
Purchasers subsequently resold the Old Notes in reliance on Rule 144A under the
Securities Act ("Rule 144A"), Regulation S and certain other exemptions under
the Securities Act. The Company and the Initial Purchasers also entered into the
Registration Rights Agreement, pursuant to which the Company granted certain
registration rights for the benefit of the holders of the Old Notes. The
Exchange Offer is intended to satisfy certain of the Company's obligations under
the Registration Rights Agreement with respect to the Old Notes. See "The
Exchange Offer -- Purpose and Effect."
The Old Notes were, and the New Notes will be, issued under the Indenture,
dated as of June 20, 1997 (the "Indenture"), between the Company and The Bank of
New York, a New York banking corporation, as trustee (in such capacity, the
"Trustee"). The form and terms of the New Notes will be identical in all
material respects to the form and terms of the Old Notes, except that (i) the
New Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, (ii) holders of New Notes will
not be entitled to any increase in the interest rate ("Additional Interest")
thereon pursuant to the Registration Rights Agreement upon the occurrence of a
Registration Default (as defined), and (iii) holders of New Notes will not be,
and upon consummation of the Exchange Offer Eligible Holders of Old Notes will
no longer be, entitled to certain rights under the Registration Rights Agreement
intended for the holders of Registrable Securities; provided, however, that an
Eligible Holder of Old Notes who is not permitted to participate in the Exchange
Offer based upon written advice of counsel to that effect or who does not
receive fully tradeable New Notes pursuant to the Exchange Offer, subject to
reasonable verification by the Company, shall have the right to require the
Company to file a shelf registration statement pursuant to Rule 415 under the
Securities Act (a "Shelf Registration Statement") solely for the benefit of such
Eligible Holder of Old Notes and will be entitled to Additional Interest
following the occurrence of a Registration Default. The Exchange Offer shall be
deemed consummated upon the occurrence of the delivery by the Company to the
Registrar under the Indenture of New Notes in the same aggregate principal
amount as the aggregate principal amount of Old Notes that were tendered by
holders thereof pursuant to the Exchange Offer. See "The Exchange
Offer -- Termination of Certain Rights" and " -- Procedures for Tendering Old
Notes" and "Description of New Notes."
Interest on the New Notes is payable semiannually, in arrears, on June 15
and December 15 of each year (each, an "Interest Payment Date") commencing on
December 15, 1997. Eligible Holders whose Old Notes are accepted for exchange
will have the right to receive interest accrued thereon from the date of their
original issuance or the last Interest Payment Date, as applicable to, but not
including, the date of issuance of the New Notes, such interest to be payable
with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue on the day prior to the issuance of
the New Notes. The New Notes will mature on June 15, 2007. See "Description of
New Notes -- General."
The New Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after June 15, 2002, at the redemption prices set
forth herein, together with accrued and unpaid interest, if any, to the
redemption date. In addition, on or prior to June 15, 2000, the Company may
redeem up to 35% of the originally issued New Notes, at a price of 110% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the redemption date, with the net proceeds of one or more Public Equity
Offerings (as defined), provided that at least $100.75 million in principal
amount of New Notes is outstanding immediately after giving effect to such
redemption. Upon the occurrence of a Change of Control (as defined), each holder
of New Notes, subject to the limitations described herein, will have the right
to require the Company to purchase all or a portion of such holder's New Notes
at a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Company has not
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of
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the Commission would make a similar determination with respect to the Exchange
Offer as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance of the
Commission, and subject to the following sentences, the Company believes that
New Notes issued pursuant to the Exchange Offer to an Eligible Holder in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by an Eligible Holder (other than (i) a broker-dealer who purchased
Old Notes directly from the Company for resale pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act), without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Eligible Holder is
acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Eligible Holders wishing to
accept the Exchange Offer must represent to the Company, as required by the
Registration Rights Agreement, that such conditions have been met. Any Eligible
Holder of Old Notes who is an "affiliate" of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing New Notes, or
any broker-dealer who purchased Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (a) will
not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirement. See "The Exchange Offer -- Resales of the New
Notes."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as a result of market-making activities or other trading activities and
must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts, as a result of market-making or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such Participating Broker-Dealer
for its own account as a result of market-making or other trading activities.
Subject to certain provisions set forth in the Registration Rights Agreement,
the Company has agreed that this Prospectus, may be used by a Participating
Broker-Dealer in connection with resales of such New Notes. See "Plan of
Distribution." However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of New Notes received in exchange for
Old Notes pursuant to the Exchange Offer must notify the Company, or cause the
Company to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided for
that purpose in the Letter of Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth herein under "The Exchange
Offer -- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate"
of the Company may not rely on such interpretive letters and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer -- Resales of
the New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a
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material fact necessary in order to make the statements contained herein, in
light of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of New Notes
pursuant to this Prospectus until the Company has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company has given notice that the sale of the New Notes may be resumed, as
the case may be.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market.
There can be no assurance that an active trading market for the New Notes will
develop. If such a trading market develops for the New Notes, future trading
prices will depend on many factors, including, among other things, prevailing
interest rates, the Company's results of operations and the market for similar
securities. Depending on such factors, the New Notes may trade at a discount
from their face value. See "Risk Factors -- Absence of Public Market for New
Notes."
The Company will not receive any proceeds from this offering, but, pursuant
to the Registration Rights Agreement, the Company will bear certain registration
expenses. No underwriter is being utilized in connection with the Exchange
Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") under the Securities Act with respect to
the New Notes. This Prospectus, which constitutes a part of the Registration
Statement, omits certain information contained in the Registration Statement and
reference is made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the New Notes
offered hereby. This Prospectus contains summaries of the material terms and
provisions of certain documents and in each instance reference is made to the
copy of such document filed as an exhibit to the Registration Statement. Each
such summary is qualified in its entirety by such reference.
Currently, the Company files reports and other information with the
Commission in accordance with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Upon the effectiveness of the Registration Statement, the
Company will be subject to the reporting requirements of the Exchange Act and
the interpretations issued thereunder by the staff of the Commission. The
Registration Statement, such reports and other information can be inspected and
copied at the offices of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the following regional offices
of the Commission: Seven World Trade Center, Suite 1300, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Such material also may be accessed electronically by
means of the Commission's home page on the Internet (http://www.sec.gov).
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FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus under "Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," in addition to certain statements contained
elsewhere in this Prospectus are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 and are thus subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. The most significant of such risks, uncertainties
and other factors are discussed under the heading "Risk Factors," on pages 17
through 20 of this Prospectus.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Unless
otherwise indicated, all references in this Prospectus to the "Company" refer to
Di Giorgio Corporation, a Delaware corporation, and its subsidiaries. Unless
otherwise indicated, industry data contained herein is derived from publicly
available industry trade journals, reports and other publicly available sources,
which the Company has not independently verified, or from Company estimates
which the Company believes to be reasonable but which have not been
independently verified.
THE COMPANY
Di Giorgio Corporation is one of the largest independent wholesale food
distributors in the New York metropolitan area, which is one of the largest food
retail markets in the United States. Across its grocery, frozen and dairy
product categories, the Company supplies approximately 18,000 food and non-food
items, predominantly national brand name items, to more than 1,600 customer
locations. The Company markets approximately 850 grocery, frozen and dairy items
under its well-recognized White Rose(TM) label, which has been established in
the New York metropolitan area for over 110 years. The Company serves
supermarkets, independent retailers (including members of voluntary
cooperatives) and chains principally in the five boroughs of New York City, Long
Island, northern New Jersey and, to a lesser extent, the Philadelphia area. For
the fifty-two weeks ended June 28, 1997, the Company had total revenue of
$1,045.4 million and EBITDA (as defined herein) of $37.7 million.
Formed in 1920, the Company was acquired in 1990 by a corporation
controlled by Arthur M. Goldberg, the Company's current Chairman, President and
Chief Executive Officer (the "1990 Acquisition"). Since the 1990 Acquisition,
Mr. Goldberg and his management team have implemented a strategy focused on
enhancing productivity, growing through the acquisition of complementary
businesses, identifying and developing new revenue opportunities and promoting
brand name recognition of the Company's White Rose(TM) label. The success of
this strategy has been reflected in a more than doubling of the Company's EBITDA
(as defined) since the 1990 Acquisition.
The Company's principal executive offices are located at 380 Middlesex
Avenue, Carteret, New Jersey 07008. The Company's telephone number is (732)
541-5555.
COMPANY STRENGTHS
Market Leadership in New York Metropolitan Area. The Company believes that
it is a market leader in the distribution of grocery products, frozen foods
(including ice cream and frozen bakery goods), and dairy products (excluding
milk and eggs) in the New York metropolitan area. The Company believes that the
breadth of its product lines, and the density of its New York City area customer
locations, afford it a competitive advantage in the New York metropolitan area.
Efficient Distribution Network. The Company believes that its development
of a highly efficient distribution network affords it additional competitive
advantages. This development has consisted of the consolidation of warehouse
facilities into newer, larger and more efficient facilities, the application of
advanced distribution technology through sophisticated computer systems, and
significant improvements in the efficiency of trucking operations.
The White Rose(TM) Label. The White Rose(TM) label is a well-recognized
regional brand for quality merchandise across approximately 850 grocery, frozen
and dairy products, and has been marketed in the New York metropolitan area for
over 110 years. Products under the White Rose(TM) brand are formulated to the
Company's specifications, often by national brand manufacturers, and are subject
to random testing to ensure quality. The White Rose(TM) brand allows independent
retail customers to carry a regionally-recognized label across numerous products
similar to chain stores while providing consumers with an attractive alternative
to national brands. The Company believes that White Rose(TM) labeled products
generally produce higher margins for its customers than national brands, and
help the Company to attract and retain customers.
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Relationship with Met(TM) and Pioneer(TM) Stores. The Met(TM) and
Pioneer(TM) tradenames are owned by the Company; however, the customers using
the tradenames are independently owned stores. The Company and the customer
stores operate as voluntary cooperatives allowing a customer to take advantage
of the benefits of advertising and merchandising on a scale usually available
only to large chains, as well as certain other retail support services provided
by the Company. In order to use the tradenames, customers must purchase a
substantial portion of their grocery, frozen food and dairy inventory
requirements from the Company, thereby enhancing the stability of this portion
of the Company's customer base. These customers represented approximately
one-fifth of net sales for each of the fifty-two week periods ended December 28,
1996 and December 30, 1995.
Experienced Management Team. The Company is led by a strong and
experienced management team, the members of which have a successful track record
in the food marketing and distribution industry. See "Management." The Company
believes that its management team's long-standing relationships with some of its
principal customers are valuable assets.
BUSINESS STRATEGY
Enhancing Productivity. The Company has focused on enhancing productivity
by (i) instituting productivity-based labor incentives, (ii) obtaining the
flexibility to efficiently utilize its workforce, (iii) moving warehousing
locations to newer, larger and more efficient facilities and (iv) upgrading its
computer systems for inventory control and management. In addition, management
has significantly improved trucking efficiency by expanding the role of
backhauls, improving routing using modern technology, and upgrading
transportation equipment. These improvements have controlled costs and,
management believes, have positioned the Company to realize profit margin growth
through volume growth.
Pursuing Complementary Acquisitions. Management has also pursued
complementary strategic acquisitions. In August 1992, the Company acquired
substantially all of the business of the Global Frozen Foods Division ("Global")
of Sysco Corp. (the "Global Acquisition") and in June 1994, the Company
completed the acquisition of substantially all of the assets of the Royal Food
Division of Fleming Foods East, Inc., a subsidiary of Fleming Companies, Inc.
(the "Royal Acquisition"). Both of these acquisitions increased the Company's
market share, gave the Company larger, more efficient warehouses and eliminated
a major competitor from the marketplace. In each acquisition, the Company was
able to achieve efficiencies of scale and synergies in operations that allowed
it to increase the profit margins of the acquired businesses once the
integration was completed.
Developing New Revenue Opportunities. Management has sought to increase
its existing customer revenue base by providing value-added services aimed at
solidifying customer relationships and building customer loyalty. For its large
retail customers, management has focused on providing consistent and reliable
warehousing and distribution services at costs that are attractive to these
customers. For its smaller retail customers, in addition to providing
consistent, reliable warehousing and distribution services and competitive
pricing, the Company has developed numerous product offerings including the sale
of sophisticated information systems (i.e., scanning equipment and systems
support), programs for more efficient coupon redemption and cost-effective
commercial insurance programs.
Promoting Brand Name Recognition. Recently the Company redesigned the logo
of its 110-year-old White Rose(TM) brand and instituted a widespread advertising
campaign which has included promotional sponsorship of New York Yankee baseball
games. Management believes that the growing consumer recognition of the White
Rose(TM) label not only has led to increased demand for the Company's products
within its current operating region, but has created opportunities for the
Company's expansion into other contiguous regions, most notably New England.
Management believes that the success of its strategies has created a
platform for growth opportunities in the future. The Company's information
systems, operating flexibility and capacity allow it to effectively service
major accounts with supplemental supply on short notice, as it has demonstrated
twice within the past year. Management believes that this proven success has
created goodwill with prospective customers and has placed the Company in a
competitive position to attract new business. Additionally, management continues
to weigh
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alternatives aimed at growing volume at its existing distribution centers by
exploring the most profitable means of expansion of its core business into the
complementary markets of Philadelphia and New England while continuing to
develop broader-based consumer recognition of its White Rose(TM) brand. The
Company also plans to continue to engage in discussions from time to time with
respect to, and may pursue, potential strategic acquisitions.
THE REFINANCING
On June 20, 1997, the Company completed a refinancing (the "Refinancing")
of itself and its former parent, White Rose Foods, Inc. ("White Rose"), intended
to extend debt maturities, reduce interest expense and improve financial
flexibility. The components of the Refinancing were (i) the offering of the Old
Notes (the "Offering"), (ii) the modification of the Company's bank credit
facility (the "Bank Credit Facility"), (iii) the receipt of payment for the
extinguishment of a note held by the Company from Rose Partners, LP ("Rose
Partners"), which owns 98.54% of the Company, (iv) the consummation of the
tender offers and consent solicitations commenced by the Company (the "Company
Tender Offer") and White Rose (the "White Rose Tender Offer") on May 16, 1997 in
respect of the Company's 12% Senior Notes due 2003 (the "12% Notes") and White
Rose's 12 3/4% Senior Discount Notes due 1998 (the "12 3/4% Discount Notes"),
respectively, (v) the dividend by the Company to White Rose of certain non-cash
assets which were unrelated to the Company's primary business and the subsequent
dividend of those assets to White Rose's stockholders and (vi) the merger
("Merger") of White Rose with and into the Company with the Company surviving
the merger.
The Company funded the White Rose Tender Offer through an intercompany loan
which was canceled upon the consummation of the Merger. Immediately following
the Refinancing, no 12 3/4% Discount Notes remained outstanding and $7.45
million aggregate principal amount of 12% Notes remained outstanding; however,
the Indenture pursuant to which the 12% Notes were issued has been substantially
amended effective as of June 9, 1997 pursuant to the Company Tender Offer.
ISSUANCE OF THE OLD NOTES
The Old Notes were sold by the Company to the Initial Purchasers on the
Closing Date pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A, Regulation S under
the Securities Act and other available exemptions under the Securities Act. The
Company and the Initial Purchasers also entered into the Registration Rights
Agreement. The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement with respect to the Old
Notes. See "The Exchange Offer."
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THE EXCHANGE OFFER
The Exchange Offer........... The Company is offering upon the terms and
subject to the conditions set forth herein and in
the accompanying Letter of Transmittal, to
exchange $1,000 in principal amount of the New
Notes for each $1,000 in principal amount of the
outstanding Old Notes. As of the date of this
Prospectus, $155 million in aggregate principal
amount of the Old Notes is outstanding, the
maximum amount authorized by the Indenture for
all Notes. Upon consummation of the Exchange
Offer, holders of Old Notes that were not
prohibited from participating in the Exchange
Offer and did not tender their Old Notes will not
have any registration rights under the
Registration Rights Agreement with respect to
such nontendered Old Notes and, accordingly, such
nontendered Old Notes will continue to be subject
to the restrictions on transfer contained in the
legend thereon. See "The Exchange Offer -- Terms
of the Exchange Offer."
Expiration Date.............. 5:00 p.m., New York City time, on October 6, 1997
as the same may be extended. See "The Exchange
Offer -- Expiration Date; Extensions;
Amendments."
Conditions of the Exchange
Offer;
Extensions; Amendments..... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions.
The Company expressly reserves the right, in its
sole and absolute discretion, (i) to delay
accepting any Old Notes, (ii) to extend the
Exchange Offer, (iii) if any of the conditions
set forth under "The Exchange Offer -- Conditions
of the Exchange Offer" shall not have been
satisfied, to terminate the Exchange Offer, by
giving oral or written notice of such delay,
extension, or termination to the Exchange Agent,
and (iv) to waive any condition or otherwise
amend the terms of the Exchange Offer in any
manner. If the Exchange Offer is amended in a
manner determined by the Company to constitute a
material change, the Company will promptly
disclose such amendments by means of a prospectus
supplement that will be distributed to the
registered holders of the Old Notes. See "The
Exchange Offer -- Expiration Date; Extensions;
Amendments" and "The Exchange Offer -- Conditions
of the Exchange Offer."
Termination of Certain
Rights....................... Pursuant to the Registration Rights Agreement and
the Old Notes, Eligible Holders of Old Notes have
certain rights. Holders of New Notes will not be
and, upon consummation of the Exchange Offer,
Eligible Holders of Old Notes will no longer be,
entitled to (i) the right to receive Additional
Interest or (ii) certain other rights under the
Registration Rights Agreement intended for the
holders of unregistered securities; provided,
however, that an Eligible Holder of Old Notes who
is not permitted to participate in the Exchange
Offer based upon written advice of counsel to the
effect that such Eligible Holder may not be
legally able to participate in the Exchange Offer
or does not receive fully tradeable New Notes
pursuant to the Exchange Offer, subject to
reasonable verification by the Company, shall
have the right to require the Company to file a
Shelf Registration Statement solely for the
benefit of such Eligible Holders of Old Notes and
will be entitled to receive Additional Interest
following the occurrence
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of a Registration Default in connection with the
filing of such Shelf Registration Statement.
Notwithstanding, anything to the contrary in the
foregoing, Old Notes not tendered in the Exchange
Offer will remain outstanding and continue to
accrue interest in accordance with their terms.
See "The Exchange Offer -- Termination of Certain
Rights" and "-- Procedures for Tendering Old
Notes" and "Description of New Notes."
Accrued Interest on the
Old Notes.................. Eligible Holders whose Old Notes are accepted for
exchange will have the right to receive interest
accrued thereon from the date of their original
issuance or the last Interest Payment Date, as
applicable, to, but not including, the date of
issuance of the New Notes, such interest to be
payable with the first interest payment on the
New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue on the day prior to
the issuance of the New Notes.
Procedures for Tendering
Old Notes.................. Unless a tender of Old Notes is effected pursuant
to the procedures for book-entry transfer as
provided herein, each Eligible Holder desiring to
accept the Exchange Offer must complete and sign
the Letter of Transmittal, have the signature
thereon guaranteed if received by the Letter of
Transmittal, and mail or deliver the Letter of
Transmittal, together with the Old Notes or a
Notice of Guaranteed Delivery and any other
required documents (such as evidence of authority
to act, if the Letter of Transmittal is signed by
someone acting in a fiduciary or representative
capacity), to the Exchange Agent (as defined) at
the address set forth on the back cover page of
this Prospectus prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Beneficial
Owner (as defined) of the Old Notes whose Old
Notes are registered in the name of a nominee,
such as a broker, dealer, commercial bank or
trust company and who wishes to tender Old Notes
in the Exchange Offer, should instruct such
entity or person to promptly tender on such
Beneficial Owner's behalf. Any Old Notes not
accepted for exchange for any reason will be
returned, without expense to the tendering
Eligible Holder thereof, as promptly as
practicable after the Expiration Date. See "The
Exchange Offer -- Procedures for Tendering Old
Notes."
Guaranteed Delivery
Procedures................... Eligible Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent on or prior to
the Expiration Date or (iii) complete the
procedures for delivery by book-entry transfer on
a timely basis, may tender their Old Notes
according to the guaranteed delivery procedures
set forth in the Letter of Transmittal. See "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of New Notes...... Upon satisfaction or waiver of all conditions of
the Exchange Offer, the Company will accept any
and all Old Notes that are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old
10
<PAGE> 11
Notes. See "The Exchange Offer -- Acceptance of
Old Notes for Exchange; Delivery of New Notes."
Withdrawal Rights............ Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer -- Withdrawal Rights."
The Exchange Agent........... The Bank of New York, a New York banking
corporation, is the exchange agent (in such
capacity, the "Exchange Agent"). The address and
telephone number of the Exchange Agent are set
forth in "The Exchange Offer -- The Exchange
Agent; Assistance."
Fees and Expenses............ All expenses incident to the Company's
consummation of the Exchange Offer and compliance
with the Registration Rights Agreement will be
borne by the Company. The Company will also pay
certain transfer taxes, if applicable to the
Exchange Offer. See "The Exchange Offer -- Fees
and Expenses."
Resales of the New Notes..... The Company is making the Exchange Offer in
reliance on the position of the staff of the
Division of Corporation Finance of the Commission
as set forth in certain interpretive letters
addressed to third parties in other transactions.
However, the Company has not sought its own
interpretive letter and there can be no assurance
that the staff of the Division of Corporate
Finance of the Commission would make a similar
determination with respect to the Exchange Offer
as it has in such interpretive letters to third
parties. Based on these interpretations by the
staff of the Division of Corporation Finance of
the Commission, and subject to the following
sentences, the Company believes that New Notes
issued pursuant to the Exchange Offer to an
Eligible Holder in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by an Eligible Holder (other than (i)
a broker-dealer who purchased Old Notes directly
from the Company for resale pursuant to Rule 144A
or any other available exemption under the
Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of
Rule 405 under the Securities Act), without
further compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Eligible Holder is
acquiring the New Notes in the ordinary course of
business and is not participating, and has no
arrangement or understanding with any person to
participate, in the distribution of the New
Notes. Eligible Holders wishing to accept the
Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement,
that such conditions have been met. Any Eligible
Holder of Old Notes who is an "affiliate" of the
Company or who intends to participate in the
Exchange Offer for the purpose of distributing
New Notes, or any broker-dealer who purchased Old
Notes from the Company to resell pursuant to Rule
144A or any other available exemption under the
Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division
of Corporation Finance of the Commission set
forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to
tender such Old Notes in the Exchange Offer and
(c) must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any sale or
other transfer of such Old Notes unless such sale
is made pursuant to an exemption from
11
<PAGE> 12
such requirement. See "The Exchange
Offer -- Resales of the New Notes." Each
broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes for
its own account as a result of market-making
activities or other trading activities and must
agree that it will deliver a prospectus meeting
the requirements of the Securities Act in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by
the staff of the Division of Corporation Finance
of the Commission in the interpretive letters
referred to above, the Company believes that
broker-dealers who acquired Old Notes for their
own accounts, as a result of market-making or
other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New
Notes received upon exchange of such Old Notes
(other than Old Notes which represent an unsold
allotment from the original sale of the Old
Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the
prospectus prepared for an exchange offer so long
as it contains a description of the plan of
distribution with respect to the resale of such
New Notes. Accordingly, this Prospectus, as it
may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer
during the period referred to below in connection
with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own
account as a result of market-making or other
trading activities. Subject to certain provisions
set forth in the Registration Rights Agreement,
the Company has agreed that this Prospectus, may
be used by a Participating Broker-Dealer in
connection with resales of such New Notes. See
"Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus
in connection with the resale of New Notes
received in exchange for Old Notes pursuant to
the Exchange Offer must notify the Company, or
cause the Company to be notified, on or prior to
the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth herein
under "The Exchange Offer -- Exchange Agent." Any
Participating Broker-Dealer who is an "affiliate"
of the Company may not rely on such interpretive
letters and must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any resale
transaction. See "The Exchange offer -- Resales
of the New Notes."
Certain Federal Tax
Consequences............... For a discussion of certain federal tax
consequences of the exchange of the Old Notes,
see "Certain Federal Income Tax Considerations."
12
<PAGE> 13
DESCRIPTION OF NEW NOTES
The form and term of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of New Notes will not be
entitled to any Additional Interest otherwise payable under the terms of the
Registration Rights Agreement in respect of Old Notes constituting Registrable
Securities held by such holders if (A) a registration statement (an "Exchange
Registration Statement") concerning the Exchange Offer is not filed with the
Commission on or prior to August 19, 1997, (B) the Exchange Registration
Statement has not been declared effective on or prior to October 18, 1997, (C)
an exchange offer is not consummated on or prior to November 17, 1997 (or if a
Shelf Registration Statement is required, 30 days after request therefor), or
(D) an Exchange Registration Statement or a Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable within the
applicable period as specified (each such event referred to in clauses (A)
through (D) above, a "Registration Default"), and (iii) holders of New Notes
will not be, and upon consummation of the Exchange Offer, Eligible Holders of
Old Notes, will no longer be, entitled to certain rights under the Registration
Rights Agreement intended for the holders of unregistered securities; provided,
however, that an Eligible Holder of Old Notes who is not permitted to
participate in the Exchange Offer based upon written advice of counsel to the
effect that such Holder may not be legally able to participate in the Exchange
Offer or does not receive fully tradeable New Notes pursuant to the Exchange
Offer, subject to reasonable verification by the Company, shall have the right
to require the Company to file a Shelf Registration Statement solely for the
benefit of such Eligible Holder of Old Notes and will be entitled to Additional
Interest following the occurrence of a Registration Default. The Exchange Offer
shall be deemed consummated upon the occurrence of the delivery by the Company
to the Registrar under the Indenture. See "The Exchange Offer -- Termination of
Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description of
New Notes."
Maturity Date................ June 15, 2007.
Interest..................... 10% payable semi-annually, calculated on the
basis of a 360-day year consisting of twelve
30-day months.
Interest Payment Dates....... June 15 and December 15 of each year, commencing
December 15, 1997.
Optional Redemption.......... The New Notes will be redeemable at the Company's
option, in whole or in part, at any time on or
after June 15, 2002, at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, on or prior to June 15, 2000, the
Company may redeem up to 35% of the Old Notes, at
a price of 110% of the principal amount thereof,
together with accrued and unpaid interest, if
any, to the redemption date, with the net
proceeds of one or more Public Equity Offerings,
provided that at least $100.75 million in
principal amount of Notes is outstanding
immediately after giving effect to such
redemption. See "Description of New
Notes -- Optional Redemption."
Change of Control............ Upon the occurrence of a Change of Control, each
holder of New Notes will, subject to the
limitations described herein, have the right to
require the Company to repurchase all or a
portion of such holder's New Notes at a purchase
price equal to 101% of the principal amount
thereof, together with accrued and unpaid
interest, if any, to the date of purchase. See
"Description of New Notes -- Purchase of New
Notes Upon a Change of Control."
Ranking...................... The New Notes will be unsecured senior
obligations of the Company, ranking pari passu in
right of payment with all other existing and
future Senior Indebtedness of the Company. The
New Notes will be
13
<PAGE> 14
effectively subordinated to secured Indebtedness,
including the Company's secured Indebtedness (as
defined) under the Bank Credit Facility and
certain other Permitted Indebtedness that may be
secured by a lien on the assets of the Company.
As of June 28, 1997 and after giving effect to
the Refinancing, which includes the issuance of
the New Notes, the Company had $235.0 million of
Senior Indebtedness. Although the New Notes,
indebtedness incurred under the Bank Credit
Facility and certain other Permitted Indebtedness
(as defined) will all constitute senior
obligations of the Company, the Banks (and any
other lender with respect to other Indebtedness
secured by assets of the Company) will have a
claim ranking prior to that of the holders of the
New Notes with respect to the distributions of
assets and the proceeds thereof securing the
Company's obligations thereunder.
Certain Covenants............ The Indenture (as defined herein) pursuant to
which the New Notes will be issued will contain
certain covenants including, among others,
covenants with respect to the following matters:
(i) limitations on indebtedness (ii) limitations
on restricted payments; (iii) limitations on
transactions with affiliates; (iv) limitations on
liens; (v) limitations on sale of assets; (vi)
limitations on capital stock of subsidiaries;
(vii) limitations on dividends and other payment
restrictions affecting subsidiaries; and (viii)
limitations on unrestricted subsidiaries. See
"Description of the New Notes -- Certain
Covenants."
Absence of a Public Market
for the New Notes............ The New Notes will be new securities for which
there is currently no established public trading
market. Accordingly, there can be no assurances
as to the development or the liquidity of any
market for the New Notes. The Company intends to
make application to have the New Notes designated
for trading in the Private Offerings, Resales and
Trading through Automatic Linkages (PORTAL)
System of the National Association of Securities
Dealers, Inc. The Company does not intend to
apply for listing of the Notes on any securities
exchange or for quotation through the Nasdaq
National Market or any other quotation system.
For more detailed information regarding the terms of the New Notes and for
definitions of capitalized terms not otherwise defined, see "Description of the
New Notes."
RISK FACTORS
See "Risk Factors" on pages 17 through 20 for a discussion of certain
factors which should be considered by prospective investors in evaluating an
investment in the Notes.
14
<PAGE> 15
SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The consolidated financial data presented below for the fiscal years ended
on January 2, 1993, January 1, 1994, December 31, 1994, December 30, 1995 and
December 28, 1996 has been derived from the Company's audited consolidated
financial statements and has been prepared by adjusting the consolidated
financial statements of the Company as if the Merger between White Rose and the
Company had taken place as of December 28, 1991. Such financial data has not
been adjusted for any other component of the Refinancing. Since the stockholders
of the Company, upon the consummation of the Merger are identical to the
stockholders of White Rose, the exchange of shares was a transfer of interest
among entities under common control, and is being accounted for at historical
cost in a manner similar to pooling of interests accounting. The unaudited
interim consolidated financial statements of the Company for the twenty-six week
periods ended June 29, 1996 and June 28, 1997 and as of June 28, 1997 were
derived from the Company's Quarterly Report on Form 10-Q/A, for and as of such
periods. The data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the notes thereto and
other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
FISCAL YEAR ENDED ENDED
----------------------------------------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1993 1994 1994 1995 1996 1996 1997
---------- ---------- ------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Total revenue(a).................. $704,448 $774,105 $936,847 $1,023,041 $1,050,206 $524,608 $519,852
Cost of products sold............. 626,359 682,974 835,526 915,536 935,719 467,214 463,062
-------- -------- -------- ---------- ---------- -------- --------
Gross profit(b)................... 78,089 91,131 101,321 107,505 114,487 57,394 56,790
Warehouse expense................. 28,256 32,631 37,503 39,196 40,343 20,596 21,250
Transportation expense............ 15,784 17,916 21,354 22,759 21,624 10,955 10,674
Selling, general and
administration expenses......... 16,874 19,089 20,277 22,357 23,389 11,791 11,305
Facility integration expenses..... -- -- 3,986 -- -- -- --
Amortization -- excess of cost
over net assets acquired........ 2,615 2,616 2,766 2,892 2,892 1,446 1,338
-------- -------- -------- ---------- ---------- -------- --------
Operating income.................. 14,560 18,879 15,435 20,301 26,239 12,606 12,223
Interest expense.................. 14,409 18,232 20,370 24,887 23,955 12,027 11,693
Amortization -- deferred financing
costs........................... 3,366 1,600 1,479 1,457 1,138 568 651
Other (income)/expense, net....... (1,806) (1,888) (2,939) (3,842) (3,758) (1,537) (2,201)
-------- -------- -------- ---------- ---------- -------- --------
(Loss)/income from continuing
operations before income taxes
and extraordinary items......... (1,409) 935 (3,475) (2,201) 4,904 1,548 2,080
Income taxes...................... 34 109 63 105 3,053 -- 1,312
-------- -------- -------- ---------- ---------- -------- --------
(Loss)/income from continuing
operations before extraordinary
items........................... (1,443) 826 (3,538) (2,306) 1,851 1,548 768
(Loss)/income from discontinued
operations...................... (659) (1,178) -- -- -- -- --
Extraordinary (loss)/gain on
extinguishment of debt.......... -- (3,976) -- 510 219 219 (8,467)
-------- -------- -------- ---------- ---------- -------- --------
Net (loss)/income................. $ (2,102) $ (4,328) $ (3,538) $ (1,796) $ 2,070 $ 1,767 ($ 7,699)
======== ======== ======== ========== ========== ======== ========
Ratio of earnings to fixed
charges(c)...................... --(d) 1.04x --(d) --(d) 1.18x 1.11x 1.15x
OTHER DATA:
EBITDA(e)......................... $ 20,902 $ 25,960 $ 27,628 $ 30,425 $ 36,854 $ 17,694 $ 18,529
Capital expenditures.............. 1,563 1,501 1,390 1,920 1,004 342 1,702
</TABLE>
(continued on the following page)
15
<PAGE> 16
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED
JUNE 28, 1997
---------------------
<S> <C>
PRO FORMA FINANCIAL DATA(F):
EBITDA(e)................................................................ $37,689
Interest expense......................................................... 23,621
Ratio of EBITDA to interest expense...................................... 1.60x
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
-------------
ACTUAL
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets.................................................................... $ 306,295
Working capital................................................................. 19,344
Total debt...................................................................... 234,968
Total stockholders deficit...................................................... (7,817)
</TABLE>
- ---------------
(a) Previously, the Company classified as other income reclamation service fees,
label income and other customer related services. Commencing in the fiscal
year ended December 28, 1996, the Company is classifying these items as
other revenue. Prior year amounts have been reclassified accordingly. The
change in classification has no effect on previously reported net income.
(b) Gross profit excludes warehouse expense shown separately.
(c) For purposes of these calculations, earnings before fixed charges consist of
earnings from continuing operations before income taxes plus fixed charges.
Fixed charges consist of interest expense, amortization of deferred
financing fees and the interest component of rent expense.
(d) The Company's earnings before fixed charges for the fiscal years ended
January 2, 1993, December 31, 1994, December 30, 1995, were inadequate to
cover fixed charges by approximately $1,409, $3,475 and $2,201,
respectively.
(e) EBITDA is earnings before interest expense, income taxes, depreciation and
amortization, non-cash interest income, non-recurring charges such as
extraordinary gains or losses and, for fiscal year 1994, facility
integration expense. EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to earnings from
operations as an indicator of operating performance or as a measure of
liquidity and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles ("GAAP"). See "Financial Statements of Di Giorgio
Corporation and Subsidiaries." EBITDA is provided solely as supplemental
disclosure.
(f) Presented as though the Refinancing had occurred at the beginning of the
period presented for pro forma financial data adjusted to reflect the
elimination of actual interest expense on the tendered 12% Notes and the
tendered 12 3/4% Discount Notes and to reflect the pro forma interest
expense on the $155,000 Old Notes at 10%. Pro forma financial data is
presented for a rolling fifty-two week period ended June 28, 1997.
16
<PAGE> 17
RISK FACTORS
Prospective investors should carefully consider, among other matters, the
following in connection with a decision to purchase the Notes offered hereby.
LEVERAGE; HISTORY OF OPERATING LOSSES; ABILITY TO SERVICE INDEBTEDNESS
The Company has a substantial amount of indebtedness. As of June 28, 1997,
the Company's consolidated total indebtedness was $235.0 million. In addition,
the Company realized net losses in four of the five last completed fiscal years,
due principally to interest expense relating to indebtedness incurred in
connection with the 1990 Acquisition. The Company's consolidated leverage and
limited history of net profits may adversely affect the Company's ability to
obtain financing on terms satisfactory to the Company in the future.
The Company's earnings before fixed charges for the fiscal years ended
January 2, 1993, December 31, 1994, and December 30, 1995 were inadequate to
cover fixed charges by approximately $1.4 million, $3.5 million, and $2.2
million, respectively. The failure by the Company to cover fixed charges in the
future could result in a failure to meet the Company's debt service obligations,
restrictions on the Company's activities or other material adverse effects on
the Company's financial condition and results of operations.
The Company's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness (including the Notes) depends on
its future performance and financial results, which, to a certain extent, are
subject to general economic, financial, competitive, legislative, regulatory and
other factors beyond its control. There can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
working capital borrowings will be available in an amount sufficient to enable
the Company to service its indebtedness, including the Notes, or make necessary
capital expenditures. The degree to which the Company is currently leveraged
could have important consequences to the holders of the Notes, including, but
not limited to, the following: (i) a substantial portion of the Company's cash
flow from operations will be required to be dedicated to debt service and will
not be available to the Company for its operations, (ii) the Company's ability
to obtain additional financing in the future for acquisitions, capital
expenditures, working capital or general corporate purposes could be limited,
(iii) the Company's increased vulnerability to higher interest rates because
borrowings under the Bank Credit Facility are at variable rates of interest and
(iv) the Company's increased vulnerability to adverse general economic and
industry conditions.
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The Bank Credit Facility and the Indenture contain covenants that, among
other things and subject to certain exceptions, restrict the ability of the
Company to incur additional indebtedness, pay dividends, prepay subordinated
indebtedness, dispose of certain assets, enter into sale and leaseback
transactions, create liens, make capital expenditures and make certain
investments or acquisitions and otherwise restrict corporate activities. In
addition, under the Bank Credit Facility, the Company is required to satisfy
specified financial covenants, including a cash flow coverage ratio, interest
coverage ratio and ratio of total liabilities to tangible net worth. The ability
of the Company to comply with such provisions may be affected by events beyond
the Company's control. The breach of any of these covenants could result in a
default under the Bank Credit Facility. In the event of any such default,
depending on the actions taken by the lenders under the Bank Credit Facility,
such lenders could elect to declare all amounts borrowed under the Bank Credit
Facility, together with accrued interest, to be due and payable. A default under
the Bank Credit Facility or the instruments governing the Company's other
indebtedness could constitute a cross-default under the Indenture and any
instruments governing the Company's other indebtedness, and a default under the
Indenture could constitute a cross-default under the Bank Credit Facility and
any instruments governing the Company's other indebtedness.
17
<PAGE> 18
COMPETITION
The wholesale food distribution industry is highly competitive. The Company
competes with other food distributors and the warehousing and distributing
divisions of retail grocery chains. Some of these competitors have greater
financial and other resources than the Company. In addition, consolidation in
the industry, heightened competition among the Company's suppliers, new entrants
and trends toward vertical integration could create competitive pressures that
reduce margins and adversely affect the Company. The Company believes that the
key competitive factors within the wholesale food distribution industry are
price, service, breadth and availability of products offered, strength of
private label brands offered, strength of store trademarks offered, store
financing support and cooperative arrangements. There can be no assurance that
the Company will be able to continue to compete effectively in its industry. See
"Business -- Competition."
LOW MARGIN BUSINESS
The wholesale food distribution industry in which the Company operates is
characterized by low profit margins. As a result, the Company's results of
operations are sensitive to, and may be materially adversely impacted by, among
other things, competitive pricing pressures, vendor selling programs, increased
interest rates and deflation in food prices. There can be no assurance that one
or more of such factors will not materially adversely affect the Company's
operating results. See "Business -- Competition."
RELIANCE ON SIGNIFICANT CUSTOMERS
In fiscal year 1996, the Company's largest customers, The Great Atlantic
and Pacific Tea Company ("A&P") and Associated Food Stores ("Associated")
accounted for approximately 22% and 20%, respectively, of net sales, and the
Company's five largest customers accounted for approximately 62% of net sales.
Losses of any of these customers or a substantial decrease in the amount of
their purchases could be disruptive to the Company's business and have a
material adverse effect on the Company's operating results. See
"Business -- Markets and Customers." In the fourth quarter of 1996, a customer
of the Company terminated its supply agreement that was scheduled to expire in
October 1997. Sales to this customer totaled $62.7 million in the fifty-two
weeks ended December 28, 1996 and $65.5 million in the comparable prior period.
Revenues received from this customer will be substantially lower in 1997 than in
prior years. See "Business -- Markets and Customers" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POTENTIAL CREDIT LOSSES FROM LOANS TO RETAILERS
The Company extends loans to many of its retail customers, often in
conjunction with the establishment of supply arrangements with such customers.
Loans to customers are generally to smaller businesses which are not investment
grade, and such loans are highly illiquid. Provisions for doubtful accounts,
including losses from receivables and investments in customers, were
approximately $1.9 million for the fifty-two weeks ended December 28, 1996, as
compared to $2.1 million for fiscal year 1995. At August 1, 1997, the Company's
customer financing portfolio had an aggregate balance of approximately $14.5
million. The Company intends to continue, and possibly increase, its commitment
to customer loans, and there can be no assurances that credit losses from
existing or future investments or commitments will not have a material adverse
effect on the Company's results of operations or financial condition. See
"Business -- Products."
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON REGIONAL ECONOMIC CONDITIONS
The Company's business is conducted primarily in the New York City
metropolitan area, and accordingly, the Company is highly dependent on the
general economic condition of this region. There can be no assurance that this
region will not experience economic downturns in future periods that adversely
affect the ability of the Company to improve or maintain its financial
performance.
18
<PAGE> 19
POTENTIAL ENVIRONMENTAL LIABILITIES
The Company and certain businesses as to which it is alleged that the
Company is a successor have incurred and may in the future incur liability under
various federal and state environmental laws, including the Federal
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended ("CERCLA"). In addition, the Company has been named as a potentially
responsible party ("PRP") under CERCLA for cleanup costs at a separate waste
disposal site in the United States operated by a third party. See
"Business -- Environmental Matters." The Company believes that it has adequately
reserved for the potential liability arising from the environmental problems
known to it and that any such potential environmental liabilities in excess of
such reserve will not have a material adverse effect on the Company's financial
condition. However, there can be no assurance that the future identification of
contamination at its current or former sites or changes in cleanup requirements
would not have a material adverse effect on the Company's financial condition
and results of operations.
LABOR RELATIONS
As of May 16, 1997, approximately 690 employees, representing approximately
67% of the Company's full-time employees, were members of various local unions
associated with the International Brotherhood of Teamsters. The collective
bargaining agreement with the warehouse employees of the Company's grocery
operations expires in the fourth quarter of 1997. While the Company considers
its labor relations satisfactory, a prolonged labor dispute could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ADVERSE PUBLICITY; PRODUCT LIABILITY
The packaging, marketing and distribution of food products entails an
inherent risk of product liability, product recall and resultant adverse
publicity. There can be no assurance that such claims will not be asserted
against the Company or that the Company will not be obligated to perform such a
recall in the future. While the Company as a general practice receives
indemnification guarantees from its suppliers whereby the supplier agrees to
indemnify the Company from such claims and obligations, there can be no
assurance that such indemnification will be sufficient or that such claims or
obligations would not create adverse publicity that would have a material
adverse effect on the Company's ability to successfully market its products.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success depends, to a large extent, upon the
efforts and abilities of key managerial employees, particularly the Company's
executive officers, including Arthur M. Goldberg, Chairman, President and Chief
Executive Officer, Richard B. Neff, Executive Vice President and Chief Financial
Officer, and Stephen R. Bokser, Executive Vice President and President of the
White Rose Division of Di Giorgio. In particular, these individuals have
developed long-standing relationships with many of the Company's most
significant customers. The loss of the services of any of these or other key
executives may have a material adverse effect on the Company's operating
results. See "Management."
FRAUDULENT CONVEYANCE
The Company believes that the indebtedness represented by the Notes has
been incurred for proper purposes and in good faith, and that, based on present
forecasts, asset valuations and other financial information, the Company is
solvent, will have sufficient capital for carrying on its business and will be
able to pay its debts as they mature. Notwithstanding this belief, however,
under federal or state fraudulent transfer laws, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that
the Company did not receive fair consideration (or reasonably equivalent value)
for incurring the Notes or any debt being refinanced thereby and at the time of
the incurrence of such indebtedness, the Company was insolvent, was rendered
insolvent by reason of such incurrence, was engaged in a business or transaction
for which its remaining assets constituted unreasonably small capital, intended
to incur, or believed that it would incur, debts beyond its ability to pay
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<PAGE> 20
such debts as they matured, or that the Company intended to hinder, delay or
defraud its creditors, then such court could, among other things, (a) void all
or a portion of the Company's obligations to the holders of the Notes, the
effect of which would be that the holders of the Notes may not be repaid in
full, (b) recover all or a portion of the payments made to holders of the Notes,
and/or (c) subordinate the Company's obligations to the holders of the Notes to
other existing and future indebtedness of the Company to a greater extent than
would otherwise be the case, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Notes. The
measure of insolvency for purposes of the foregoing will vary depending upon the
law of the relevant jurisdiction. Generally, however, a company would be
considered insolvent for purposes of the foregoing if the sum of the Company's
debts is greater than all of the Company's property at a fair valuation, or if
the present fair saleable value of the Company's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and mature. There can be no assurances as to what standards
a court would apply to determine whether the Company was solvent at the relevant
time, or whether, whatever standard was applied, the Notes would not be voided
on another of the grounds set forth above.
ABSENCE OF PUBLIC MARKET FOR NEW NOTES
The New Notes are new securities for which there currently is no market.
Although the Initial Purchasers have informed the Company that they currently
intend to make a market in the New Notes, they are not obligated to do so and
any such market making may be discontinued at any time without notice.
Accordingly there can be no assurance as to the development or liquidity of any
market for the New Notes. The New Notes are expected to be eligible for trading
in the PORTAL market. The Company does not intend to apply for listing of the
New Notes on any securities exchange or for quotation through the Nasdaq
National Market or any other quotation system.
CERTAIN MARKET CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
To the extent that Old Notes are tendered and accepted for exchange
pursuant to the Exchange Offer, the trading market for Old Notes that remain
outstanding may be significantly more limited, which might adversely affect the
liquidity of the Old Notes not tendered for exchange. The extent of the market
therefor and the availability of price quotations would depend upon a number of
factors, including the number of holders of Old Notes remaining at such time and
the interest in maintaining a market in such Old Notes on the part of securities
firms. An issue of securities with a smaller outstanding market value available
for trading (the "float") may command a lower price than would a comparable
issue of securities with a greater float. Therefore, the market price for Old
Notes that are not exchanged in the Exchange Offer may be affected adversely to
the extent that the amount of Old Notes exchanged pursuant to the Exchange Offer
reduces the float. The reduced float also may make the trading price of the Old
Notes that are not exchanged more volatile.
CERTAIN CONSEQUENCES OF FAILURE TO VALIDLY TENDER
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made following the prior satisfaction, or waiver, of the
conditions set forth in "The Exchange Offer -- Certain Conditions of the
Exchange Offer" and only after timely receipt by the Exchange Agent of such Old
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of Old Notes desiring to tender
such Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery of all required documentation. Beneficial holders of Old Notes
should also take into account the fact that the delivery of documents to The
Depository Trust Company ("DTC") in accordance with DTC's procedures does not
constitute delivery to the Exchange Agent. Neither the Exchange Agent, the
Company nor any other person is under any duty to give notification of defects
or irregularities with respect to the tenders of Old Notes for exchange. Old
Notes that may be tendered in the Exchange Offer but which are not validly
tendered will, following consummation of the Exchange Offer, remain outstanding
and will continue to be subject to the same transfer restrictions currently
applicable to such Old Notes.
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<PAGE> 21
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchasers on June
20, 1997, pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A and Regulation S
under the Securities Act. The Company and the Initial Purchasers also entered
into the Registration Rights Agreement, pursuant to which the Company agreed,
with respect to the Old Notes and subject to the Company's determination that
the Exchange Offer is permitted under applicable law, to use its best efforts
(i) to file, on or prior to August 19, 1997, an Exchange Offer Registration
Statement with the Commission under the Securities Act concerning the Exchange
Offer, (ii) to cause the Exchange Offer Registration Statement to be declared
effective by the Commission on or prior to October 18, 1997, (iii) to keep the
Exchange Offer Registration Statement effective until the closing of the
Exchange Offer and (iv) to cause the Exchange Offer to be consummated on or
prior to November 17, 1997. This Exchange Offer is intended to satisfy the
Company's exchange offer obligations under the Registration Rights Agreement.
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, Eligible Holders of Old Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the Securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the New Notes for each $1,000 in principal amount of the
outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company, and to the terms and provisions
of the Registration Rights Agreement. See "Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Eligible Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter Of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $155 million in aggregate principal
amount of the Old Notes were outstanding, the maximum amount authorized by the
Indenture for all Notes. Solely for reasons of administration (and for no other
purpose), the Company has fixed the close of business on September 3, 1997, as
the record date (the "Record Date") for purposes of determining the persons to
whom this Prospectus and the Letter of Transmittal will be mailed initially.
Only an Eligible Holder of the Old Notes (or such Eligible Holder's legal
representative or attorney-in-fact) may participate in the Exchange Offer. There
will be no fixed record date for determining Eligible Holders of the Old Notes
entitled to participate in the Exchange Offer. The Company believes that, as of
the date of this Prospectus, no such Eligible Holder is an affiliate (as defined
in Rule 405 under the Securities Act) of the Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Eligible
Holders of Old Notes and for the purposes of receiving the New Notes from the
Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Eligible Holder thereof as promptly as
practicable after the Expiration Date.
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NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES TO
TENDER, AFTER READING CAREFULLY THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL
POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be October 6, 1997 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company expressly reserves the right, in its sole and absolute
discretion, (i) to delay accepting any Old Notes, (ii) to extend the Exchange
Offer, (iii) if any of the conditions set forth below under "Conditions of the
Exchange Offer" shall not have been satisfied, to terminate the Exchange Offer,
by giving oral or written notice of such delay, extension, or termination to the
Exchange Agent, and (iv) to waive any condition or otherwise amend the terms of
the Exchange Offer in any manner. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendments by means of a prospectus supplement that will
be distributed to the registered holders of the Old Notes.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any New Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or amend
the Exchange Offer, if any of the following conditions have occurred or exists
or have not been satisfied:
(i) the Exchange Offer, or the making of any exchange by a holder,
violates any applicable law or any applicable interpretation of the staff
of the Commission;
(ii) the due tendering of Registrable Securities in accordance with
the Exchange Offer; and
(iii) each Eligible Holder of Registrable Securities exchanged in the
Exchange Offer shall have made certain customary representations, including
representations that such Eligible Holder is not an affiliate of the
Company within the meaning of Rule 405 under the Securities Act, that all
New Notes to be received by it shall be acquired in the ordinary course of
its business and that at the time of the consummation of the Exchange
Offer, such Eligible Holder shall have no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the New
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<PAGE> 23
Notes and any such representation as may be reasonably necessary under
applicable Commission rules, regulations or interpretations to render the
use of the Registration Statement available.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for exchange)
or may waive any such condition or otherwise amend the terms of the Exchange
Offer in any respect. If such waiver or amendment constitutes a material change
to the Exchange Offer, the Company will promptly disclose such waiver or
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
The Company expects that the foregoing conditions will be satisfied. The
foregoing conditions are for the sole benefit of the Company and may be waived
by the Company in whole or in part at any time and from time to time in its sole
discretion. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of such rights and each such right
shall be deemed an ongoing right which may be asserted at any time and from time
to time. Any determination by the Company concerning the events described above
will be final and binding upon all parties.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, in the event a
Registration Default, the interest rate borne by the Notes (except in the case
of clause (iii), in which case only the Notes have not been exchanged in the
Exchange Offer) shall be increased by one-quarter (0.25%) of one percent per
annum upon the occurrence of any Registration Default, which rate (as increased
as aforesaid) will increase by an additional one quarter (0.25%) of one percent
each 90-day period that such additional interest continues to accrue under any
such circumstance, with an aggregate maximum increase in the interest rate equal
to one percent (1%) per annum. Following the cure of all Registration Defaults
the accrual of Additional Interest will cease and the interest rate will revert
to the original rate. Holders of New Notes will not be and, upon consummation of
the Exchange Offer, Eligible Holders of Old Notes will no longer be, entitled to
(i) the right to receive Additional Interest or (ii) certain other rights under
the Registration Rights Agreement intended for the holders of unregistered
securities; provided, however, that an Eligible Holder of Old Notes who is not
permitted to participate in the Exchange Offer based upon written advice of
counsel to the effect that such Eligible Holder may not be legally able to
participate in the Exchange Offer or does not receive fully tradeable New Notes
pursuant to the Exchange Offer, subject to reasonable verification by the
Company, shall have the right to require the Company to file a Shelf
Registration Statement solely for the benefit of such Eligible Holders of Old
Notes and will be entitled to receive Additional Interest following the
occurrence of a Registration Default in connection with the filing of such Shelf
Registration Statement. Notwithstanding anything to the contrary in the
foregoing, Old Notes not tendered in the Exchange Offer will remain outstanding
and continue to accrue interest in accordance with their terms.
ACCRUED INTEREST ON THE OLD NOTES
Eligible Holders whose Old Notes are accepted for exchange will have the
right to receive interest accrued thereon from the date of their original
issuance or the last Interest Payment Date, as applicable, to, but not
including, the date of issuance of the New Notes, such interest to be payable
with the first interest payment on the New Notes. Interest on the Old Notes
accepted for exchange, which interest accrued at the rate of 10% per annum, will
cease to accrue on the day prior to the issuance of the New Notes.
PROCEDURES FOR TENDERING OLD NOTES
The tender of an Eligible Holder's Old Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering Eligible Holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, an Eligible Holder who wishes to tender
Old Notes for exchange
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pursuant to the Exchange Offer must transmit such Old Notes, together with a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to the Exchange Agent at the
address set forth on the back cover page of this Prospectus prior to 5:00 p.m.,
New York City time on the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES,
LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND
RISK OF THE ELIGIBLE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. However, although delivery
of the Old Notes may be effected through book-entry transfer into the Exchange
Agent's accountant DTC, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other required documents, must in any case, be delivered to and received by
the Exchange Agent at its address set forth under "-- The Exchange Agent;
Assistance" on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
for the account of an Eligible Institution (as defined). In the event that a
signature on a Letter of Transmittal or a notice of withdrawal, as the case may
be, is required to be guaranteed, such signature must be guaranteed by a
participant in a recognized Medallion Signature Program (a "Medallion Signature
Guarantor"). If the Letter of Transmittal is signed by a person other than the
registered holder of the Old Notes, the Old Notes surrendered for exchange must
be endorsed by the registered holder, with the signature thereon guaranteed by a
Medallion Signature Guarantor. The term "registered holder" as used herein with
respect to the Old Notes means any person in whose name the Old Notes are
registered on the books of the Registrar. The term "Eligible Institution" as
used herein means a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or any other "eligible guarantor institution" as such term is defined in
Rule 17Ad-15 under the Exchange Act.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate
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when signing, and, unless waived by the Company, proper evidence satisfactory to
the Company, in its sole discretion, of such person's authority so to act must
be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Notes in the Exchange Offer
should contact such registered holder promptly and instruct such registered
holder to tender on such Beneficial Owner's behalf. If such Beneficial Owner
wishes to tender directly, such Beneficial Owner must, prior to completing and
executing the Letter of Transmittal and tendering Old Notes, make appropriate
arrangements to register ownership of the Old Notes in such Beneficial Owner's
name. Beneficial Owners should be aware that the transfer of registered
ownership may take considerable time.
By tendering, each registered holder will represent to the Company that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the Eligible Holder and each Beneficial Owner of the Old Notes
are being acquired by the Eligible Holder and each Beneficial Owner in the
ordinary course of business of the Eligible Holder and each Beneficial Owner,
(ii) the Eligible Holder and each Beneficial Owner are not Participating, do not
intend to participate, and have no arrangement or understanding with any person
to participate, in the distribution of the New Notes, (iii) the Eligible Holder
and each Beneficial Owner acknowledge and agree that any person participating in
the Exchange Offer for the purpose of distributing the New Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the New Notes acquired by
such person and cannot rely on the position of the Staff of the Commission set
forth in no-action letters that are discussed herein under "Resales of New
Notes," (iv) that if the Eligible Holder is a broker-dealer that acquired Old
Notes as a result of market-making or other trading activities, it will deliver
a prospectus in connection with any resale of New Notes acquired in the Exchange
Offer, (v) the Eligible Holder and each Beneficial Owner understand that a
secondary resale transaction described in clause (iii) above should be covered
by an effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Commission, and (vi)
neither the Eligible Holder nor any Beneficial Owner is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing. In connection with a book-entry transfer,
each participant will confirm that it makes the representations and warranties
contained in the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Notes and (i) whose Old Notes
are not immediately available or (ii) who cannot deliver their Old Notes, the
Letter of Transmittal or any other documents required by the Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date or (iii)
who complete the procedure for book-entry transfer on a timely basis, may tender
their Old Notes according to the guaranteed delivery procedures set forth in the
Letter of Transmittal. Pursuant to such procedures: (i) such tender must be made
by or through an Eligible Institution and a Notice of Guaranteed Delivery (as
defined in the Letter of Transmittal) must be signed by such Eligible Holder,
(ii) on or prior to the Expiration Date, the Exchange Agent must have received
from the Eligible Holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the Eligible Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within four (4) business days after the date of delivery of
the Notice of Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) such properly completed
and executed documents required by the Letter of Transmittal and the tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC) must be received by
the Exchange Agent within four (4) business days after the Expiration Date. Any
Eligible Holder who wishes to tender Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
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ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes, when, as,
and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer. If
any tendered Old Notes are not accepted for any reason, such unaccepted Old
Notes will be returned without expense to the tendering Eligible Holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written or
facsimile transmission notice to the Exchange Agent, at its address set forth on
the back cover page of this Prospectus, at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes, as
applicable), (iii) be signed by the Eligible Holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by a
bond power in the name of the person withdrawing the tender, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by a Medallion
Signature Guarantor together with the other documents required upon transfer by
the Indenture, and (iv) specify the name in which such Old Notes are to be
re-registered, if different from the Depositor, pursuant to such documents of
transfer. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, in its sole
discretion. The Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are withdrawn will be returned to the
Eligible Holder thereof without cost to such Eligible Holder as soon as
practicable after withdrawal. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "-- Procedures for Tendering Old
Notes" at any time on or prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
The Bank of New York, a New York banking corporation, is the Exchange
Agent. All tendered Old Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and requests for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be addressed to the Exchange
Agent as follows:
By Hand, Registered or Certified Mail or Overnight Courier:
The Bank of New York
101 Barclay Street, 21st Floor West
New York, NY 10286
By Facsimile:
(212) 815-6339
Attention: Henry Lopez
Confirm by Telephone (212) 815-2742
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<PAGE> 27
FEES AND EXPENSES
All expenses incident to the Company's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Company, including without limitation, and if applicable: (i) all Commission,
stock exchange or National Association of Securities Dealers, Inc. (the "NASD")
registration and filing fees, (ii) all fees and expenses incurred in connection
with compliance with state securities or blue sky laws and compliance with the
rules of the NASD (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with blue sky qualification of any the
Exchange Securities or Registrable Securities and any filings with the NASD),
(iii) all expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sale agreements and other documents relating to the performance of
and compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities on any
securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or
custodian, (viii) the reasonable fees and disbursements of special counsel
representing the Holders of Registrable Securities and (ix) any fees and
disbursements of the underwriters customarily required to be paid by issuers or
sellers of securities and the reasonable fees and expenses of any special
experts retained by the Company in connection with any Registration Statement,
but excluding underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a Holder.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Company for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
RESALES OF THE NEW NOTES
Upon consummation of the Exchange Offer, Holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their Old
Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such Old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act and applicable state securities laws, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The company does not intend
to register the Old Notes under the Securities Act.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Company has not
sought its
27
<PAGE> 28
own interpretive letter and there can be no assurance that the staff of the
Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the following sentences, the
Company believes that New Notes issued pursuant to the Exchange Offer to an
Eligible Holder in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by an Eligible Holder (other than (i) a broker-dealer who
purchased Old Notes directly from the Company for resale pursuant to Rule 144A
or any other available exemption under the Securities Act or (ii) a person that
is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without further compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Eligible Holder is
acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Eligible Holders wishing to
accept the Exchange Offer must represent to the Company, as required by the
Registration Rights Agreement, that such conditions have been met. Any Eligible
Holder of Old Notes who is an "affiliate" of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing New Notes, or
any broker-dealer who purchased Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (a) will
not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirement.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as a result of market-making activities or other trading activities and
must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts, as a result of market-making or other trading
activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, may be used by a Participating Broker-Dealer in connection with
resales of such New Notes. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Notes received in exchange for Old Notes pursuant to the Exchange Offer
must notify the Company, or cause the Company to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or may
be delivered to the Exchange Agent at one of the addresses set forth herein
under "-- The Exchange Agent; Assistance." Any Participating Broker-Dealer who
is an "affiliate" of the Company may not rely on such interpretive letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer -- Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a
28
<PAGE> 29
material fact necessary in order to make the statements contained herein, in
light of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of New Notes
pursuant to this Prospectus until the Company has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
the Company has given notice that the sale of the New Notes may be resumed, as
the case may be.
MISCELLANEOUS
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
Upon consummation of the Exchange Offer, holders of the Old Notes that were
not prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such Old
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. However, in the event the Company fails to consummate the
Exchange offer or a holder of Old Notes notifies the Company in accordance with
the Registration Rights Agreement that it will be unable to participate in the
Exchange Offer due to circumstances delineated in the Registration Rights
Agreement, then the holder of the Old Notes will have certain rights to have
such Old Notes registered under the Securities Act pursuant to the Registration
Rights Agreement and subject to conditions contained therein.
THE REFINANCING
On June 20, 1997, the Company completed a refinancing (the "Refinancing")
of itself and its former parent, White Rose, intended to extend debt maturities,
reduce interest expense and improve financial flexibility. The components of the
Refinancing were (i) the Offering, (ii) the modification of the Bank Credit
Facility, (iii) the receipt of payment for the extinguishment of a note held by
the Company from Rose Partners, which owns 98.54% of the Company, (iv) the
consummation of the Company Tender Offer and the White Rose Tender Offer on May
16, 1997 in respect of the Senior Notes and White Rose's 12 3/4% Senior Discount
Notes due 1998, respectively, (v) the dividend by the Company to White Rose of
certain non-cash assets which are unrelated to the Company's primary business
and the subsequent dividend of those assets to White Rose's stockholders and
(vi) the Merger of White Rose with and into the Company with the Company
surviving the merger.
The Company funded the White Rose Tender Offer through an intercompany loan
which was canceled upon the consummation of the Merger. Immediately following
the Refinancing, no 12 3/4% Discount Notes remained outstanding and $7.45
million aggregate principal amount of Senior Notes remained outstanding;
however, the Indenture pursuant to which the Senior Notes were issued has been
substantially amended effective as of June 9, 1997 pursuant to the Company
Tender Offer.
29
<PAGE> 30
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 28, 1997 giving effect to the Offering and consummation of
the Refinancing which occurred on June 20, 1997. See "The Refinancing." The
information set forth below should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 28, 1997
--------------
ACTUAL(1)
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt and capital leases (including current portions):
Bank Credit Facility(2)...................................................... $ 30,170
12% Notes.................................................................... 7,450
12 3/4% Discount Notes....................................................... --
10% Senior Notes............................................................. 155,000
Other notes payable.......................................................... 10,512
Capital leases payable....................................................... 31,836
--------
Total debt........................................................... 234,968
Stockholders' deficit:
Class A Common Stock, par value $.01 per share, 1,000 shares authorized,
101.62 issued and outstanding.............................................
Class B Common Stock, par value $.01 per share, 1,000 shares authorized, 100
shares issued and outstanding.............................................
Additional paid-in capital................................................... 13,002
Accumulated deficit.......................................................... (20,819)
--------
Total stockholders' deficit.......................................... (7,817)
--------
Total capitalization................................................. $227,151
========
</TABLE>
- ---------------
(1) (a) Reflects the issuance of the Old Notes of $155,000 and the receipt of
$8.9 million as repayment of the Rose Partners Note, which was used (i) to
fund the purchase of $85,440 of 12% Notes leaving $7.5 million outstanding,
(ii) to fund the purchase of $52,190 of 12 3/4% Discount Notes leaving $0
outstanding, (iii) to pay premiums of $10,829 net of estimated tax benefit
of $4,331 related to such purchases, (iv) to pay accrued interest and the
fees and expenses of the Refinancing, with the remaining $8,491 reducing the
Bank Credit Facility, (b) the distribution of non-core assets to the
stockholders of $4,174, and (c) the write off of deferred fees of $3,883 net
of a tax benefit of $1,554.
(2) The Bank Credit Facility is a $90 million three-year revolving credit
facility secured by accounts receivable and inventory. Borrowings under the
Bank Credit Facility are subject to a borrowing base. See "Description of
the Bank Credit Facility." Amounts outstanding under the Bank Credit
Facility are treated for accounting purposes as short-term debt. However,
because of the longer term of the facilities under which this debt is issued
(three years with respect to this facility), the Company considers debt
under this facility to be part of its total capitalization and, accordingly,
has included them in the table.
30
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data presented below as of and for the fiscal
years ended on January 2, 1993, January 1, 1994, December 31, 1994, December 30,
1995 and December 28, 1996 has been derived from the Company's audited
consolidated financial statements and has been prepared by adjusting the
consolidated financial statements of the Company as if the Merger between White
Rose and the Company, with the Company as the survivor, had taken place as of
December 28, 1991. Such financial data has not been adjusted for any other
component of the Refinancing except as expressly described. Since the
stockholders of the Company, upon consummation of the Merger are identical to
the stockholders of White Rose, the exchange of shares was a transfer of
interest among entities under common control, and is being accounted for at
historical cost in a manner similar to pooling of interests accounting. The
unaudited interim consolidated financial statements of the Company as of and for
the twenty-six-week periods ended June 29, 1996 and June 28, 1997 were derived
from the Company's Quarterly Report on Form 10-Q/A, for and as of such periods.
The data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements and the notes thereto and other financial
information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
FISCAL YEAR ENDED ENDED
--------------------------------------------------------------------- -------------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1993 1994 1994 1995 1996 1996 1997
---------- ---------- ------------- ------------ ------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Total revenue(a).................... $704,448 $774,105 $ 936,847 $1,023,041 $1,050,206 $524,608 $519,852
Cost of products sold............... 626,359 682,974 835,526 915,536 935,719 467,214 463,062
-------- -------- -------- ---------- ---------- -------- --------
Gross profit(b)..................... 78,089 91,131 101,321 107,505 114,487 57,394 56,790
Warehouse expense................... 28,256 32,631 37,503 39,196 40,343 20,596 21,250
Transportation expense.............. 15,784 17,916 21,354 22,759 21,624 10,955 10,674
Selling, general and administration
expenses.......................... 16,874 19,089 20,277 22,357 23,389 11,791 11,305
Facility integration expenses....... -- -- 3,986 -- -- -- --
- -- --
Amortization--excess of cost over
net assets acquired............... 2,615 2,616 2,766 2,892 2,892 1,446 1,338
-------- -------- -------- ---------- ---------- -------- --------
Operating income.................... 14,560 18,879 15,435 20,301 26,239 12,606 12,223
Interest expense.................... 14,409 18,232 20,370 24,887 23,955 12,027 11,693
Amortization--deferred financing
costs............................. 3,366 1,600 1,479 1,457 1,138 568 651
Other (income)/expense, net......... (1,806) (1,888) (2,939) (3,842) (3,758) (1,537) (2,201)
-------- -------- -------- ---------- ---------- -------- --------
(Loss)/income from continuing
operations before income taxes and
extraordinary items............... (1,409) 935 (3,475) (2,201) 4,904 1,548 2,080
Income taxes........................ 34 109 63 105 3,053 -- 1,312
-------- -------- -------- ---------- ---------- -------- --------
(Loss)/income from continuing
operations before extraordinary
items............................. (1,443) 826 (3,538) (2,306) 1,851 1,548 768
(Loss) from discontinued
operations........................ (659) (1,178) -- -- -- -- --
Extraordinary (loss)/gain on
extinguishment of debt............ -- (3,976) -- 510 219 219 (8,467)
-------- -------- -------- ---------- ---------- -------- --------
Net (loss)/income................... $ (2,102) $ (4,328) $ (3,538) $ (1,796) $ 2,070 $ 1,767 $ (7,699)
======== ======== ======== ========== ========== ======== ========
Ratio of Earnings to Fixed
Charges(c)........................ --(d) 1.04x --(d) --(d) 1.18x 1.11x 1.15x
OTHER DATA:
EBITDA(e)........................... $ 20,902 $ 25,960 $ 27,628 $ 30,425 $ 36,854 $ 17,694 $ 18,529
Capital expenditures................ 1,563 1,501 1,390 1,920 1,004 342 1,702
Ratio of EBITDA to interest
expense........................... 1.45x 1.42x 1.36x 1.22x 1.54x 1.47x 1.58x
</TABLE>
(continued on the following page)
31
<PAGE> 32
<TABLE>
<CAPTION>
AS OF AS OF
--------------------------------------------------------------------- -------------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1993 1994 1994 1995 1996 1996 1997
---------- ---------- ------------- ------------ ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(f):
Total assets........................ $281,478 $274,988 $ 304,147 $ 318,430 $ 301,069 $307,905 $306,295
Working capital..................... 2,437 6,012 2,746 7,344 12,342 6,407 19,344
Total debt.......................... 155,251 184,421 197,339 223,543 215,308 223,593 234,968
Total stockholders' equity
(deficit)......................... 33,157 8,588(g) 5,050 2,035 4,105 3,702 (7,817)
</TABLE>
- ---------------
(a) Previously, the Company classified as other income reclamation service fees,
label income and other customer related services. Commencing in the fiscal
year ended December 28, 1996, the Company is classifying these items as
other revenue. Prior year amounts have been reclassified accordingly. The
change in classification has no effect on previously reported net income.
(b) Gross profit excludes warehouse expense shown separately.
(c) For purposes of these calculations, earnings before fixed charges consist of
earnings from continuing operations before income taxes plus fixed charges.
Fixed charges consist of interest expense, amortization of deferred
financing fees and the interest component of rent expense.
(d) The Company's earnings before fixed charges for the fiscal years ended
January 2, 1993, December 31, 1994, and December 30, 1995, were inadequate
to cover fixed charges by approximately $1,409, $3,475 and $2,201,
respectively.
(e) EBITDA is earnings before interest expense, income taxes, depreciation and
amortization, non-cash interest income, non-recurring charges such as
extraordinary gains or losses and, for fiscal year 1994, facility
integration expense. EBITDA is not intended to represent cash flows for the
period, nor has it been presented as an alternative to earnings from
operations as an indicator of operating performance or as a measure of
liquidity and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. See the Company's
Historical Consolidated Statement of Cash Flows in the Company's
Consolidated Financial Statements contained elsewhere in this Prospectus.
EBITDA is provided solely as supplemental disclosure.
(f) The balance sheet data includes the balance sheet data of the discontinued
operations.
(g) On December 31, 1993 White Rose distributed all of the outstanding shares of
the Las Plumas Lumber Corporation ("Las Plumas") as a return of capital to
its principal stockholder, Rose Partners. The Company remains liable for
various liabilities of Las Plumas including liabilities relating to
environmental and workers' compensation matters incurred prior to the date
of divestiture. The net book value of this distribution was approximately
$21.7 million, based on the book value of net assets transferred including
goodwill.
32
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company, including the notes thereto,
included elsewhere in this Prospectus.
GENERAL
On June 20, 1997, the Company consummated the Refinancing. The following
discussion assumes that the Merger between White Rose and the Company had taken
place as of December 28, 1991. Since the stockholders of the Company are
identical to the stockholders of White Rose, the exchange of shares was a
transfer of interest among entities under common control, and is being accounted
for at historical cost in a manner similar to pooling of interests accounting.
Accordingly, the discussion presented herein reflect the assets and liabilities
and related results of operations for the combined entity for all periods.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating data as a percentage of net sales:
<TABLE>
<CAPTION>
TWENTY-SIX
FIFTY-TWO WEEKS ENDED WEEKS ENDED
---------------------------------------------- ---------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit...................... 10.9 10.6 11.0 11.0 11.0
Warehouse expense................. 4.0 3.8 3.9 3.9 4.1
Transportation expense............ 2.3 2.2 2.1 2.1 2.1
Selling, general and
administrative expenses......... 2.2 2.2 2.2 2.3 2.2
Amortization -- excess of cost
over net assets acquired........ 0.3 0.3 0.3 0.3 0.3
Operating income.................. 1.7 2.0 2.5 2.4 2.4
</TABLE>
Twenty-six weeks ended June 28, 1997 and June 29, 1996
Net sales for the twenty-six weeks ended June 28, 1997 were $516.6 million
as compared to $522.2 million for the twenty-six weeks ended June 29, 1996 as a
$32.7 million decrease in sales to a customer which terminated its contract for
dairy division products in the fourth quarter of 1996 was partially offset by a
temporary supplemental third party supply arrangement and increased sales to
existing customers. In August 1997, the Company began shipping frozen food
products to an additional division of the Great Atlantic and Pacific Tea Company
("A&P") that it did not previously supply. Sales to this division are estimated
to be in excess of $75 million annually.
Other revenue, consisting of recurring customer related services, increased
35.5% to $3.3 million for the twenty-six weeks ended June 28, 1997 as compared
to $2.4 million in the prior period primarily due to providing a produce
distribution service for a particular customer which ended in June 1997.
Excluding this produce service, other revenue would have been $2.7 million for
the twenty-six weeks ended June 28, 1997 as compared to $2.4 million in the
prior period.
Gross margin (excluding warehouse expense) remained constant at 11.0% of
net sales or $56.8 million for the twenty-six weeks ended June 28, 1997 as
compared to 11.0% of net sales or $57.4 million for the prior period as a result
of a change in mix of product sold. The Company has, and will continue to, take
steps to maintain and improve its margins; however, there can be no assurance
that factors such as the decrease in promotional activities, changes in product
mix, or competitive pricing pressures will not have an adverse effect on gross
margin in the future.
33
<PAGE> 34
Warehouse expense increased to 4.1% of net sales or $21.3 million for the
twenty-six weeks ended June 28, 1997 as compared to 3.9% of net sales or $20.6
million for the prior period, because of the effect of fixed costs spread over
lower sales and higher costs associated with the produce distribution business.
Transportation expense remained constant at 2.1% of net sales or $10.7
million for the twenty-six weeks ended June 28, 1997 as compared to 2.1% of net
sales or $11.0 million in the prior period.
Selling, general and administrative expense decreased to 2.2% of net sales
or $11.3 million for the twenty-six weeks ended June 28, 1997 as compared to
2.3% of net sales or $11.8 million for the prior period primarily due to a
reduction in the provision for doubtful accounts as a result of both a
significant decline in credit exposure to a former customer and an overall
improvement in the credit quality of the portfolio.
Other income, net of other expenses, increased to $2.2 million for the
twenty-six weeks ended June 28, 1997 as compared to $1.5 million for the prior
period primarily due to increased interest income.
Interest expense decreased to $11.7 million for the twenty-six weeks ended
June 28, 1997 from $12.0 million for the prior period. The comparative decrease
in the 1996 period represents a decline in the average outstanding level of the
Company's funded debt.
The Company recorded an income tax provision of $1.3 million resulting in
an effective income tax rate of 63% for the twenty-six weeks ended June 28, 1997
as compared to an effective tax rate of 0% for the prior period. The Company's
estimated effective tax rate is higher than its statutory tax rate primarily
because of the nondeductibility of certain of the Company's amortization of the
excess of cost over net assets acquired; however, due to net operating loss
carryforwards for tax purposes, the Company does not expect to pay federal
income tax for the current year with the exception of an alternative minimum
tax.
At June 28, 1997, the Company is continuing to fully reserve its net
deferred tax assets relating to its tax net operating loss. The valuation
allowance will be adjusted when and if, in the opinion of management,
significant positive evidence exits which indicates that it is more likely than
not that the Company will be able to realize the tax net operating losses.
The Company recorded a net loss for the twenty-six weeks ended June 28,
1997 of $7.7 million, including an extraordinary loss on the extinguishment of
debt, net of tax, of $8.5 million as compared to net income of $1.8 million for
the prior period which included a $219,000 gain on the extinguishment of debt.
Fifty-two weeks ended December 28, 1996 and December 30, 1995
Net sales for the fifty-two weeks ended December 28, 1996 increased 2.6% to
$1,045.2 million as compared to $1,018.2 million in the fifty-two weeks ended
December 30, 1995. The increased sales primarily reflect higher same customer
sales, a temporary supplemental third party supply agreement, and higher selling
prices stemming from increased cost of product sold.
Other revenue, consisting of reclamation service fees, storage income,
label income and other customer related services, increased 4.6% to $5.0 million
in the fifty-two weeks ended December 28, 1996 as compared to $4.8 million in
the prior period.
Gross margin (excluding warehouse expense) increased to 11.0% of net sales
or $114.5 million in the fifty-two weeks ended December 28, 1996 from 10.6% of
net sales or $107.5 million in the prior period as a result of a more favorable
mix of product sold. Although the Company has taken steps and will continue to
take steps to maintain and improve its margins, there can be no assurance the
decrease in promotional activities that management believes is an industry wide
trend will not continue.
Warehouse expense remained relatively constant at 3.9% of net sales or
$40.3 million in the fifty-two weeks ended December 28, 1996 as compared to 3.8%
of net sales or $39.2 million in the prior period, as cost improvements in the
grocery and frozen divisions were offset by higher temporary costs in the dairy
division related to a change in its receiving and warehousing systems.
Transportation expense decreased to 2.1% of net sales or $21.6 million in
the fifty-two weeks ended December 28, 1996 from 2.2% of net sales or $22.8
million in the prior period as a result of better utilization of
34
<PAGE> 35
the Company's transportation fleet. This was accomplished by reducing the number
of deliveries through both the use of larger trailers acquired in a long-term
lease and more structured delivery schedules. These savings were partly offset
by higher wages.
Selling, general and administrative expense remained relatively flat at
2.2% of net sales or $23.4 million during the fifty-two weeks ended December 28,
1996 as compared to 2.2% of net sales or $22.4 million in the prior year as a
reduction in the provision for doubtful accounts was offset by less non-cash
pension asset income.
Other income, net of other expenses, remained constant at $3.8 million
during the fifty-two weeks ended December 28, 1996 as compared to the prior
period. Other income in 1996 included a cancellation fee of $376,000 from a
customer who prematurely terminated a supply agreement while other income in
1995 included a settlement of a lawsuit for approximately $500,000.
Interest expense decreased to $24.0 million in the fifty-two weeks ended
December 28, 1996 from $24.9 million in the prior period. The comparative
decrease in the 1996 period represents a decline in the average outstanding
level of the Company's funded debt partially offset by the inclusion of the
Carteret facility capital lease for the full period and additional accretion of
interest on the 12 3/4% Discount Notes.
The Company recorded an income tax provision of $3.1 million resulting in
an effective income tax rate of 62%. The Company's estimated effective tax rate
is higher than its statutory tax rate primarily because of the nondeductibility
of certain of the Company's amortization of the excess of cost over net assets
acquired; however, due to net operating loss carryforwards for tax purposes, the
Company does not expect to pay federal income tax for the current year with the
exception of a nominal amount of alternative minimum tax.
The Company recorded net income for the fifty-two weeks ended December 28,
1996 of $2.1 million, which included a $219,000 gain on the extinguishment of
debt net of tax, as compared to a loss of $1.8 million in the prior period,
which included a $510,000 gain on the extinguishment of debt net of tax.
Fifty-two weeks ended December 30, 1995 and December 31, 1994
Net sales for the fifty-two weeks ended December 30, 1995 increased $85.8
million or 9.2% to $1,018.2 million from $932.4 million during the fifty-two
weeks ended December 31, 1994. The increased sales were the result of the Royal
Acquisition which was phased in during the period April 1994 through June 1994.
Other revenue, consisting of reclamation service fees, storage income,
label income, and other customer related services, increased 8.1% to $4.8
million in the fifty-two weeks ended December 30, 1995 as compared to $4.5
million in the prior period.
Gross margin (excluding warehouse expense) decreased to 10.6% of net sales
or $107.5 million in the fifty-two weeks ended December 30, 1995 from 10.9% of
net sales or $101.3 million in the prior period, reflecting, in part, a shift in
both customer and product mix in the Company's dairy division as a result of the
Royal Acquisition. The grocery division experienced a decrease in gross margin
as compared to the prior year's comparable period resulting from, among other
things, fewer promotional opportunities extended by manufacturers. Management
believes that this decrease in promotional activities is an industry-wide trend
and may continue, although it appears that the negative pressure on the
Company's gross margins peaked in the first quarter of 1995 and gross margin
showed an improvement in each of the last three calendar quarters. The Company
has taken steps and expects to continue to take steps to maintain and improve
its margins, however, there can be no assurances that these steps will continue
to be successful.
Warehouse expense decreased to 3.8% of net sales or $39.2 million in the
fifty-two weeks ended December 30, 1995 from 4.0% of net sales or $37.5 million
in the prior period as a result of higher dairy division sales (stemming from
the Royal Acquisition) in relation to lower fixed dairy division warehouse costs
due to the consolidation of the two dairy warehouses into one which took place
in July and August of 1994. This improvement was partially offset by a temporary
first fiscal quarter increase in grocery division warehouse expense as a
percentage of sales due to the transition between the Company's old grocery
division distribution facility in Elizabeth, NJ and a new facility in Carteret,
NJ. In subsequent quarters the Company achieved
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<PAGE> 36
better productivity in its new grocery facility as a result of the more
efficient layout compared to its old Elizabeth, NJ facility.
Transportation expense decreased to 2.2% of net sales or $22.8 million in
the fifty-two weeks ended December 30, 1995 from 2.3% of net sales or $21.4
million in the prior period primarily as a result of the Company's upgrading its
trailer fleet to increase the capacity per load as well as increased backhaul
revenue offset by higher fixed costs as a result of the Royal Acquisition and
slightly higher, but anticipated, variable costs, such as tolls, as a result of
the Grocery division move to Carteret, NJ in February 1995.
Selling, general and administrative expense remained flat at 2.2% of net
sales or $22.4 million during the fifty-two weeks ended December 30, 1995 as
compared to 2.2% of net sales or $20.3 million in the prior period.
Other income, net of other expenses, increased $903,000 to $3.8 million in
the fifty-two weeks ended December 30, 1995 from $2.9 million in the prior
period primarily reflecting the settlement of a claim in the first fiscal
quarter of 1995, increased recurring other income items relating to increased
sales as a result of the Royal Acquisition and other non-core business
activities of the Company.
Interest expense increased to $24.9 million in the fifty-two weeks ended
December 30, 1995 from $20.4 million in the prior period. The Company's
financing of the Royal Acquisition, the interest portion of the Carteret
facility capital lease, increased borrowings based on the relative levels of
receivables, inventory, and accounts payable, higher interest rates and
additional accretion of interest on the 12 3/4% Discount Notes were the
principal reasons for the increase.
The Company had a net loss of $1.8 million for the fifty-two weeks ended
December 30, 1995 which included an extraordinary gain, net of tax, on the
extinguishment of debt in the amount of $510,000 as compared to a net loss of
$3.5 million in the prior period which included a one time facility integration
expense of approximately $4.0 million in the prior period.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations and amounts available under the Company's Bank
Credit Facility are the Company's principal sources of liquidity. The Company's
Bank Credit Facility will mature on June 30, 2000 and bears interest at a rate
per annum equal to (at the Company's option): (i) the Euro Dollar Offering Rate
plus 2.25% or (ii) Bankers Trust Company's prime rate plus 0.75%. Borrowings
under the Company's revolving bank credit facility were $30.2 million at June
28, 1997. Additional borrowing capacity of $42.3 million was available at that
time under the Company's borrowing base formula. The Company believes that these
sources will be adequate to meet its anticipated working capital needs, capital
expenditures, and debt service requirements during fiscal 1997.
During the twenty-six weeks ended June 28, 1997, cash flow used in
operating activities was $7.5 million, consisting primarily of cash generated
from income before extraordinary items and non-cash expenses, which were offset
by an increase in net receivable levels of $5.1 million and an increase in other
assets of $11.0 million, which included a deferred tax asset of $5.6 million, as
a result of the extraordinary charge on extinguishment of debt. During the
fifty-two weeks ended December 28, 1996, cash flow provided by operating
activities was $16.1 million, consisting primarily of cash generated from net
income, the adding back of non-cash expenses and declines of $7.5 million in net
receivable levels and $2.8 million in inventory levels, offset by a $8.9 million
decrease in accounts payable. During the fifty-two weeks ended December 30,
1995, cash flow provided by operating activities was $8.8 million.
Cash flow used in investing activities during the twenty-six weeks ended
June 28, 1997 was approximately $1.7 million, all of which was used for capital
expenditures. Net cash provided by financing activities was approximately $9.4
million as a result of the refinancing discussed more fully below. Cash flow
used in investing activities during the fifty-two weeks ended December 28, 1996
was approximately $1.0 million, all of which was used for capital expenditures.
net cash used in financing activities was approximately $13.8 million, primarily
used to retire long-term debt and reduce the Company's bank credit facility.
Cash flow used in investing activities during the fifty-two weeks ended December
30, 1995 was approximately $857,000, of
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<PAGE> 37
which $1.9 million was for capital expenditures offset by $1.1 million of
proceeds from a contingent reimbursement relating to the Royal Acquisition. Net
cash used in financing activities was approximately $9.3 million.
Earnings before interest expense, income taxes, depreciation and
amortization, non-recurring charges such as extraordinary gains or losses
("EBITDA"), was $18.5 million during the twenty-six weeks ended June 28, 1997 as
compared to $17.7 million in the comparable prior year period. EBITDA was $36.9
million during the fifty-two weeks ended December 28, 1996 as compared to $30.4
million in the comparable prior year period.
The consolidated indebtedness of the Company increased $11.4 million to
$235.0 million at June 28, 1997 as compared to $223.6 million at June 29, 1996
primarily as a result of the Company funding, as part of the Refinancing,
premiums to repay high cost long-term debt and the cash expenses of the
transaction. The Company raised an aggregate of $155.0 million through the
issuance of the 10% Notes and received $8.9 million as repayment of the Rose
Partners note which was used (i) to fund the purchase of $85.4 million of the
12% Notes leaving $7.5 million outstanding, (ii) to fund the purchase of $53.7
million of the 12 3/4% Notes leaving $0.0 outstanding, (iii) to pay premiums of
$10.8 million related to such purchases and (iv) to pay accrued interest and the
fees and expenses of the Refinancing, with the remaining $4.9 million used to
reduce the Bank Credit Facility.
The 10% Notes also provide that the Company may repurchase, and retire into
treasury (i) up to $5 million of its outstanding Common Stock if the Company
converts the capital lease relating to its Carteret, New Jersey distribution
facility into an operating lease and (ii) additional Common Stock up to an
amount equal to the net proceeds from its sale of its Farmingdale facility or
the Farmingdale Option. Currently, the Bank Credit Facility only permits (i) but
not (ii).
Stockholders' equity/(deficit) decreased $11.5 million to a deficit of $7.8
million on June 28, 1997 from $3.7 million of equity on June 29, 1996. The
decrease was the result of the $8.5 million extraordinary charge, net of tax, on
the extinguishment of debt relating to premiums paid as a result of the Tender
Offers and the write-off of the deferred financing fees associated with the 12%
Notes and the 12 3/4% Notes. In addition, the Company dividended non-cash,
non-core assets consisting of land in Colorado and notes receivable with a book
value of approximately $4.2 million and $61,400 in cash to its stockholders on
June 20, 1997.
The Company expended approximately $349,000 in fiscal 1996 and does not
expect to expend more than $1.0 million in fiscal 1997 in connection with the
environmental remediation of certain presently owned or divested properties. The
Company intends to finance such remediation through internally generated cash
flow or borrowings. Should the Company become liable as a result of any material
adverse determination of any legal or governmental proceeding beyond the
expected expenditures, it could have an adverse effect on the Company's
liquidity position.
Under the terms of the Company's revolving Bank Credit Facility, the
Company is required to meet certain financial tests, including minimum interest
coverage ratios and minimum net worth. As of June 28, 1997, the Company was in
compliance with its covenants.
The indenture governing the Company's 10% Notes, as well as the agreement
governing the Bank Credit Facility, impose various restrictions upon the
Company, including, among other things, limitations on the occurrence of
additional debt and the making of certain payments and investments.
From time to time when the Company considers market conditions attractive,
the Company has purchased a portion of its 12% Notes and may in the future
purchase and retire a portion of the 10% Notes or any remaining. In addition,
the Company continuously reviews its capital structure, including its funded
debt and capital leases, to determine if it can better finance its operations.
In 1996, the Company entered the produce distribution business for one
specific customer which lasted until June of 1997. The Company continues to
study the feasibility of offering produce to all of its customers. In addition,
in December 1996, the Company entered into a temporary supplemental supply
arrangement with a customer from another geographic region which lasted
approximately six weeks.
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<PAGE> 38
In August 1997, the Company completed the sale of the option it held on its
Farmingdale facility, the site of its former grocery warehouse and headquarters,
which had been under lease to a third party. The Company realized net cash
proceeds of approximately $7.3 million after the repayment of a mortgage
included in the Company's balance sheet at June 28, 1997 in the amount of
approximately $5.3 million. For book purposes the Company does not expect to
recognize any gain or loss due to the original valuation of the property
although the Company expects to use its net operating loss carryforwards to
offset an approximate $12.0 million taxable gain.
The Company spent approximately $1.0 million on capital expenditures during
the fifty-two weeks ended December 28, 1996 and does not expect to spend in
excess of $2.5 million during 1997.
In the fourth quarter of 1996, a customer of the Company terminated its
supply agreement that was scheduled to expire in October 1997. Sales to this
customer totaled $62.7 million in the fifty-two weeks ended December 28, 1996
and $65.5 million in the comparable prior period. Accordingly, revenues received
from this customer will be substantially lower in 1997 than in prior years.
In May 1997, the Company acquired tangible property formerly the subject of
a lease at its frozen facility from an affiliate of the Company for
approximately $2.0 million.
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<PAGE> 39
BUSINESS
Di Giorgio Corporation is one of the largest independent wholesale food
distributors in the New York metropolitan area, which is one of the largest food
retail markets in the United States. Across its grocery, frozen and dairy
product categories, the Company supplies approximately 18,000 food and non-food
items, predominantly national brand name items, to more than 1,600 customer
locations. The Company markets approximately 850 grocery, frozen and dairy items
under its well-recognized White Rose(TM) label, which has been established in
the New York metropolitan area for over 110 years. The Company serves
supermarkets, independent retailers (including members of voluntary
cooperatives) and chains principally in the five boroughs of New York City, Long
Island, northern New Jersey and, to a lesser extent, the Philadelphia area. For
the fifty-two weeks ended June 28, 1997, the Company had total revenue of
$1,045.4 million and EBITDA of $37.7 million.
COMPANY STRENGTHS
Market Leadership in New York Metropolitan Area. The Company believes that
it is a market leader in the distribution of grocery products, frozen foods
(including ice cream and frozen bakery goods), and dairy products (excluding
milk and eggs) in the New York metropolitan area. The Company believes that the
breadth of its product lines, and the density of its New York City area customer
locations, afford it a competitive advantage in the New York metropolitan area.
Efficient Distribution Network. The Company believes that its development
of a highly efficient distribution network affords it additional competitive
advantages. This development has consisted of the consolidation of warehouse
facilities into newer, larger and more efficient facilities, the application of
advanced distribution technology through sophisticated computer systems, and
significant improvements in the efficiency of trucking operations.
The White Rose(TM) Label. The White Rose(TM) label is a well-recognized
regional brand for quality merchandise across approximately 850 grocery, frozen
and dairy products, and has been marketed in the New York metropolitan area for
over 110 years. Products under the White Rose(TM) brand are formulated to the
Company's specifications, often by national brand manufacturers, and are subject
to random testing to ensure quality. The White Rose(TM) brand allows independent
retail customers to carry a regionally-recognized label across numerous products
similar to chain stores while providing consumers with an attractive alternative
to national brands. The Company believes that White Rose(TM) labeled products
generally produce higher margins for its customers than national brands, and
help the Company to attract and retain customers
Relationship with Met(TM) and Pioneer(TM) Stores. The Met(TM) and
Pioneer(TM) tradenames are owned by the Company, however, the customers using
the tradenames are independently owned stores. The Company and the customer
stores operate as voluntary cooperatives allowing a customer to take advantage
of the benefits of advertising and merchandising on a scale usually available
only to large chains, as well as certain other retail support services provided
by the Company. In order to use the tradenames, customers must purchase a
substantial portion of their grocery, frozen food and dairy inventory
requirements from the Company, thereby enhancing the stability of this portion
of the Company's customer base. These customers represented approximately
one-fifth of net sales for each of the fifty-two week periods ended December 28,
1996 and December 30, 1995.
Experienced Management Team. The Company is led by a strong and
experienced management team, the members of which have a successful track record
in the food marketing and distribution industry. See "Management." The Company
believes that its management team's long-standing relationships with some of its
principal customers are valuable assets.
BUSINESS STRATEGY
Enhancing Productivity. The Company has focused on enhancing productivity
by (i) instituting productivity-based labor incentives, (ii) obtaining the
flexibility to efficiently utilize its workforce, (iii) moving warehousing
locations to newer, larger and more efficient facilities and (iv) upgrading its
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<PAGE> 40
computer systems for inventory control and management. In addition, management
has significantly improved trucking efficiency by expanding the role of
backhauls, improving routing using modern technology, and upgrading
transportation equipment. These improvements have controlled costs and,
management believes, have positioned the Company to realize profit margin growth
through volume growth.
Pursuing Complementary Acquisitions. Management has also pursued
complementary strategic acquisitions. In August 1992, the Company acquired
substantially all of the business of the Global Frozen Foods Division ("Global")
of Sysco Corp. (the "Global Acquisition") and in June 1994, the Company
completed the acquisition of substantially all of the assets of the Royal Food
Division of Fleming Foods East, Inc., a subsidiary of Fleming Companies, Inc.
(the "Royal Acquisition"). Both of these acquisitions increased the Company's
market share, gave the Company larger, more efficient warehouses and eliminated
a major competitor from the marketplace. In each acquisition, the Company was
able to achieve efficiencies of scale and synergies in operations that allowed
it to increase the profit margins of the acquired businesses once the
integration was completed.
Developing New Revenue Opportunities. Management has sought to increase
its existing customer revenue base by providing value-added services aimed at
solidifying customer relationships and building customer loyalty. For its large
retail customers, management has focused on providing consistent and reliable
warehousing and distribution services at costs that are attractive to these
customers. For its smaller retail customers, in addition to providing
consistent, reliable warehouse and distribution services and competitive
pricing, the Company has developed numerous product offerings including the sale
of sophisticated information systems (i.e., scanning equipment and systems
support), programs for more efficient coupon redemption and cost-effective
commercial insurance programs.
Promoting Brand Name Recognition. Recently the Company redesigned the logo
of its 110-year-old White Rose(TM) brand and instituted a widespread advertising
campaign which has included promotional sponsorship of New York Yankee baseball
games. Management believes that the growing consumer recognition of the White
Rose(TM) label not only has led to increased demand for the Company's products
within its current operating region, but has created opportunities for the
Company's expansion into other contiguous regions, most notably New England.
Management believes that the success of its strategies has created a
platform for growth opportunities in the future. The Company's information
systems, operating flexibility and capacity allow it to effectively service
major accounts with supplemental supply on short notice, as it has demonstrated
twice within the past year. Management believes that this proven success has
created goodwill with prospective customers and has placed the Company in a
competitive position to attract new business. Additionally, management continues
to weigh alternatives aimed at growing volume at its existing distribution
centers by exploring the most profitable means of expansion of its core business
into the complementary markets of Philadelphia and New England while continuing
to develop broader-based consumer recognition of its White Rose(TM) brand. The
Company also plans to continue to engage in discussions from time to time with
respect to, and may pursue, potential strategic acquisitions.
PRODUCTS
Management believes that the distribution of multiple product categories
gives the Company an advantage over its competitors by affording customers the
ability to purchase grocery, frozen and dairy products from a single supplier.
In addition, the Company is able to merchandise its well-recognized White
Rose(TM) label consistently across all three categories of products. While some
customers purchase items from all three product lines, others purchase items
from only one or two product lines. Products are sold at prices which reflect
the manufacturer's stated price plus a profit margin. Prices are adjusted to
reflect changes in vendor pricing.
Certain of the Company's customers require varying levels of retail support
services in order to compete effectively in the marketplace. The Company
provides a broad spectrum of such services, including advertising, promotional
and merchandising assistance; retail operations counseling; computerized
ordering services; and store layout and equipment planning. The Company has a
staff of customer representatives who
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<PAGE> 41
visit stores on a regular basis to advise store management regarding their
operations. Most of the Company's customers utilize computerized order entry,
which allows them to place and confirm orders 24 hours a day, 7 days a week. The
Company's largest customers generally provide their own retail support.
The Company periodically provides financial assistance to independent
retailers by selectively providing (i) financing for the purchase of new grocery
store locations; (ii) financing for the purchase of inventories and store
fixtures, equipment and leasehold improvements; (iii) extended payment terms for
initial inventories and (iv) extended payment terms for existing receivable
balances. The primary purpose of such assistance is to provide a means of
continued growth for the Company through development of new customer store
locations and the enlargement and remodeling of existing stores. Stores
receiving financing purchase grocery, frozen and dairy inventory requirements
from the Company. Financial assistance is usually in the form of a secured,
interest-bearing loan, generally repayable over a period of one to three years.
As of May 24, 1997, the Company's customer financing portfolio had an aggregate
balance of approximately $16.1 million, consisting of approximately 80 loans
ranging from $3,000 to $700,000.
To further serve the needs of its customers, the Company has recently
expanded its customer support services. Under the Company's insurance program,
the Company offers customers the ability to purchase liability, property and
crime insurance through a master policy purchased by the Company. The Company's
coupon redemption program facilitates the redemption of vendor coupons. Finally,
through its technologies division, the Company distributes and supports
supermarket scanning equipment which is compatible with the Company's
information systems.
MARKETS AND CUSTOMERS
The Company's principal markets encompass the five boroughs of New York
City, Long Island, northern New Jersey and, to a lesser extent, the Philadelphia
area. The Company also has customers in upstate New York, Connecticut,
Pennsylvania and Delaware, and is pursuing expansion into markets adjacent to
the New York City metropolitan area.
The Company's customers include single and multiple store owners consisting
of chains and independent retailers which generally do not maintain their own
internal distribution operations for one or more of the Company's product lines.
Some of the Company's customers are independent food retailers or members of
voluntary cooperatives which seek to achieve the operating efficiencies enjoyed
by supermarket chains through common purchasing and advertising. Unlike larger
retail chains which predominate in suburban areas, the independent retailers
served by the Company tend to be located in urban areas. The Company's customers
include food markets operating under some of the following trade names: the
SuperFresh, Waldbaums, Food Emporium and A&P Metro operations of A&P, Associated
Food Stores, Gristedes and Sloans Supermarkets, King Kullen, Kings Super
Markets, Quick Chek, Big R Supermarkets, Scaturros, and Western Beef, as well as
the Met(TM), Pioneer(TM) and Super Food cooperatives.
During the fifty-two weeks ended December 28, 1996, the Company's largest
customers, A&P and Associated, accounted for approximately 22% and 20%,
respectively, of net sales, and the Company's five largest customers accounted
for approximately 62% of net sales. In the fourth quarter of 1996, the Company's
fifth largest customer, The Grand Union Company, accounting for approximately 6%
of net sales during the fifty-two weeks ended December 28, 1996, terminated its
supply agreement with the Company that was scheduled to expire in October 1997
and significantly decreased its purchases from the Company starting in November,
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company or certain of its principal executive
officers have long-standing relationships with most of the principal customers
of the Company. The loss of certain of these principal customers or a
substantial decrease in the amount of their purchases could be disruptive to the
Company's business.
WAREHOUSING AND DISTRIBUTION
The Company presently supplies its customers from three warehouse and
distribution centers. All of these facilities are equipped with modern equipment
for receiving, storing and shipping large quantities of merchandise. Management
believes that the efficiency of its warehouse and distribution centers enables
the
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Company to compete effectively. A newly installed warehouse and inventory
management system directs all aspects of the material handling process from
receiving through shipping, thus minimizing cost while maintaining the highest
service level possible.
The Company normally has in-stock approximately 95% of its grocery product
line, approximately 97% of its dairy product line and approximately 96% of its
frozen food product line. Immediate product availability, efficient warehousing
techniques and flexible delivery schedules generally make it possible for the
Company to ship to customers within 24 to 48 hours of receipt of their orders.
The Company's trucking system consists of 114 tractors (all of which are
leased), 277 trailers (of which 250 are leased) and 13 trucks (all of which are
leased). On approximately 35% of its deliveries, the Company is able to arrange
"backhauls" of products from manufacturers' or other suppliers' distribution
facilities located in the markets served by the Company, thereby enabling the
Company to reduce its procurement costs. The Company regularly uses independent
owner/operators to make deliveries on an "as needed" basis to supplement the use
of its own employees and equipment. The Company makes on average approximately
845 deliveries per day each weekday to its customers through a combination of
its own transportation fleet and that of third parties. Over the past year the
Company has upgraded its trailer fleet through the replacement of older, smaller
trailers with new, larger trailers, thereby increasing the capacity per load in
an effort to reduce transportation cost as well as increase backhaul revenue.
The new larger trailers have reduced the number of trailers utilized by the
Company.
Due to the different storage and distribution requirements of each of the
Company's product lines, the Company handles each product line in a separate
facility. All of the Company's warehouse and distribution facilities are fully
integrated through the Company's computer, accounting, and management
information systems to ensure operating efficiency and coordinated quality
customer service.
PURCHASING
The Company purchases products for resale to its customers from
approximately 1,400 suppliers in the United States and abroad. Brand name
products are purchased directly from the manufacturer, through the
manufacturer's representatives or through food brokers by buyers in each of the
Company's operating divisions. White Rose(TM) label and customers' private label
products are purchased from producers, manufacturers or packers who are licensed
by the Company, in the case of the White Rose(TM) label, or by the owners of the
respective private labels. The Company purchases products in large volume and
resells them in the smaller quantities required by its customers. Management
believes that the Company has the purchasing power to obtain competitive volume
discounts from its suppliers. Substantially all categories of products
distributed by the Company are available from a variety of manufacturers and
suppliers, and the Company is not dependent on any single source of supply for
any specific category, however, market conditions dictate that certain
nationally prominent brands, available from single suppliers, be available for
distribution. Order size and frequency are determined by management based upon
historical sales experience, sales projections and computer forecasting. A
sophisticated procurement system provides the buying department with extensive
data to measure the movement and profitability of each inventory item, forecast
seasonal trends, and recommend the terms of purchases. This system, which
operates in concert with the warehouse management system, features full
electronic data interchange capabilities and accounting interfaces.
The Company from time to time buys increased quantities of inventory items
when the manufacturer is selling the item at a discount pursuant to a special
promotion, an industry practice known as "forward buying." These special
promotions are offered by various manufacturers at their sole discretion. The
Company earns income from additional margins realized in connection with these
promotional purchasing opportunities.
COMPETITION
The wholesale food distribution industry is highly competitive. The Company
is one of the largest independent wholesale food distributors to supermarkets in
the New York City metropolitan area and is the only independent distributor that
supplies three primary supermarket product categories: grocery, frozen and
dairy. The Company's principal competitors are C & S Wholesale Grocers, Inc.,
Krasdale Foods, Inc., and
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General Trading Co. ("General Trading") with respect to grocery distribution,
General Trading with respect to dairy distribution, and Nassau Suffolk Frozen
Food Company, Inc. with respect to frozen food distribution. Many of the
Company's smaller competitors generally do not provide retail support services
and financing services to independent retailers in the Company's market.
The Company also competes with cooperatives such as Key Food Stores
Co-operative Inc. and Twin County Grocers Inc., which provide distribution and
support services to their affiliated independent retailers doing business under
trade names licensed to them by the cooperatives. Unlike these competitors, the
Company does not require payment of capital contributions to the Company by
retailers desiring to use the Met(TM) or Pioneer(TM) names.
Management believes that the principal competitive factors in the Company's
business include price, service, breadth and availability of products offered,
strength of private label brand offered, strength of store trademarks offered,
store financing support and cooperative arrangements. Management believes that
the Company competes effectively by offering a full product line, including its
well-recognized, regional White Rose(TM) label, a high level of service stemming
from its well-positioned and efficient distribution networks, the retail support
and financing services associated with its Met(TM) and Pioneer(TM) voluntary
cooperative trademarks, flexible delivery schedules, competitive prices,
competitive levels of customer service including newly introduced insurance,
coupon-redemption and scanner distribution and support services, and
computerized order entry.
PROPERTIES
The Company's three principal warehouse and distribution facilities are set
forth below along with its former dairy facility. In addition, the Company owns
or leases various properties principally related to its divested operations,
which properties are leased to third parties or held for resale or sublease.
<TABLE>
<CAPTION>
LOCATION USE SQUARE FOOTAGE LEASE EXPIRATION
- -------------------------------- ------------------------- -------------- -----------------------
<S> <C> <C> <C>
Carteret, New Jersey............ Groceries and other Non- 645,000 2015 (plus two 5-year
Perishables renewal options)
Garden City, New York........... Frozen 325,000 2004 (plus one 7-year
renewal option)
Woodbridge, New Jersey.......... Dairy 200,000 2001 (plus four 5-year
renewal options)
Kearny, New Jersey.............. Auxiliary 98,000 1999
</TABLE>
The aggregate operating lease rent paid in connection with the Company's
facilities was approximately $800,000 in fiscal 1996. In addition, the Company
paid $5.2 million in connection with capital leases during fiscal 1996.
Currently, the Carteret grocery division distribution facility operates at
approximately 70% of capacity and the dairy division distribution facility
operates at 80% of capacity (both on a three shift basis), while the frozen
foods division distribution facility operates at approximately 50% of capacity
(on a two shift basis). Depending on the product mix of new business introduced,
each warehouse has greater capacity to grow than stated above. The frozen foods
division distribution facility has the flexibility of further increasing
capacity because the Company uses some of the space leased by it for public
storage.
The Company continues to have a leasehold interest in its former grocery
distribution facility in Farmingdale, New York under an agreement with the fee
owner of the facility. The Company and the fee owner share the economic benefits
of the resulting income stream, financings related thereto or ultimate sale of
the property, with 80% to the Company and 20% to the fee owner. The Company also
has an option to purchase the property from the fee owner commencing in 1998 for
an amount equal to 20% of the net fair market value of the property. In August
1993, the Company entered into an agreement to sublease the entire premises to a
third party subtenant for an initial term of five years with certain renewal and
purchase options. The subtenant has exercised its purchase option, which option
provides for both an automatic five year
43
<PAGE> 44
extension of the sublease until August 2003 and a reduction in the subtenant's
monthly rent if the Company is unable to deliver title to the property to the
subtenant by August 1998. Although there can be no assurances, the Company
expects the sale to be completed by the end of fiscal 1998.
EMPLOYEES
As of May 16, 1997, the Company employed approximately 1,027 persons, of
whom approximately 690 were covered by collective bargaining agreements with
various International Brotherhood of Teamsters locals.
The Company is a party to certain collective bargaining agreements with its
warehouse and trucking employees at its dairy operation (expiring November
2000), its grocery operation (warehouse expiring October 1997 and trucking
expiring May 2000) and its frozen operation (expiring January 2000).
Management believes that the Company's present relations with its work
force are satisfactory.
LEGAL PROCEEDINGS
The Company is involved in claims, litigation and administrative
proceedings of various types in various jurisdictions. In addition, the Company
has agreed to indemnify various transferees of its divested operations with
regard to certain known and potential liabilities which may arise out of such
operations. The Company also has incurred and may in the future incur liability
arising under environmental laws and regulations in connection with these
divested properties and properties presently owned or acquired. Although
management believes that it has established adequate reserves for known
contingencies, there can be no assurances that the costs of environmental
remediation or an unfavorable outcome in any litigation or governmental
proceeding will not have an adverse effect on the Company.
ENVIRONMENTAL MATTERS
The Company has incurred and may in the future incur environmental
liability to clean up potential contamination at a number of properties under
certain federal and state laws, including the Federal Comprehensive
Environmental Response, Compensation, and Liability Act, as amended ("CERCLA").
Under such laws, liability for the cleanup of property contaminated by hazardous
substances may be imposed on both the present owner and operator of a property
and any person who owned or operated the property at the time hazardous
substances were disposed thereon. Persons who arranged for the disposal of
hazardous substances found on a disposal site may also be liable for cleanup
costs. In certain cases, the Company has agreed to indemnify the purchaser of
its former properties for liabilities arising thereon or has agreed to remain
liable for certain potential liabilities that were not assumed by the
transferee.
The Company has recorded an estimate of its total potential environmental
liability arising from specifically identified environmental problems (including
those discussed below) in the amount of approximately $2.0 million as of
December 28, 1996. The Company believes such reserves are adequate and that
known environmental liabilities will not have a material adverse effect on the
Company's financial condition. However, there can be no assurance that the
identification of contamination at its current or former sites or changes in
cleanup requirements would not result in significant costs to the Company.
The Company is responsible for the cleanup and/or monitoring of various
sites previously owned or operated by the Company, the most significant of which
are located in St. Genevieve, Missouri and Three Rivers, Michigan.
In addition, the Company has been identified as a potentially responsible
party ("PRP") under CERCLA for cleanup costs at the Seaboard waste disposal site
in North Carolina. The Company is a member of the de minimis group, comprised of
parties who allegedly contributed less than 1% of the total waste at the site.
Two other sites with respect to which the Company had previously been named a
PRP have been settled with nominal contributions from the Company.
The Company is not a party to any material litigation, other than routine
litigation incidental to the business of the Company, which is individually or
in the aggregate material to the business of the Company. Management does not
believe that the outcome of any of its current litigation, either individually
or in the aggregate, will have a material adverse effect on the Company.
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<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- --------------------------------------
<S> <C> <C>
Arthur M. Goldberg(2)(3).............. 55 Chairman of Board of Directors,
President and Chief Executive Officer
Richard B. Neff(3).................... 48 Executive Vice President, Chief
Financial Officer and Director
Stephen R. Bokser..................... 54 Executive Vice President, President of
White Rose Foods Division of the
Company and Director
Jerold E. Glassman(3)................. 61 Director
Emil W. Solimine(2)................... 52 Director
Charles C. Carella(1)(2).............. 63 Director
Jane S. Fumo(1)....................... 43 Director
Joseph R. DeSimone.................... 57 Senior Vice President of Distribution
Robert A. Zorn........................ 42 Senior Vice President and Treasurer
Lawrence S. Grossman.................. 35 Vice President and Corporate
Controller
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
Directors are elected for one year terms and hold office until their
successors are elected and qualified. The executive officers are appointed by
and serve at the discretion of the Board of Directors.
MR. GOLDBERG has been Chairman of the Board, President and Chief Executive
Officer of the Company since 1990. Mr. Goldberg is also a Director and Executive
Vice President and President -- Gaming Operations, Hilton Hotels Corporation,
since December 1996. Prior thereto he was President, Chairman and Chief
Executive Officer and a director of Bally Entertainment Corporation from October
1990 to December 1996. He is also Managing Partner, Arveron Investments, LP,
since 1986. Mr. Goldberg is also a director of Bally Total Fitness Holding
Corporation, Bally's Grand, Inc., First Union Corporation and ContinueCare Corp.
Mr. Goldberg, in his capacity as the sole general partner of Rose Partners,
L.P., controls the voting and investment of 98.5% of the outstanding common
stock of the Company.
MR. NEFF has been Executive Vice President, Chief Financial Officer and
Director of the Company since 1990. He is also a Director and Chairman of the
Board of Ryan Beck & Co., an investment banking concern.
MR. BOKSER has been Executive Vice President of the Company since February
1990 and a Director of the Company since 1990. In addition, Mr. Bokser has
served as President of the White Rose Foods Division of the Company since prior
to 1991. Mr. Bokser has also served as a director of Western Beef, Inc. since
1993.
MR. GLASSMAN has been a Director of the Company since 1990. Since prior to
1990, Mr. Glassman has been a Partner of Grotta, Glassman & Hoffman, a law firm
which has offices in Roseland, New Jersey.
MR. SOLIMINE has been a Director of the Company since 1990. He also is the
Chief Executive Officer of the Emar Group, Inc., an insurance concern, since
prior to 1991. Mr. Solimine has served as a director of Strober Organization,
Inc., a building material distributor, since prior to 1991.
MR. CARELLA became a Director of the Company in 1995. Since prior to 1991,
Mr. Carella has been a Partner of Carella, Byrne, Bain, Gilfillan, Cecchi,
Stewart & Olstein, a law firm which has offices in Roseland, New Jersey. Since
1991, he has served as Chairman for the Board of Trustees of the University of
Medicine
45
<PAGE> 46
and Dentistry of New Jersey and since 1983 has served on the Board of
Administration of Archdiocese of Newark.
MRS. FUMO became a Director of the Company in 1996. Mrs. Fumo has been a
shareholder for the past six years of Drucker & Scaccetti, P.C., a firm
specializing in accounting and business advisory services. She is also a
Director for Nutrition Management Services Company and Pennsylvania Savings
Bank.
MR. DESIMONE has been Senior Vice President of Distribution of the Company
since January 1995. Since 1990 he was Vice President of Warehousing and
Distribution.
MR. ZORN has been Senior Vice President and Treasurer of the Company since
1992. He served as a Vice President of Bankers Trust Company, New York, New York
prior to 1991.
MR. GROSSMAN has been employed by the Company since 1990. He has served as
Vice President of the Company since January 1994 and Corporate Controller since
February 1992. Mr. Grossman is a certified public accountant.
The Board of Directors of the Company consists of seven members. Each
director is elected to hold office until the next annual meeting of stockholders
and until his respective successor is elected and qualified. Officers serve at
the discretion of the Board of Directors. The directors receive a quarterly
retainer fee of $4,000 plus fees of $1,000 per day for attendance at Board of
Directors and Committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued to the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company whose cash compensation, including bonuses and deferred
compensation, exceeded $100,000 for the fiscal year ended December 28, 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION
- ---------------------------------- ----- -------- -------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Arthur M. Goldberg................ 1996 $400,000 -- -- --
Chairman of the Board, 1995 400,000 -- -- --
President and Chief 1994 400,000 -- -- --
Executive Officer
Richard B. Neff................... 1996 260,900 $145,000 -- $2,250(2)
Executive Vice President 1995 240,000 130,000 -- 2,250(2)
and Chief Financial Officer 1994 240,000 100,000 -- 2,250(2)
Stephen R. Bokser................. 1996 288,600 145,000 -- 2,250(2)
Executive Vice President 1995 272,255 130,000 -- 2,250(2)
and President of White 1994 272,255 100,000 -- 2,250(2)
Rose Division
Robert A. Zorn.................... 1996 200,600 20,000 -- 2,250(2)
Senior Vice President and 1995 191,000 12,500 -- 2,175(2)
Treasurer 1994 181,563 10,000 -- 2,250(2)
Joseph R. DeSimone................ 1996 155,300 20,000 -- 2,250(2)
Senior Vice President of 1995 147,900 18,000 -- 1,800(2)
Warehousing and Distribution 1994 142,200 12,500 1,999(2)
</TABLE>
- ---------------
(1) Certain incidental personal benefits to executive officers of the Company
may result from expenses incurred by the Company in the interest of
attracting and retaining qualified personnel. These incidental personal
benefits made available to executive officers during fiscal years 1994, 1995
and 1996 are not described herein because the incremental cost to the
Company of such benefits is below the Securities and Exchange Commission
disclosure threshold.
(2) Represents contributions made by the Company pursuant to the Company's
Retirement Savings Plan. See "Executive Compensation -- Retirement Savings
Plan."
46
<PAGE> 47
EMPLOYMENT AGREEMENTS
The Company is a party to an agreement with Mr. Neff which will remain in
effect until six months after notice of termination is given by either party.
Currently, Mr. Neff is entitled to receive an annual salary of $267,000, and
annual bonuses at the sole discretion of the Company. Mr. Neff may also receive
additional incentive compensation upon the occurrence of (i) the termination of
Mr. Neff's employment with the Company; (ii) the sale of substantially all of
the Company's assets or 51% or more of the Company's voting stock, or the merger
or consolidation of the Company which results in a change of control of 51% or
more of voting stock; or (iii) a registered public offering of voting common
stock made by the Company. This additional incentive compensation is computed by
taking 2.5% of the positive difference (if any) between the Company's net fair
market value and a certain specified base amount. In the event that Mr. Neff
shall be entitled to additional compensation pursuant to (iii), such amounts
shall not be paid in cash but rather there will be a credit of a Bonus Unit (as
defined therein) which is redeemable for a period of sixty months at the option
of Mr. Neff and which will automatically be redeemed by the Company at the end
of such sixty month period. At the option of the Company, the payment of the
redemption price may be made either in cash or in shares of stock of the
Company, as appropriate. Under the terms of the agreement, if the employment of
Mr. Neff is terminated for any reason other than for cause or disability, Mr.
Neff is entitled to receive compensation and benefits for twelve months.
The Company is a party to an agreement with Mr. Bokser which will terminate
on June 30, 2000. Currently, Mr. Bokser is entitled to receive an annual salary
of $325,000 pursuant to the agreement ("Salary"). In addition, Mr. Bokser has
been paid pursuant to the agreement $100,000 on June 30, 1997 and will be paid
an additional $100,000 on or before June 30, 1998, and will receive additional
compensation (the "Additional Compensation") upon the occurrence of a
distribution of any assets, whether in cash or any other form, to Rose Partners
in respect of Rose Partners' ownership of the Company's stock or the realization
by Rose Partners of any amount upon the sale or transfer of Rose Partners'
ownership interests in the stock of the Company ("Recognition Event").
Additional Compensation is computed by multiplying by 6% the amount by which the
aggregate amount of all proceeds received by Rose Partners in respect of its
ownership of stock of the Company, whether in the form of dividend or other
distribution, liquidating or non-liquidating, or in consideration for the sale
or other disposition of such stock that exceeds the Base Amount; provided that
Additional Compensation payable at each Recognition Event shall be reduced by
the cumulative amount of Additional Compensation paid to Mr. Bokser or the
executors of his estate prior to such event. The Base Amount is equal to the sum
of (i) $43,629,753 plus (ii) an amount equal to the interest that would
accumulate if interest was accrued from February 1, 1990 at a cumulative annual
rate equal to the prime rate; provided that the Base Amount shall be reduced
from time to time by any proceeds received by Rose Partners in respect of the
stock of the Company after June 30, 1997. If Mr. Bokser's employment is
terminated for "cause" or if he voluntarily resigns, he will not be entitled to
Additional Compensation under the Agreement. In the event of Mr. Bokser's death,
disability or termination by the Company other than for cause and the occurrence
of a Recognition Event, Mr. Bokser will continue to be entitled to receive
Additional Compensation. On each anniversary of Mr. Bokser's death, disability
or termination other than for cause, the percentage of the Proceeds that Mr.
Bokser will receive upon the occurrence of a Recognition Event will be reduced
by one percentage point (but not below zero). In the event of death or
disability Mr. Bokser or his estate will be entitled to continue to receive
compensation and employee benefits for one year following such event. If Mr.
Bokser's employment is terminated by the Company other than for cause, Mr.
Bokser will be entitled to receive the Salary, prorated through the end of the
week in which such termination occurs and such Additional Compensation or other
payments as may then be payable.
The Company is a party to an agreement with Mr. Zorn which will remain in
effect until six months after notice of termination is given by either party to
terminate. Currently, Mr. Zorn is entitled to receive an annual salary of
$210,600, as adjusted by annual cost of living adjustments, if any, and annual
bonuses at the sole discretion of the Company. Mr. Zorn may also receive
additional incentive compensation upon the occurrence of (i) the termination of
Mr. Zorn's employment with the Company; (ii) the sale of substantially all of
the Company's or 51% or more of the Company's voting stock, or the merger or
consolidation of the Company which results in a change of control of 51% or more
of voting stock; or (iii) a registered public offering of
47
<PAGE> 48
voting Common Stock made by the Company. This additional incentive compensation
is computed by taking 1% of the positive difference (if any) between the
Company's net fair market value and a certain specified base amount. In the
event that Mr. Zorn shall be entitled to additional compensation pursuant to
(iii), such amounts shall not be paid in cash but rather there will be a credit
of a Bonus Unit (as defined therein) which is redeemable for a period of sixty
months at the option of Mr. Zorn and which will be automatically redeemed by the
Company at the end of such sixty month period. At the option of the Company, the
payment of the redemption price may be made either in cash or in shares of stock
of the Company. Under the terms of the agreement, if the employment of Mr. Zorn
is terminated for any reason other than for cause or disability, Mr. Zorn is
entitled to receive compensation and benefits for six months, provided that he
uses his best efforts to secure other executive employment.
The consummation of the Offering will not trigger the payment of additional
incentive compensation for Messrs. Neff, Bokser or Zorn.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 28, 1996, the Compensation Committee
consisted of Arthur M. Goldberg, Emil W. Solimine and Charles C. Carella. Mr.
Goldberg currently serves as Chairman of the Board of Directors, President and
Chief Executive Officer of the Company. Mr. Solimine and Mr. Carella currently
serve as Directors of the Company.
CERTAIN TRANSACTIONS
On August 3, 1992, White Rose Frozen Food ("Frozen Food") and WRGFF
Associates, L.P. ("WRGFF"), a New Jersey limited partnership controlled by Mr.
Goldberg, acquired in two simultaneous transactions substantially all of the
operating properties and assets of Global from Sysco. To facilitate the Global
Acquisition, WRGFF purchased and subsequently leased certain assets of Global to
the Company. In fiscal 1996, the Company paid approximately $1.4 million to
WRGFF in connection with the lease of such assets. In May 1997, the Company
acquired tangible property formerly the subject of a lease at its frozen
facility from an affiliate of the Company for approximately $2.0 million.
Mr. Bokser is a director of Western Beef, Inc. During the fifty-two week
periods ended December 28, 1996, December 30, 1995 and December 31, 1994, the
Company sold various food products to Western Beef, Inc. in the amounts of $27.5
million, $22.6 million and $21.2 million, respectively.
The Company employs Grotta, Glassman & Hoffman, a law firm in which Jerold
E. Glassman, a director of the Company, is a partner, for legal services on an
on-going basis. The Company paid approximately $111,000, $98,000 and $222,000 to
the firm for fiscal 1996, 1995 and 1994, respectively.
The Company employs Emar Group, Inc. ("Emar Group"), a risk management and
insurance brokerage company controlled by Emil W. Solimine, a director of the
Company, for risk management and insurance brokerage services. The Company paid
Emar Group approximately $150,000 for fiscal 1996, 1995 and 1994 for such
services.
In fiscal 1996, 1995 and 1994, the Company recorded income of $245,000,
$154,000 and $184,000, respectively, from Bally Entertainment Corporation, a
company in which Mr. Goldberg served as Chairman and Chief Executive Officer, in
connection with the sharing of its office facilities and sundry other expenses.
The Company currently has a similar arrangement with Hilton Hotels, Inc.
Las Plumas, an entity owned by the shareholders of the Company, was
indebted to the Company in the amount of approximately $3.5 million at December
28, 1996. See Note 16 of the notes to the Company's consolidated financial
statements appearing elsewhere herein.
The Company believes that the transactions set forth above are on terms no
less favorable than those which could reasonably have been obtained from
unaffiliated parties.
48
<PAGE> 49
In connection with the Refinancing, Rose Partners repaid the Rose Partners
Note in the amount of approximately $8.9 million and received a dividend of
certain non-cash assets (including the indebtedness of Las Plumas to the
Company) with a book value of approximately $4.2 million from White Rose.
Management believes that the market value of such assets approximates their book
value. In addition, the Indenture provides that the Company may repurchase, and
retire into treasury, (i) up to $5 million of its outstanding Common Stock if
the Company converts the capital lease relating to its Carteret, New Jersey
distribution facility into an operating lease, and (ii) additional Common Stock
out of the proceeds of its sale of its Farmingdale Facility (as defined) or the
Farmingdale Option (as defined). Currently, the Bank Credit Facility only
permits (i) but not (ii).
DESCRIPTION OF THE BANK CREDIT FACILITY
In connection with the Refinancing, the Company has amended its Bank Credit
Facility with BT Commercial Corporation ("BTCC") and certain banks and financial
institutions as lenders (collectively, the "Lenders") providing for a three year
extension of its $90 million revolving credit facility, and will make certain
amendments to the Bank Credit Facility to permit the Refinancing upon
consummation of the Offering.
The Bank Credit Facility matures on June 30, 2000 and bears interest at a
rate per annum equal to (at the Company's option): (i) the Euro Dollar Offering
Rate plus 2.25% or (ii) Bankers Trust Company's prime rate plus 0.75%. The Bank
Credit Facility has a $15 million sublimit for letters of credit and is
available (subject to borrowing base availability) for working capital and
general corporate purposes.
The obligations of the Company under the Bank Credit Facility are secured
by a perfected first priority security interest in the accounts receivable and
inventory of the Company.
Revolving credit loans under the Bank Credit Facility are subject to
maintenance by the Company of a borrowing base, which equals the sum of 80% of
eligible accounts receivable and 60% of eligible inventory. Upon the
consummation of the Refinancing, the allowable advance against eligible
inventory will increase to 70% and subsequently decline to 60% at the rate of 1%
each quarter commencing on October 1, 1997.
The Company is required to pay the Lenders under the Bank Credit Facility,
on a quarterly basis, a commitment fee equal to 0.375% per annum on the undrawn
portion of the revolving credit facility.
The Bank Credit Facility contains a number of covenants that, among other
things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, prepay other indebtedness or amend certain other debt
instruments, pay dividends or make distributions (other than those made pursuant
to the Refinancing), create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, issue capital stock, make capital expenditures or
engage in certain transactions with affiliates and otherwise restrict certain
corporate activities. In addition, the Company is required to comply with
specified financial ratios and tests.
The Bank Credit Facility contains customary events of default, including
defaults relating to payments, breach of representations and warranties,
covenants, cross-defaults and cross-acceleration to certain other indebtedness,
certain events of bankruptcy and insolvency, actual or asserted invalidity of
security and change of control.
DESCRIPTION OF NEW NOTES
The New Notes will be issued pursuant to the Indenture dated as of June 20,
1997 (the "Indenture") between the Company and The Bank of New York, as trustee
(the "Trustee"). Except as otherwise indicated
49
<PAGE> 50
below, the following summary applies to both the Old Notes and the New Notes. As
used herein, the term "Notes" shall mean the Old Notes and the New Notes, unless
otherwise indicated.
The terms of the Notes 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"). The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof.
The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the New Notes (i) will be registered
under the Securities Act of 1933, as amended, (ii) will not provide for payment
of penalty interest as Liquidated Damages, which terminate upon consummation of
the Exchange Offer, and (iii) will not bear any legends restricting transfer
thereof. The New Notes will be issued solely in exchange for an equal principal
amount of Old Notes. As of the date hereof, $155 million aggregate principal
amount of Old Notes is outstanding. See "The Exchange Offer."
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to the provisions of the Indenture and the
Notes, including the definitions therein of certain terms used below. A copy of
the Indenture has been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part. Capitalized terms
used in this section and not otherwise defined below have the respective
meanings assigned to them in the Indenture.
Definitions relating to certain terms are set forth under "-- Certain
Definitions" and throughout this description. Capitalized terms used herein
without definition have the meanings ascribed to them in the Indenture. Wherever
particular provisions of the Indenture are referred to in this summary, such
provisions are incorporated by reference as a part of the statements made and
such statements are qualified in their entirety by such reference.
GENERAL
The New Notes will be senior unsecured obligations of the Company, limited
in aggregate principal amount to $155 million, and will rank pari passu in right
of payment with all present and future senior Indebtedness of the Company and
senior to all future Subordinated Indebtedness of the Company.
The New Notes will mature on June 15, 2007, will be limited to $155 million
aggregate principal amount, and will be unsecured senior obligations of the
Company. Each Note will bear interest at the rate set forth on the cover page
hereof from June 20, 1997 or from the most recent interest payment date to which
interest has been paid, payable semiannually on June 15 and December 15 in each
year, commencing December 15, 1997, to the Person in whose name the Note (or any
predecessor Note) is registered at the close of business on the June 1 or
December 1 next preceding such interest payment date. Interest will be computed
on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the New Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the corporate trust office of the Trustee); provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the security register.
The Notes will be issued only in fully registered form without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer, exchange or redemption of Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.
Settlement for the New Notes will be made in same day funds. All payments
of principal and interest will be made by the Company in same day funds. The New
Notes will trade in the Same Day Funds Settlement System of The Depository Trust
Company (the "Depositary" or "DTC") until maturity, and secondary market trading
activity for the New Notes will therefore settle in same day funds.
50
<PAGE> 51
When issued, the New Notes will be a new issue of securities with no
established trading market. No assurance can be given as to the liquidity of the
trading market for the New Notes. See "Risk Factors -- Absence of Public Market
for New Notes."
The New Notes will not be entitled to the benefits of any sinking fund.
OPTIONAL REDEMPTION
The New Notes will be subject to redemption at any time on or after June
15, 2002, at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or any integral
multiple thereof at the following redemption prices (expressed as percentages of
the principal amount), if redeemed during the 12-month period beginning on June
15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---------------------------------------------------------- ----------
<S> <C>
2002...................................................... 105.00%
2003...................................................... 103.33%
2004...................................................... 101.67%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on the relevant record dates to receive interest due
on an interest payment date).
In addition, at any time on or prior to June 15, 2000, the Company may, at
its option, use the net proceeds of one or more Public Equity Offerings to
redeem up to an aggregate of 35% of the aggregate principal amount of New Notes
originally issued under the Indenture at a redemption price equal to 110% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the redemption date; provided that at least $100.75 million aggregate
principal amount of New Notes remains outstanding immediately after the
occurrence of any such redemption. In order to effect the foregoing redemption,
the Company must mail a notice of redemption no later than 60 days after the
related closing of the Public Equity Offering and must consummate such
redemption within 90 days of the closing of the Public Equity Offering.
If less than all of the New Notes are to be redeemed, the Trustee shall
select the New Notes or portions thereof to be redeemed pro rata, by lot or by
any other method the Trustee shall deem fair and reasonable.
PURCHASE OF NEW NOTES UPON A CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of New
Notes shall have the right to require that the Company purchase such holder's
New Notes in whole or in part in integral multiples of $1,000, at a purchase
price (the "Change of Control Purchase Price") in cash in an amount equal to
101% of the principal amount of such New Notes, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below (a "Change of Control Offer") and
in accordance with the other procedures set forth in the Indenture.
Within 30 days of any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of New Notes, by first-class mail, postage prepaid, at his or her address
appearing in the security register, stating, among other things, that a Change
of Control has occurred and the date of such event, the circumstances and
relevant facts regarding such Change of Control (including, if applicable,
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); the purchase
price and the purchase date which shall be fixed by the Company on a business
day no earlier than 30 days nor later than 60 days from the date such notice is
first mailed to the holders of the New Notes, or such later date as is necessary
to comply with requirements under the Exchange Act; that any Note not tendered
will continue to accrue interest; that, unless the Company defaults in the
payment of the Change of Control Purchase Price, any New Notes accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date; and certain other procedures that a
holder of New Notes must follow to accept a Change of Control Offer or to
withdraw such acceptance.
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If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the New Notes that might be tendered by holders of the
New Notes seeking to accept the Change of Control Offer. See "-- Ranking." The
failure of the Company to make or consummate the Change of Control Offer or pay
the Change of Control Purchase Price when due will give the Trustee and the
holders of the New Notes the rights described under "-- Events of Default."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event the holders of the New Notes elected to exercise their rights under
the Indenture with respect to a Change of Control involving (or asserted to
involve) the transfer or lease of all or substantially all of the Company's
assets (as described in clause (iii) of such definition) and the Company elected
to contest such election, there could be no assurance as to how a court
interpreting New York law would interpret such term.
The existence of a holder's right to require the Company to repurchase such
holder's New Notes upon a Change of Control may deter a third party from
acquiring the Company in a transaction which constitutes a Change of Control.
In addition to the obligations of the Company under the Indenture with
respect to the New Notes in the event of a "Change of Control," the Bank Credit
Facility also contains an event of default upon a "Change of Control" as defined
therein which obligates the Company to repay amounts outstanding under the Bank
Credit Facility upon an acceleration of the indebtedness issued thereunder. See
"Description of the Bank Credit Facility."
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
RANKING
The New Notes will be unsecured senior obligations of the Company, ranking
pari passu in right of payment with all other existing and future Senior
Indebtedness of the Company. The New Notes will be effectively subordinated to
secured Indebtedness of the Company, including the Company's secured
Indebtedness under the Bank Credit Facility and certain other Permitted
Indebtedness that may be secured by a lien on the assets of the Company. As of
March 29, 1997 and after giving effect to the Refinancing, which includes the
issuance of the New Notes, the Company would have had $226.5 million of Senior
Indebtedness. Although the New Notes, indebtedness incurred under the Bank
Credit Facility and certain other Permitted Indebtedness will all constitute
senior obligations of the Company, the Banks (and any other lender with respect
to other Indebtedness secured by assets of the Company) will have a claim
ranking prior to that of the holders of the New Notes with respect to the
distribution of assets and the proceeds thereof securing the Company's
obligations thereunder.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not create, issue, incur,
assume, guarantee or otherwise in any manner become directly or indirectly
liable for the payment of or otherwise suffer to exist (collectively, "incur"),
any Indebtedness (including any Acquired Indebtedness), other than Permitted
Indebtedness, unless such Indebtedness is incurred by the Company and the
Company's Consolidated Fixed Charge Coverage Ratio for the four full fiscal
quarters for which financial results are available immediately preceding the
date of incurrence of such Indebtedness (the "Incurrence Date"), taken as one
period (and after giving pro forma effect to (i) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was incurred,
and the application of such proceeds occurred, at the beginning of such
four-quarter period; (ii) the incurrence,
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repayment or retirement of any other Indebtedness by the Company since the first
day of such four-quarter period as if such Indebtedness was incurred, repaid or
retired at the beginning of such four-quarter period (except that, in making
such computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such four-quarter period); (iii) in the case of Acquired Indebtedness,
the related acquisition; and (iv) any acquisition or disposition by the Company
and its Subsidiaries of any company or any business or any assets out of the
ordinary course of business, or any related repayment of Indebtedness, in each
case since the first day of such four-quarter period, assuming such acquisition
or disposition and any such related payments had been consummated on the first
day of such four-quarter period), would be at least 1.8:1 if the Incurrence Date
is on or before December 31, 1998, or at least 2.0:1 if the Incurrence Date is
after December 31, 1998. The Company will not permit any of its Subsidiaries to
incur any Indebtedness (other than Permitted Subsidiary Indebtedness).
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than dividends
or distributions payable solely in shares of its Qualified Capital Stock or
in options, warrants or other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, the Company's Capital Stock or any Capital Stock of
any Affiliate of the Company (other than (A) Capital Stock of any Wholly
Owned Subsidiary of the Company, (B) the Capital Stock of White Rose upon
the merger of White Rose into the Company on the Issue Date or options,
warrants or other rights to acquire such Capital Stock or (C) the
Shareholder Stock Repurchases);
(iii) prior to any scheduled principal payment, sinking fund payment
or maturity of any Subordinated Indebtedness, make any principal payment
on, or repurchase, redeem, defease, retire or otherwise acquire for value,
such Subordinated Indebtedness (other than any such Indebtedness owed to
the Company or a Wholly Owned Subsidiary);
(iv) declare or pay any dividend or distribution on any Capital Stock
of any Subsidiary to any Person (other than to the Company or any of its
Wholly Owned Subsidiaries) or purchase, redeem or otherwise acquire or
retire for value any Capital Stock of any Subsidiary held by any person
(other than the Company or any of its Wholly Owned Subsidiaries);
(v) incur, create, or assume, any guarantee of Indebtedness of any
Affiliate of the Company (other than a Wholly Owned Subsidiary of the
Company); or
(vi) make any Investment in any Person (other than Permitted
Investments)
(any of the foregoing actions described in clauses (i) through (vi), other than
any such action that is a Permitted Payment (as defined below), collectively, a
"Restricted Payment") (the amount of any such Restricted Payment, if other than
cash, being determined by the board of directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution); unless
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a pro forma basis, no Default or Event of Default shall
have occurred and be continuing and such Restricted Payment shall not be an
event which is, or after notice or lapse of time or both, would be, an "event of
default" under the terms of any Indebtedness of the Company or its Subsidiaries;
(2) immediately before and immediately after giving effect to such Restricted
Payment on a pro forma basis, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness or Permitted Subsidiary
Indebtedness) under the provisions described under "-- Limitation on
Indebtedness"; and (3) after giving effect to the proposed Restricted Payment,
the aggregate amount of all such Restricted Payments declared or made after the
date of the Indenture plus the Permitted Payments made under clause (b)(vi), do
not exceed $3.0 million plus the sum of:
(A) 50% of the aggregate Consolidated Net Income of the Company
accrued on a cumulative basis during the period beginning on the first day
of the fiscal quarter beginning after the date of the Indenture and ending
on the last day of the Company's last fiscal quarter ending prior to the
date of the Restricted
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Payment (or, if such aggregate cumulative Consolidated Net Income shall be
a loss, minus 100% of such loss); plus
(B) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company either (x) as capital contributions in the form of
common equity to the Company or (y) from the issuance or sale (other than
to any of its Subsidiaries) of Qualified Capital Stock of the Company or
any options, warrants or rights to purchase such Qualified Capital Stock of
the Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth in clause (ii) or (iii) of paragraph (b) below),
in each case, other than Net Cash Proceeds received from the issuance or
sale of Qualified Capital Stock or options, warrants or rights to purchase
Qualified Capital Stock in, or otherwise received in connection with, the
Refinancing; plus
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase Qualified Capital
Stock of the Company; plus
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Company or its Subsidiaries
into or for Qualified Capital Stock of the Company plus, to the extent such
debt securities or Redeemable Capital Stock were issued after the date of
the Indenture, the aggregate of Net Cash Proceeds from their original
issuance; plus
(E) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the date of the Indenture, an
amount equal to the lesser of the return of capital with respect to such
Investment and the initial amount of such Investment, in either case, less
the cost of the disposition of such Investment.
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(vii) below, so long as there is no Default or Event of Default continuing, the
foregoing provisions shall not prohibit the following actions (each of clauses
(i) through (vii) being referred to as a "Permitted Payment"):
(i) the payment of (1) the White Rose Dividend and (2) any other
dividend within 60 days after the date of declaration thereof if at the
date of declaration thereof such other dividend (A) would be permitted by
the provisions of paragraph (a) of this Section and (B) shall be deemed to
have been paid on such date of declaration for purposes of the calculation
required by paragraph (a) of this Section;
(ii) the repurchase, redemption, or other acquisition or retirement
for value of any shares of any class of Capital Stock of the Company in
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu
of the issuance of fractional shares or scrip), or out of the Net Cash
Proceeds of a substantially concurrent issue and sale for cash (other than
to a Subsidiary) of, other shares of Qualified Capital Stock of the
Company; provided that the Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are, to the extent so used, excluded from
clause (3)(B) of paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness or Redeemable Capital Stock in exchange for, or in an amount
not in excess of the Net Cash Proceeds of, a substantially concurrent
issuance and sale for cash (other than to any Subsidiary) of any Qualified
Capital Stock of the Company, provided that the Net Cash Proceeds from the
issuance of such shares of Qualified Capital Stock are, to the extent so
used, excluded from clause (3)(B) of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the substantially concurrent issuance of new Subordinated
Indebtedness of the Company, provided that any such new Subordinated
Indebtedness (1) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if such Subordinated Indebtedness
provides for
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an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, then such lesser amount as of the
date of determination), plus the lesser of (I) the stated amount of any
premium or other payment required to be paid in connection with such a
refinancing pursuant to the terms of the Indebtedness being refinanced or
(II) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of
the Company incurred in connection with such refinancing; (2) has an
Average Life to Stated Maturity greater than the remaining Average Life to
Stated Maturity of the New Notes; (3) has a Stated Maturity for its final
scheduled principal payment later than the Stated Maturity for the final
scheduled principal payment of the New Notes; and (4) is expressly
subordinated in right of payment to the New Notes at least to the same
extent as the Subordinated Indebtedness to be refinanced;
(v) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of any Redeemable Capital Stock through
the substantially concurrent issuance of new Redeemable Capital Stock of
the Company, provided that any such new Redeemable Capital Stock (1) shall
have an aggregate liquidation preference that does not exceed the aggregate
liquidation preference of the amount so refinanced; (2) has an Average Life
to Stated Maturity greater than the remaining Average Life to Stated
Maturity of the New Notes; and (3) has a Stated Maturity later than the
Stated Maturity for the final scheduled principal payment of the New Notes;
(vi) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the board of directors of the Company under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; and
(vii) the repurchase, redemption, defeasance, retirement or
acquisition for value of the 12 3/4% Discount Notes and the 12% Notes on or
prior to their scheduled maturity.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with or
for the benefit of any Affiliate of the Company (other than the Company or a
Subsidiary) unless such transaction or series of related transactions is entered
into in good faith and (a) such transaction or series of related transactions is
on terms that are no less favorable to the Company or such Subsidiary, as the
case may be, than those that would be available in a comparable transaction in
arm's-length dealings with an unrelated third party, (b) with respect to any
transaction or series of related transactions involving aggregate value in
excess of $1 million, the Company delivers an officers' certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (a) above, and (c) with respect to any transaction or
series of related transactions involving aggregate value in excess of $5
million, either (A) such transaction or series of related transactions has been
approved by a majority of the Disinterested Directors of the Company, or in the
event there is only one Disinterested Director, by such Disinterested Director,
or (B) the Company delivers to the Trustee a written opinion of an investment
banking firm of national standing or other recognized independent expert with
experience appraising the terms and conditions of the type of transaction or
series of related transactions for which an opinion is required stating that the
transactions or series of related transactions are fair to the Company or such
Subsidiary from a financial point of view; provided, however, that clauses (a)
through (c) above shall not apply to (i) any transaction with an employee or
director of the Company or any of its Subsidiaries entered into in the ordinary
course of business (including compensation and employee benefit arrangements
with any officer, director or employee of the Company or any Subsidiary,
including under any stock option or stock incentive plans), (ii) any
transactions of payments pursuant to the Tax Sharing Agreement or the Las Plumas
Management Agreement, (iii) the merger of White Rose into the Company on the
Issue Date and (iv) Restricted Payments made in accordance with "-- Limitation
on Restricted Payments" or Permitted Payments.
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Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or incur any Lien of any kind
upon any of its property or assets (including any intercompany notes, but
excluding any inventory held on consignment), now owned or acquired after the
date of the Indenture, or any income or profits therefrom, except if the New
Notes are directly secured equally and ratably with (or prior to in the case of
Liens with respect to Subordinated Indebtedness) the obligation or liability
secured by such Lien, excluding, however, from the operation of the foregoing
any of the following:
(a) Any Lien existing as of the date of the Indenture, as set forth on
a schedule to the Indenture.
(b) Any Lien arising by reason of (1) any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired; (2) taxes not yet delinquent or which are being contested in good
faith; (3) good faith deposits in connection with tenders, leases,
contracts (other than contracts for the payment of money); (4) zoning
restrictions, easements, licenses, reservations, title defects, rights of
others for rights of way, utilities, sewers, electric lines, telephone or
telegraph lines, and other similar purposes, provisions, covenants,
conditions, waivers, restrictions on the use of property or minor
irregularities of title (and with respect to leasehold interest, mortgages,
obligations, liens and other encumbrances incurred, created, assumed or
permitted to exist and arising by, through or under a landlord or owner of
the leased property, with or without consent of the Lessee), none of which
materially impairs the use of any parcel of property material to the
operation of the business of the Company or any Subsidiary or the value of
such property for the purpose of such business; (5) deposits to secure
public or statutory obligations, or in lieu of surety or appeal bonds; or
(6) operation of law in favor of landlords, mechanics, materialmen,
warehousemen, carriers, laborers, employees or suppliers, incurred in the
ordinary course of business for sums which are not yet delinquent or are
being contested in good faith or negotiations or by appropriate proceedings
which suspend the collection thereof.
(c) Any Lien on property of the Company or any Subsidiary securing
Indebtedness incurred by the Company under subclause (i) of the definition
of Permitted Indebtedness.
(d) Any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary.
(e) Any Lien to secure the performance of bids, trade contracts,
leases (including without limitation, statutory and common law landlord's
liens), statutory obligations, surety and appeal bonds, letters of credit
and other obligations of a like nature and incurred in the ordinary course
of business of the Company and any Subsidiary.
(f) Any Lien securing Indebtedness permitted to be incurred pursuant
to clauses (vi) and (ix) of the definition of "Permitted Indebtedness" and
which is not prohibited to be incurred under the "Limitation on
Indebtedness" covenant.
(g) Any Lien on trucks owned or leased by the Company, or incurred by
the Company in connection with the purchase or lease thereof.
(h) Any Lien securing Indebtedness incurred to effect a defeasance of
the New Notes pursuant to the defeasance provisions of the Indenture.
(i) Any Lien securing Indebtedness permitted to be incurred under
Interest Rate Agreements or otherwise incurred to hedge interest rate risk.
(j) Any extension, renewal, refinancing or replacement, in whole or in
part, of any lien described in the foregoing clauses (a) through (i) so
long as no additional collateral is granted as security thereby.
Limitation on Sale of Assets. (a) The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, consummate an Asset
Sale unless (i) at least 75% of the consideration from such Asset Sale is
received in cash or Cash Equivalents and (ii) the Company or such Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the shares or assets subject to such
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Asset Sale (as determined by the board of directors of the Company and evidenced
in a board resolution). For the purposes of this covenant, "Cash Equivalents"
means (x) the assumption of Indebtedness of the Company or any Subsidiary and
the release of the Company or such Subsidiary from all liability on such
Indebtedness in connection with such Asset Sale, (y) Temporary Cash Investments,
and (z) securities received by the Company or any Subsidiary from the transferee
that are promptly converted by the Company or such Subsidiary into cash.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness then
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Cash Proceeds to the permanent prepayment of such Senior
Indebtedness, or if no such Senior Indebtedness is then outstanding, then the
Company or a Subsidiary may, within 360 days of the Asset Sale, invest the Net
Cash Proceeds in properties and other assets that (as determined by the board of
directors of the Company) replace the properties and assets that were the
subject of the Asset Sale or in properties and assets that will be used in the
businesses of the Company or its Subsidiaries existing on the date of the
Indenture or in businesses reasonably related thereto. The amount of such Net
Cash Proceeds not applied to repay Senior Indebtedness or used or invested
within 360 days of the Asset Sale as set forth in this paragraph constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company will apply the Excess Proceeds to the repayment of the New Notes and any
other Pari Passu Indebtedness outstanding with provisions requiring the Company
to make an offer to purchase or to purchase or redeem such Indebtedness with the
proceeds from any Asset Sale as follows: (A) the Company will make an offer to
purchase (an "Offer") from all holders of the New Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount (expressed
as a multiple of $1,000) of New Notes that may be purchased out of an amount
(the "Note Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the New
Notes, and the denominator of which is the sum of the outstanding principal
amount of the New Notes and such Pari Passu Indebtedness (subject to proration
in the event such amount is less than the aggregate Offered Price (as defined
herein) of all New Notes tendered) and (B) to the extent required by such Pari
Passu Indebtedness to permanently reduce the principal amount of such Pari Passu
Indebtedness, the Company will make an offer to purchase or otherwise repurchase
or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount (the "Pari
Passu Debt Amount") equal to the excess of the Excess Proceeds over the Note
Amount; provided that in no event will the Company be required to make a Pari
Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of such
Pari Passu Indebtedness plus the amount of any premium required to be paid to
repurchase such Pari Passu Indebtedness. The offer price for the New Notes will
be payable in cash in an amount equal to 100% of the principal amount of the New
Notes plus accrued and unpaid interest, if any, to the date (the "Offer Date")
such Offer is consummated (the "Offered Price"), in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate Offered
Price of the New Notes tendered pursuant to the Offer is less than the Note
Amount relating thereto or the aggregate amount of Pari Passu Indebtedness that
is purchased in a Pari Passu Offer is less than the Pari Passu Debt Amount, the
Company will use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of New Notes and Pari Passu Indebtedness
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the New Notes to be purchased on a pro rata basis. Upon the
completion of the purchase of all the New Notes tendered pursuant to an Offer
and the completion of a Pari Passu Offer, the amount of Excess Proceeds, if any,
shall be reset at zero.
(d) Whenever the Excess Proceeds received by the Company exceed $5 million,
such Excess Proceeds shall, prior to the purchase of the New Notes or any Pari
Passu Indebtedness described in paragraph (c) above, be set aside by the Company
in a separate account pending (i) deposit with the depository or a paying agent
of the amount required to purchase the New Notes of Pari Passu Indebtedness
tendered in an Offer of a Pari Passu Offer, (ii) delivery by the Company of the
Offered Price to the holders of the New Notes or Pari Passu Indebtedness
tendered in an Offer or a Pari Passu Offer and (iii) application, as set forth
above, of Excess Proceeds in the business of the Company and its Subsidiaries.
Such Excess Proceeds may be invested in Temporary Cash Investments, provided
that the maturity date of any such investment made after the
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amount of the Excess Proceeds exceeds $5.0 million shall not be later than the
Offer Date. The Company shall be entitled to any interest or dividends accrued,
earned or paid on such Temporary Cash Investments, provided that the Company
shall not withdraw such interest from the separate account if an Event of
Default has occurred or is continuing.
(e) The Indenture will provide that, if the Company becomes obligated to
make an Offer pursuant to clause (c) above, the New Notes and the Pari Passu
Indebtedness shall be purchased by the Company, at the option of the holders
thereof, in whole or in part in integral multiples of $1,000, on a date that is
not earlier than 30 days and not later than 60 days from the date the notice of
such Offer is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act.
(f) The Indenture will provide that the Company will comply with the
applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and
any other applicable securities laws or regulations in connection with an Offer.
Limitation on Capital Stock of Subsidiaries. The Company will not permit
(a) any Subsidiary of the Company to issue any Capital Stock, except for (i)
Capital Stock issued to the Company or a Wholly Owned Subsidiary, and (ii)
Capital Stock issued by a Person prior to the time (A) such Person becomes a
Subsidiary, (B) such Person merges with or into a Subsidiary or (C) a Subsidiary
merges with or into such Person; provided that such Capital Stock was not issued
or incurred by such Person in anticipation of the type of transaction
contemplated by subclause (A), (B) or (C), or (b) any Person (other than the
Company or a Wholly Owned Subsidiary) to acquire Capital Stock of any Subsidiary
from the Company or any Subsidiary, except, in the case of clause (a) or (b),
upon the acquisition of all the outstanding Capital Stock of such Subsidiary in
accordance with the terms of the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or suffer to exist any consensual encumbrance
or restriction on the ability of any Subsidiary to (i) pay dividends or make any
other distribution on its Capital Stock, (ii) pay any Indebtedness owed to the
Company or any other Subsidiary, (iii) make any Investment in the Company or any
other Subsidiary or (iv) transfer any of its properties or assets to the Company
or any other Subsidiary, except for: (a) any encumbrance or restriction pursuant
to any agreement in effect on the date of the Indenture and listed on a schedule
to the Indenture; (b) any encumbrance or restriction, with respect to a
Subsidiary that is not a Subsidiary of the Company on the date of the Indenture,
in existence at the time such Person becomes a Subsidiary of the Company and not
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary; (c) customary non-assignment or subletting provisions of any lease,
license or other contract; (d) any restriction entered into in the ordinary
course of business contained in any lease of any Subsidiary or any security
agreement or mortgage securing Indebtedness of any Subsidiary to the extent such
restriction restricts the transfer of property subject to such security
agreement, mortgage or lease; and (e) any encumbrance or restriction existing
under any agreement that extends, renews, refinances or replaces the agreements
containing the encumbrances or restrictions in the foregoing clauses (a), (b),
(c) or (d), or in this clause (e); provided in each case that the terms and
conditions of any such encumbrances or restrictions are no more restrictive in
any material respect than those under or pursuant to the agreement evidencing
the Indebtedness so extended, renewed, refinanced or replaced.
Limitations on Unrestricted Subsidiaries. Except for Investments made
pursuant to clause (viii) or (ix) of the definition of Permitted Investments,
the Company will not make, and will not permit its Subsidiaries to make, an
Investment in Unrestricted Subsidiaries if, at the time thereof, the aggregate
amount of such Investments would exceed the amount of Restricted Payments then
permitted to be made pursuant to the provisions described under "-- Limitation
on Restricted Payments." Except for Investments made pursuant to clause (viii)
or (ix) of the definition of Permitted Investments, any Investment in
Unrestricted Subsidiaries permitted to be made pursuant to this covenant (i)
must be permitted to be made pursuant to the provision described under
"-- Limitation on Restricted Payments" and will be treated as a Restricted
Payment in calculating the amount of Restricted Payments made by the Company and
(ii) may be made in cash or property.
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Provision of Financial Statements. After the earlier to occur of the
consummation of the Exchange Offer and the 150th calendar day following the date
of original issue of the New Notes, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange
Act if the Company were so subject, such documents to be filed with the
Commission on or prior to the date (a "Required Filing Date") by which the
Company would have been required so to file such documents if the Company were
so subject. The Company will also in any event (x) within 15 days of each
Required Filing Date occurring after the issuance of the New Notes (i) transmit
by mail to all holders, as their names and addresses appear in the security
register, without cost to such holders and (ii) file with the Trustee, copies of
the annual reports, quarterly reports and other documents which the Company
would have been required to file with the Commission pursuant to Section 13(a)
or 15(d) of the Exchange Act if the Company were subject to either of such
Sections and (y) if filing such documents by the Company with the Commission is
not permitted under the Exchange Act, promptly upon written request and payment
of the reasonable cost of duplication and delivery, supply copies of such
documents to any prospective holder at the Company's cost. The Indenture also
provides that, so long as any of the New Notes remain outstanding, the Company
will make available to any prospective purchaser of New Notes or beneficial
owner of New Notes in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act, until such time as the Company has
either exchanged the New Notes for securities identical in all material respects
which have been registered under the Securities Act or until such time as the
holders thereof have disposed of such New Notes pursuant to an effective
registration statement under the Securities Act.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company will not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, or permit any of its Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Subsidiaries on a Consolidated
basis to any other Person or group of affiliated Persons, unless at the time and
after giving effect thereto (i) either (a) the Company will be the continuing
corporation or (b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a Consolidated basis (the "Surviving Entity") will be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and such Person
expressly assumes, by a supplemental indenture, in a form satisfactory to the
Trustee, all the obligations of the Company under the New Notes and the
Indenture, as the case may be, and the New Notes and the Indenture will remain
in full force and effect as so supplemented; (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis (and
treating any Indebtedness not previously an obligation of the Company or any of
its Subsidiaries which becomes the obligation of the Company or any of its
Subsidiaries as a result of such transaction as having been incurred at the time
of such transaction), no Default or Event of Default will have occurred and be
continuing; (iii) immediately before and immediately after giving effect to such
transaction on a pro forma basis (on the assumption that the transaction
occurred on the first day of the four-quarter period for which financial results
are available ending immediately prior to the consummation of such transaction
with the appropriate adjustments with respect to the transaction being included
in such pro forma calculation), the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness or Permitted
Subsidiary Indebtedness) under the provisions of "-- Certain
Covenants -- Limitation on Indebtedness"; and (iv) at the time of the
transaction the Company or the Surviving Entity will have delivered, or caused
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an officers' certificate and an opinion of counsel, each to the
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effect that such consolidation, merger, transfer, sale, assignment, conveyance,
transfer, lease or other transaction and the supplemental indenture in respect
thereof comply with the Indenture and that all conditions precedent therein
provided for relating to such transaction have been complied with; provided,
however, that the foregoing prohibition shall not prohibit (a) the merger of
White Rose into the Company on the Issue Date, and (b) any merger between or
among Subsidiaries of the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the continuing corporation, the successor Person formed
or remaining shall succeed to, and be substituted for, and may exercise every
right and power of, the Company, and the Company would be discharged from all
obligations and covenants under the Indenture and the New Notes, as the case may
be.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any
Note when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(iii) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under the Indenture (other than a
default in the performance, or breach, of a covenant or agreement which is
specifically dealt with in clause (i), (ii) or (iv)) and such default or
breach shall continue for a period of 30 days after written notice has been
given, by certified mail, (x) to the Company by the Trustee or (y) to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding New Notes;
(iv) (a) there shall be a default in the performance or breach of the
provisions described in "-- Consolidation, Merger, Sale of Assets"; (b) the
Company shall have failed to make or consummate an Offer required in
accordance with the provisions of "-- Certain Covenants -- Limitation on
Sale of Assets"; or (c) the Company shall have failed to make or consummate
a Change of Control Offer required in accordance with the provisions of
"-- Purchase of New Notes Upon a Change of Control";
(v) one or more defaults shall have occurred under any of the
agreements, indentures or instruments under which the Company or any
Subsidiary then has outstanding Indebtedness in excess of $6.5 million,
individually or in the aggregate, and either (a) such default results from
the failure to pay such Indebtedness at its stated final maturity or (b)
such default or defaults have resulted in the acceleration of the maturity
of such Indebtedness;
(vi) one or more judgments, orders or decrees for the payment of money
in excess of $6.5 million, either individually or in the aggregate, shall
be rendered against the Company or any Subsidiary or any of their
respective properties (except with respect to the Farmingdale Facility) and
shall not be discharged and either (a) any creditor shall have commenced an
enforcement proceeding upon such judgment, order or decree or (b) there
shall have been a period of 60 consecutive days during which a stay of
enforcement of such judgment, order or decree, by reason of an appeal or
otherwise, shall not be in effect, provided that the amount of such money
judgment, order or decree shall be calculated net of any insurance coverage
that the Company has determined in good faith is available in whole or in
part with respect to such money judgment, order or decree;
(vii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any Significant Subsidiary in an involuntary case or proceeding under
any applicable Bankruptcy Law or (b) a decree or order adjudging the
Company or any Significant Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the
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Company or any Significant Subsidiary or of any substantial part of their
respective properties, or ordering the winding up or liquidation of their
respective affairs, and any such decree or order for relief shall continue
to be in effect, or any such other decree or order shall be unstayed and in
effect, for a period of 60 consecutive days; or
(viii) (a) the Company or any Significant Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any
other case or proceeding to be adjudicated bankrupt or insolvent, (b) the
Company or any Significant Subsidiary consents to the entry of a decree or
order for relief in respect of the Company or such Significant Subsidiary
in an involuntary case or proceeding under any applicable Bankruptcy Law or
to the commencement of any bankruptcy or insolvency case or proceeding
against it, (c) the Company or any Significant Subsidiary files a petition
or answer or consent seeking reorganization or relief under any applicable
federal or state law, (d) the Company or any Significant Subsidiary (I)
consents to the filing of such petition or the appointment of, or taking
possession by, a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or such Significant
Subsidiary or of any substantial part of their respective properties, (II)
makes an assignment for the benefit of creditors or (III) admits in writing
its inability to pay its debts generally as they become due or (e) the
Company or any Significant Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (viii).
If an Event of Default (other than as specified in clauses (vii) and (viii)
of the prior paragraph with respect to the Company) shall occur and be
continuing with respect to the Indenture, the Trustee or the holders of not less
than 25% in aggregate principal amount of the New Notes then outstanding may,
and the Trustee at the request of such holders shall, declare all unpaid
principal of, premium, if any, and accrued interest on all New Notes to be due
and payable, by a notice in writing to the Company (and to the Trustee if given
by the holders of the New Notes) and upon any such declaration, such principal,
premium, if any, and interest shall become due and payable immediately. If an
Event of Default specified in clause (vii) or (viii) of the prior paragraph
occurs with respect to the Company and is continuing, then all the New Notes
shall ipso facto become and be due and payable immediately in an amount equal to
the principal amount of the New Notes, together with accrued and unpaid
interest, if any, to the date the New Notes become due and payable, without any
declaration or other act on the part of the Trustee or any holder. Thereupon,
the Trustee may, at its discretion, proceed to protect and enforce the rights of
the holders of New Notes by appropriate judicial proceedings.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of New Notes outstanding, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if (a) the Company has paid or deposited with the Trustee a
sum sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all New
Notes then outstanding, (iii) the principal of and premium, if any, on any New
Notes then outstanding which have become due otherwise than by such declaration
of acceleration and interest thereon at a rate borne by the New Notes and (iv)
to the extent that payment of such interest is lawful, interest upon overdue
interest at the rate borne by the New Notes; and (b) all Events of Default,
other than the non-payment of principal of the New Notes which have become due
solely by such declaration of acceleration, have been cured or waived as
provided in the Indenture. No such rescission shall affect any subsequent
default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the New Notes outstanding may on behalf of the holders of all outstanding New
Notes waive any past default under the Indenture and its consequences, except a
default in the payment of the principal of, premium, if any, or interest on any
Note or in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each Note affected
by such modification or amendment.
The Company is also required to notify the Trustee within ten business days
of the occurrence of any Default. The Company is required to deliver to the
Trustee, on or before a date not more than 120 days after
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the end of each fiscal year, a written statement as to compliance with the
Indenture, including whether or not any Default has occurred. The Trustee is
under no obligation to exercise any of the rights or powers vested in it by the
Indenture at the request or direction of any of the holders of the New Notes
unless such holders offer to the Trustee security or indemnity satisfactory to
the Trustee against the costs, expenses and liabilities which might be incurred
thereby.
The Trust Indenture Act contains 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 by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions, provided that if it acquires any conflicting interest it
must eliminate such conflict upon the occurrence of an Event of Default or else
resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company and any other obligor upon the New Notes discharged
with respect to the outstanding New Notes ("defeasance"). Such defeasance means
that the Company and any other obligor under the Indenture shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
New Notes, except for (i) the rights of holders of such outstanding New Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such New Notes when such payments are due, (ii) the Company's obligations
with respect to the New Notes concerning issuing temporary New Notes,
registration of New Notes, mutilated, destroyed, lost or stolen New Notes, 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 (iv) the 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 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 an Event of Default with
respect to the New Notes. In the event covenant defeasance occurs, certain
events (not including non-payment, bankruptcy and insolvency events) described
under "-- Events of Default" will no longer constitute an Event of Default with
respect to the New Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, in
trust, for the benefit of the holders of the New Notes cash in United States
dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the outstanding New Notes on the Stated
Maturity (or on any date after June 15, 2002, (such date being referred to as
the "Defeasance Redemption Date"), if at or prior to electing either defeasance
or covenant defeasance, the Company has delivered to the Trustee an irrevocable
notice to redeem all of the outstanding New Notes on the Defeasance Redemption
Date); (ii) in the case of defeasance, the Company shall have delivered to the
Trustee an opinion of independent counsel in the United States stating that (A)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of independent counsel in the United States
shall confirm that, the holders of the outstanding New Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
had not occurred; (iii) in the case of covenant defeasance, the Company shall
have delivered to the Trustee an opinion of independent counsel in the United
States to the effect that the holders of the outstanding New Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; (iv) no Default or Event of Default
(other than a Default or an Event of Default resulting from the borrowing of
funds to be applied to such deposit) shall have occurred and be continuing on
the date of such deposit or insofar as clauses (vii) or (viii) under the first
paragraph under "-- Events of Default" are concerned, at any time during the
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period ending on the 91st day after the date of deposit (it being understood
that this condition shall not be deemed satisfied until the expiration of such
period); (v) such defeasance or covenant defeasance shall not cause the Trustee
for the New Notes to have a conflicting interest as defined in the Indenture and
for purposes of the Trust Indenture Act with respect to any securities of the
Company; (vi) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, (A) the Indenture or (B)
any other agreement or instrument to which the Company or any Significant
Subsidiary is a party or by which the Company or any Significant Subsidiary is
bound, if such breach, violation, or default thereof would have a material
adverse effect on the Company and its Subsidiaries taken as a whole; (vii) such
defeasance or covenant defeasance shall not result in the trust arising from
such deposit constituting an investment company within the meaning of the
Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; (viii) the
Company will have delivered to the Trustee an opinion of independent counsel in
the United States to the effect that after the 91st day following the deposit,
the trust funds will not be subject to avoidance under Section 547 of the United
States Bankruptcy Code (or any successor provision thereto) and related judicial
decisions; (ix) 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 preferring the holders of the New Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; (x) no event or condition shall exist that
would prevent the Company from making payments of the principal of, premium, if
any, and interest on the New Notes on the date of such deposit or at any time
ending on the 91st day after the date of such deposit; and (xi) the Company will
have delivered to the Trustee an officers' certificate and an opinion of
independent counsel, each stating that all conditions precedent provided for
relating to either the 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
(except as to surviving rights of registration of transfer or exchange of the
New Notes as expressly provided for in the Indenture) as to all outstanding New
Notes under the Indenture when (a) either (i) all such New Notes theretofore
authenticated and delivered (except lost, stolen or destroyed New Notes which
have been replaced or paid or New Notes whose payment has been deposited in
trust or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust as provided for in the Indenture) have
been delivered to the Trustee for cancellation or (ii) all New Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
year, or (z) are to be called for redemption within one year under arrangements
satisfactory to the applicable Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of the Company; and the Company has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust an amount in United States dollars sufficient to pay and discharge the
entire indebtedness on the New Notes not theretofore delivered to the Trustee
for cancellation, including principal of, premium, if any, and accrued interest
on, such New Notes at such Maturity, Stated Maturity or redemption date; (b) the
Company has paid or caused to be paid all other sums payable under the Indenture
by the Company; and (c) the Company has delivered to the Trustee an officers'
certificate and an opinion of independent counsel each stating that (i) all
conditions precedent under the Indenture relating to the satisfaction and
discharge of such Indenture have been complied with and (ii) such satisfaction
and discharge will not result in a breach or violation of, or constitute a
default under, the Indenture or any other material agreement or instrument to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound.
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of at least a majority of
aggregate principal amount of the New Notes then outstanding; provided, however,
that no such modification or amendment may, without the consent of the holder of
each outstanding Note affected thereby: (i) change the Stated Maturity of the
principal of, or any installment of interest on, or change to an earlier date
any redemption date of, or waive a default in the payment of the principal or
interest on, any such Note or reduce the principal amount thereof or the rate of
interest thereon or
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any premium payable upon the redemption thereof, or change the coin or currency
in which the principal of any such Note or any premium or the interest thereon
is payable, or impair the right to institute suit for the enforcement of any
such payment after the Stated Maturity thereof (or, in the case of redemption,
on or after the redemption date); (ii) amend, change or modify the obligation of
the Company to make and consummate an Offer with respect to any Asset Sale or
Asset Sales in accordance with "-- Certain Covenants -- Limitation on Sale of
Assets" or the obligation of the Company to make and consummate a Change of
Control Offer in the event of a Change of Control in accordance with
"-- Purchase of New Notes Upon a Change of Control," including, in each case,
amending, changing or modifying any definitions relating thereto; (iii) reduce
the percentage in principal amount of such outstanding New Notes, the consent of
whose holders is required for any such supplemental indenture, or the consent of
whose holders is required for any waiver or compliance with certain provisions
of the Indenture; (iv) modify any of the provisions relating to supplemental
indentures requiring the consent of holders or relating to the waiver of past
defaults or relating to the waiver of certain covenants, except to increase the
percentage of such outstanding New Notes required for any such actions or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the holder of each such Note affected thereby; (v)
except as otherwise permitted under "-- Consolidation, Merger, Sale of Assets,"
consent to the assignment or transfer by the Company of any of its rights and
obligations under the Indenture; or (vi) amend or modify any of the provisions
of the Indenture in any manner which subordinates the securities in right of
payment to the other Indebtedness of the Company.
Notwithstanding the foregoing, without the consent of any holders of the
New Notes, the Company and the Trustee may modify or amend the Indenture: (a) to
evidence the succession of another Person to the Company or any other obligor
upon the New Notes, and the assumption by any such successor of the covenants of
the Company or such obligor in the Indenture and in the New Notes in accordance
with "-- Consolidation, Merger, Sale of Assets"; (b) to add to the covenants of
the Company or any other obligor upon the New Notes for the benefit of the
holders of the New Notes, or to surrender any right or power conferred upon the
Company or any other obligor upon the New Notes, as applicable, in the Indenture
or in the New Notes; (c) to cure any ambiguity, or to correct or supplement any
provision in the Indenture or in any supplementary indenture or the New Notes
which may be defective or inconsistent with any other provision in the Indenture
or the New Notes or make any other provisions with respect to matters or
questions arising under the Indenture or the New Notes; provided that, in each
case, such provisions shall not adversely affect the interest of the holders of
the New Notes; (d) to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act; (e) to evidence and provide the acceptance of the appointment of a
successor trustee under the Indenture; or (f) to mortgage, pledge, hypothecate
or grant a security interest in favor of the Trustee for the benefit of the
holders of the New Notes as additional security for the payment and performance
of the Company's obligations under the Indenture, in any property, or assets,
including any of which are required to be mortgaged, pledged or hypothecated, or
in which a security interest is required to be granted to the Trustee pursuant
to the Indenture or otherwise.
The holders of a majority in aggregate principal amount of the New Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
GOVERNING LAW
The Indenture and the New Notes will be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.
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
as Trustee with such conflict or resign as Trustee.
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The holders of a majority in principal amount of the then outstanding New
Notes 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 provides that in case an Event of Default
occurs (which has not been cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any holder of New Notes unless such holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or merges with or into the Company or any
Subsidiary or (ii) assumed in connection with the acquisition of assets from
such Person, in each case, other than Indebtedness incurred in connection with,
or in contemplation of, such Person becoming a Subsidiary or such acquisition,
as the case may be. Acquired Indebtedness shall be deemed to be incurred on the
date of the related acquisition of assets from any Person or the date the
acquired Person becomes a Subsidiary, as the case may be.
"Adjusted Consolidated Interest Expense" of any Person means, without
duplication, for any period, as applied to any Person, the sum of (a) the
interest expense of such Person and its Consolidated Subsidiaries (exclusive of
deferred financing fees and any premiums or penalties paid in connection with
redeeming or retiring any Indebtedness prior to its stated maturity) for such
period, on a Consolidated basis, including without limitation, (i) amortization
of debt discount, (ii) the net cost under interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation and (iv) accrued interest, plus (b) (i) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid, or accrued
by such Person during such period, and (ii) all capitalized interest of such
Person and its Consolidated Subsidiaries, in each case as determined in
accordance with GAAP consistently applied.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin; or
(iii) any other Person 5% or more of the Voting Stock of which is beneficially
owned or held directly or indirectly by such specified Person. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of: (i) any Capital
Stock of any Subsidiary; (ii) all or substantially all of the properties and
assets of any division or line of business of the Company or its Subsidiaries;
or (iii) any other properties or assets of the Company or any Subsidiary, other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" shall not include any transfer of properties and assets
(A) that is governed by the provisions described under "-- Consolidation,
Merger, Sale of Assets," (B) that is by any Subsidiary to the Company or any
Wholly Owned Subsidiary in accordance with the terms of the Indenture, (C) that
is of obsolete equipment or other obsolete assets in the ordinary course of
business, (D) that is of the Farmingdale Facility, the Farmingdale Lease or the
Farmingdale Option or all of the outstanding Capital Stock of the Farmingdale
Subsidiary or owned by the Company or any Subsidiary, (E) that constitutes the
making of a Permitted Investment (other than pursuant to clause (v) of the
definition of "Permitted Investment"), or (F) the Fair Market Value of which in
the aggregate does not exceed $500,000 in any transaction or series of related
transactions.
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"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment; by
(ii) the sum of all such principal payments.
"Bank Credit Facility" means the amended and restated Credit Agreement,
dated as of February 10, 1993, among the Company, various financial
institutions, BT Commercial Corporation, as agent, and Bankers Trust Company, as
Issuing Bank, as such agreement, in whole or in part, may be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Banks" means the lenders under the Bank Credit Facility.
"Capital Lease Obligation" of any Person means any obligation of such
Person and its Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued after
the date of the Indenture.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than a majority of the total outstanding Voting Stock of the Company (provided
however that, for so long as the Permitted Holders retain the right to elect at
least 50% of the entire board of directors of the Company, the shares
beneficially held by a group shall not include any shares beneficially owned by
a Permitted Holder who is a member of such group); (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the board of directors of the Company (together with any new directors whose
election to such board or whose nomination for election by the stockholders of
the Company was approved by the Permitted Holders or by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of such board of
directors then in office; (iii) the Company consolidates with or merges with or
into any Person or conveys, transfers or leases all or substantially all of its
assets to any Person, or any corporation consolidates with or merges into or
with the Company in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Stock of the Company is not changed or exchanged at all
(except to the extent necessary to reflect a change in the jurisdiction of
incorporation of the Company) or where (A) the outstanding Voting Stock of the
Company is changed into or exchanged for (x) Voting Stock of the surviving
corporation which is not Redeemable Capital Stock or (y) cash, securities and
other property (other than Capital Stock of the surviving corporation) in an
amount which could be paid by the Company as a Restricted Payment as described
under "-- Certain Covenants -- Limitation on Restricted Payments" (and such
amount shall be treated as a Restricted Payment subject to the provisions in the
Indenture described under "-- Certain Covenants -- Limitation on Restricted
Payments") and (B) no "person" or "group," other than Permitted Holders, owns
immediately after such transaction, directly or indirectly, more than a majority
of the total outstanding Voting Stock of the surviving corporation; or (iv) the
Company is liquidated or dissolved or
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adopts a plan of liquidation or dissolution other than in a transaction which
complies with the provisions described under "-- Consolidation, Merger, Sale of
Assets."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act then the body performing
such duties at such time.
"Company" means Di Giorgio Corporation, a corporation incorporated under
the laws of Delaware, until a successor Person shall have become such pursuant
to the applicable provisions of the Indenture, and thereafter "Company" shall
mean such successor Person.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of EBITDA to the sum of Adjusted Consolidated Interest Expense
for such period and cash dividends paid on any Preferred Stock of such Person
during such period; provided that (i) in making such computation, the Adjusted
Consolidated Interest Expense attributable to interest on any Indebtedness shall
be computed on a pro forma basis and (A) where such Indebtedness was outstanding
during the period and bore a floating interest rate, interest shall be computed
as if the rate in effect on the date of computation had been the applicable rate
for the entire period and (B) where such Indebtedness was not outstanding during
the period for which the computation is being made but which bears, at the
option of the Company, a fixed or floating rate of interest, shall be computed
by applying at the option of the Company, either the fixed or floating rate and
(ii) in making such computation, the Adjusted Consolidated Interest Expense of
such Person attributable to interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person and
its Consolidated Subsidiaries for such period as determined in accordance with
GAAP.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
Consolidated net income (or loss) of such Person and its subsidiaries for such
period on a Consolidated basis as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income (or loss), by excluding,
without duplication, (i) all extraordinary gains or losses (exclusive of all
fees and expenses relating thereto), (ii) the portion of net income (or loss) of
such Person and its subsidiaries on a Consolidated basis allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by such Person or one of its
subsidiaries, (iii) net income (or loss) of any Person combined with such Person
or any of its subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss, net of taxes,
realized upon the termination of any employee pension benefit plan, (v) net
gains (or losses) (except for all fees and expenses relating thereto) in respect
of dispositions of assets other than in the ordinary course of business, (vi)
the net income of any Subsidiary to the extent that the declaration of dividends
or similar distributions by that Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders, (vii)
any gain arising from the acquisition of any securities, or the extinguishment,
under GAAP, of any Indebtedness of such Person or (viii) transaction costs
charged in connection with the Refinancing.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its subsidiaries on a Consolidated basis for such period, as determined in
accordance with GAAP (excluding any non-cash charge which requires an accrual or
reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
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"Customer Loan" means any advance, loan, guarantee or other extension of
credit (other than any advance, loan or other extension of credit to a customer
in the ordinary course of business that is recorded as an account receivable on
the consolidated balance sheet of the Company and its Subsidiaries) (a "loan")
provided to a customer of the Company or any Subsidiary in the ordinary course
of business of the Company and its Subsidiaries and having a maturity not in
excess of five years from the incurrence thereof, provided that any such loan
made after the date of this Indenture is evidenced by a note made payable to the
Company or its Subsidiaries and is approved by a credit committee or authorized
officer of the Company.
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the board of directors of the Company who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"EBITDA" means the sum of Consolidated Net Income, Adjusted Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges deducted in computing Consolidated Net Income in each case, for such
period, of the Company and its Subsidiaries on a Consolidated basis, all
determined in accordance with GAAP consistently applied.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy. Fair Market Value shall be determined by the board
of directors of the Company acting in good faith and shall be evidenced by a
resolution of the board of directors.
"Farmingdale Facility" means the premises located at 150 Price Parkway,
Farmingdale, New York that are leased pursuant to the Farmingdale Lease.
"Farmingdale Lease" means the lease, dated as of August 1, 1992, between MF
Corp., a Wholly Owned Subsidiary of the Company and Gede Realty, Inc., as
successor to Marley Properties, Inc., providing for the lease by the Farmingdale
Subsidiary of the Farmingdale Facility, as the same may at any time be amended,
amended and restated, supplemented or otherwise modified.
"Farmingdale Option" means the option to purchase the Farmingdale Facility
granted pursuant to the Farmingdale Option Agreement.
"Farmingdale Option Agreement" means the option agreement dated March 26,
1993, providing for the grant to the Company of an option to purchase the
Farmingdale Facility, as the same may at any time be amended, amended and
restated, supplemented or otherwise modified.
"Farmingdale Proceeds" means the net cash proceeds received by the Company
upon the closing of the sale of the Farmingdale Facility or the Farmingdale
Option to a third party that is not an Affiliate of the Company.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of the Indenture.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to, or in
any other manner invest in, the debtor (including any agreement to pay for
property or services without requiring that such property be received or such
services be rendered), (iv) to maintain working capital or equity capital of the
debtor, or otherwise to maintain the net
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worth, solvency or other financial condition of the debtor or (v) otherwise to
assure a creditor against loss; provided that the term "guarantee" shall not
include endorsements for collection or deposit, in either case in the ordinary
course of business.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (ii) all obligations of such
Person evidenced by bonds, New Notes, debentures or other similar instruments,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person (even
if the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements of such Person, (v) all Capital Lease
Obligations of such Person, (vi) all Indebtedness referred to in clauses (i)
through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (vii) all Guaranteed Debt of such
Person, (viii) all Redeemable Capital Stock issued by such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends, and (ix) any amendment, supplement, modification,
deferral, renewal, extension, refunding or refinancing of any liability which
constitutes Indebtedness of the types referred to in clauses (i) through (viii)
above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase, acquisition or ownership (other than ownership obtained without
making, or becoming liable, directly or indirectly, contingent or otherwise, for
the making of, any advance, loan (or the forgiveness thereof), payment,
extension of credit or capital contribution in connection therewith), by such
Person of any Capital Stock, bonds, New Notes, debentures or other securities
issued or owned by any other Person and all other items that would be classified
as investments on a balance sheet prepared in accordance with GAAP.
"Issue Date" means the date on which the New Notes are originally issued
under the Indenture.
"Las Plumas" means Las Plumas Lumber Corporation, a California corporation,
or any successors thereto.
"Las Plumas Management Agreement" means the management agreement dated as
of May 31, 1992 between the Company and Las Plumas as in effect on the date of
this Indenture.
"Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory
or otherwise), privilege, security interest, assignment, deposit, arrangement,
easement, hypothecation, claim, preference, priority or
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other encumbrance upon or with respect to any property of any kind (including
any conditional sale, capital lease or other title retention agreement, any
leases in the nature thereof, and any agreement to give any security interest),
real or personal, movable or immovable, now owned or hereafter acquired.
"Maturity" means, when used with respect to the New Notes, the date on
which the principal of the New Notes becomes due and payable as therein provided
or as provided in the Indenture, whether at Stated Maturity, the Offer Date, the
Change of Control Purchase Date or the redemption date and whether by
declaration of acceleration, Offer in respect of Excess Proceeds, Change of
Control Offer in respect of a Change of Control, call for redemption or
otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof (without duplication in respect of all Asset Sales) in the
form of cash or Temporary Cash Investments including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Temporary Cash Investments (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary) net of (i) brokerage commissions and other reasonable fees
and expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock as referred to under "-- Certain Covenants -- Limitation on
Restricted Payments," the proceeds of such issuance or sale in the form of cash
or Temporary Cash Investments including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
of for, cash or Temporary Cash Investments (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Subsidiary), net of attorneys' fees, accountants' fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the New Notes.
"Permitted Holders" means Rose Partners, any of the partners of Rose
Partners on the Issue Date, and any of their trusts, estates, executors, heirs,
successors or assigns, and each of their respective Affiliates.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company equal to the greater of, without
duplication, (a) Indebtedness under the Bank Credit Facility in an
aggregate principal amount at any one time outstanding not to exceed $90
million, minus all principal payments made in respect of any term loans
thereunder and minus the amount by which any commitments under any
revolving credit facility thereunder are permanently reduced, or (b)
Indebtedness in an aggregate amount not to exceed the sum of 75% of the net
book value of the consolidated inventory of the Company and its
Subsidiaries and 85% of the net book value of the consolidated accounts
receivable of the Company and its Subsidiaries, in each case calculated in
accordance with GAAP;
(ii) Indebtedness of the Company (a) represented by the New Notes or
(b) that is incurred, in any amount, and in whole or in part, to (1) redeem
all of the New Notes outstanding as described herein, or (2) effect a
complete defeasance or a covenant defeasance thereof as described herein;
provided, in either case, that any Indebtedness incurred under this
subclause (b) is actually applied in accordance with the applicable
redemption or defeasance provision of the Indenture;
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(iii) Indebtedness of the Company outstanding on the date of the
Indenture and listed on a schedule thereto;
(iv) Indebtedness of the Company owing to a Subsidiary; provided that
any Indebtedness of the Company owing to a Subsidiary is made pursuant to
an intercompany note and is expressly subordinated in right of payment to
the payment and performance of the Company's obligations under the New
Notes, and, upon an Event of Default, such Indebtedness shall not be due
and payable until such Event of Default is cured, waived or rescinded;
provided, further, that any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or transfer to a
Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the
Company not permitted by this clause (iv);
(v) obligations of the Company entered into in the ordinary course of
business pursuant to Interest Rate Agreements designed to protect the
Company against fluctuations in interest rates in respect of Indebtedness
of the Company as long as such obligations do not exceed the aggregate
principal amount of such Indebtedness then outstanding;
(vi) Indebtedness of the Company represented by Capital Lease
Obligations or Purchase Money Obligations or other Indebtedness incurred or
assumed in connection with the acquisition, improvement or development of
real or personal, movable or immovable, property in each case incurred for
the purpose of financing or refinancing all or any part of the purchase
price or cost of construction or improvement of property used in the
business of the Company and any refinancings of such Indebtedness made in
accordance with subclauses (a), (b) and (c) of clause (xi) below, in an
aggregate principal amount pursuant to this clause (vi) not to exceed $40
million outstanding at any time; provided that (a) the principal amount of
any Indebtedness permitted under this clause (vi) did not in each case at
the time of incurrence exceed the cost of the acquired or constructed asset
or improvement so financed, and (b) such Indebtedness permitted pursuant to
this clause (vi) was incurred directly in connection with the addition of
new customers to the Company's business or the addition of incremental new
business from existing customers;
(vii) Indebtedness of the Company in respect of performance bonds,
surety bonds and replevin bonds provided by the Company in the ordinary
course of business;
(viii) guarantees by the Company of obligations of customers of the
primary business of the Company, not to exceed at any given time $7.5
million outstanding in the aggregate; for purposes of this clause (viii),
the term "guarantee" means, as applied to any obligation, (a) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (b) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any
way the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of
credit;
(ix) Indebtedness in an amount not in excess of $20 million, incurred
to finance the relocation of one of the Company's warehouse facilities in
existence on the Issue Date;
(x) other Indebtedness of the Company that does not exceed $5 million
in the aggregate at any one time outstanding; and
(xi) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (iii) and (iv) of this definition of "Permitted
Indebtedness," including any successive refinancings (a) so long as the
borrower under such refinancing is the Company or, if not the Company, the
same as the borrower of the Indebtedness being refinanced, (b) the
aggregate principal amount of Indebtedness represented thereby is not
increased by such refinancing by an amount greater than the lesser of (I)
the stated amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (II) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness, plus, in
either case, the amount of expenses of the Company incurred in connection
with such refinancing and (c) (A) in the case of any refinancing of
Indebtedness that is
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Subordinated Indebtedness, such new Indebtedness is made subordinated to
the New Notes at least to the same extent as the Indebtedness being
refinanced and (B) in the case of Pari Passu Indebtedness or Subordinated
Indebtedness, as the case may be, such refinancing does not reduce the
Average Life to Stated Maturity or the Stated Maturity of such
Indebtedness.
"Permitted Investment" means (i) Investments in any Subsidiary or any
Person which, as a result of such Investment, (a) becomes a Subsidiary or (b) is
merged or consolidated with or into, or transfers or conveys substantially all
of its assets to, or is liquidated into, the Company or any Subsidiary; (ii)
Indebtedness of the Company described under clause (iv) of the definition of
"Permitted Indebtedness"; (iii) Investments in any of the New Notes; (iv)
Temporary Cash Investments; (v) Investments acquired by the Company or any
Subsidiary in connection with an Asset Sale permitted under "-- Certain
Covenants -- Limitation on Sale of Assets" to the extent such Investments are
non-cash proceeds as permitted under such covenant; (vi) Investments in
existence on the date of the Indenture; (vii) Investments consisting of Customer
Loans, provided that the aggregate principal amount of such Investments
described in this clause (vii) shall not exceed $10 million at any given time
outstanding to any single customer and its Affiliates, and shall not exceed $35
million at any given time in the aggregate; provided that such $35 million
amount shall be reduced by the amount of any SBIC Capital Contribution; (viii)
Investments by the Company in any Unrestricted Subsidiary, provided that the
aggregate amount of all such Investments described in this clause (viii) shall
not exceed $1 million in the aggregate from and after the Issue Date; (ix) an
SBIC Capital Contribution; (x) an intercompany loan from the Company to White
Rose in the amount of up to $60.0 million on the Issue Date for the purpose of
paying the purchase price payable by White Rose in connection with the White
Rose Tender Offer, provided that the amount loaned is so applied; and (xi) any
other Investments in the aggregate amount of $5 million at any one time
outstanding. In connection with any assets or property contributed or
transferred to any Person as an Investment, such property and assets shall be
equal to the Fair Market Value (as determined by the board of directors of the
Company) at the time of Investment.
"Permitted Subsidiary Indebtedness" means:
(i) Indebtedness of a Wholly Owned Subsidiary owing to the Company or
another Wholly Owned Subsidiary; provided that such Indebtedness is made
pursuant to an intercompany note, and, upon an Event of Default, all
amounts owing pursuant to such Indebtedness are immediately due and
payable; and provided, further, that (a) any disposition, pledge or
transfer of any such Indebtedness to a Person (other than the Company or a
Wholly Owned Subsidiary) shall be an incurrence of such Indebtedness by the
obligor not within the definition of "Permitted Subsidiary Indebtedness"
pursuant to this clause (i), and (b) any transaction pursuant to which any
Wholly Owned Subsidiary ceases to be a Wholly Owned Subsidiary shall be
deemed to be the incurrence of Indebtedness by such Wholly Owned Subsidiary
that is not within the definition of "Permitted Subsidiary Indebtedness"
pursuant to this clause (i);
(ii) Indebtedness of a Wholly Owned Subsidiary represented by Purchase
Money Obligations if such Indebtedness would be permitted by clause (vi) of
the definition of Permitted Indebtedness if incurred by the Company; and
(iii) Acquired Indebtedness of a Subsidiary that would be permitted to
be incurred by the Company if such Acquired Indebtedness were being
incurred by the Company.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Redeemable Capital Stock) pursuant to a registration statement
that has been declared effective by the Commission
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(other than a registration statement on Form S-8 or any successor form or
otherwise relating to equity securities issuable under any employee benefit plan
of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company and its Subsidiaries and any
additions and accessions thereto, which are purchased at any time after the New
Notes are issued; provided that (i) the security agreement or conditional sales
or other title retention contract pursuant to which the Lien on such assets is
created (collectively a "Purchase Money Security Agreement") shall be entered
into within 90 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accession thereto and except in respect of fees
and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is entered into
exceed 100% of the purchase price to the Company and its Subsidiaries of the
assets subject thereto or (B) the Indebtedness secured thereby shall be with
recourse solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of any event or passage of
time would be, required to be redeemed prior to any Stated Maturity of the
principal of the New Notes or is redeemable at the option of the holder thereof
at any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof.
"Refinancing" means (i) the offering and sale of the New Notes pursuant to
the Indenture, (ii) the modification of the Bank Credit Facility, (iii) the
repayment of the Rose Partners Note, (iv) the consummation of the tender offer
by the Company for its 12% New Notes outstanding prior to the Issue Date, and
the tender offer by White Rose for its 12 3/4% Discount Notes outstanding prior
to the Issue Date, (v) the dividend by the Company to White Rose of certain
non-cash assets which are unrelated to the Company's primary business and the
subsequent dividend of those assets to White Rose's stockholders and (vi)
immediately following consummation of the tender offers and the payment of such
dividends, the merger of White Rose with and into the Company with the Company
surviving the merger.
"Rose Partners" means Rose Partners, L.P., a New York limited partnership,
of which Arthur M. Goldberg is the general partner.
"SBIC" means a wholly owned Unrestricted Subsidiary that meets the
requirements of a Small Business Investment Company, as that term is defined in
Rule 602 of the Securities Act, as the same may be amended from time to time.
"SBIC Capital Contribution" means a single capital contribution by the
Company to an SBIC in an amount not in excess of $5 million, which may consist
of cash, property or both.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Senior Indebtedness" means the Indebtedness of the Company other than
Subordinated Indebtedness.
"Shareholder Stock Repurchases" means (A) the repurchase by the Company and
retirement into treasury, for the payment of not greater than $5 million in the
aggregate, of the Company's common stock after (but in no event more than 18
months after) the Issue Date, which repurchase may only be made if the Company
has first (i) irrevocably converted the $27.5 million Capital Lease Obligation
relating to its Carteret, New Jersey distribution facility, existing on the
Issue Date, to an operating lease, and (ii) delivered an Officers' Certificate
(as defined in the Indenture) to the Trustee to the effect that such conversion
has occurred, and (B) the repurchase by the Company and retirement into
treasury, for the payment of an amount
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not greater than the Farmingdale Proceeds, of the Company's common stock after
(but in no event more than 12 months after) the Issue Date, which repurchase may
only be made if the Company has first (i) sold the Farmingdale Facility or the
Farmingdale Option, as the Farmingdale Facility or the Farmingdale Option exist
on the Issue Date, for cash and (ii) delivered an Officers' Certificate (as
defined in the Indenture) to the Trustee to the effect that such sale has
occurred.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as the
fixed date on which the principal of such Indebtedness or such installment of
interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is by
its terms expressly subordinated in right of payment to the New Notes.
"Subsidiary" means any Person, a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries; provided that any Unrestricted Subsidiary shall not be
deemed a Subsidiary under the Indenture.
"Tax Sharing Agreement" means the agreement effective as of January 1,
1992, among the Company, White Rose and certain other affiliates of the Company,
as in effect on the date of this Indenture.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit (or, with respect to non-U.S.
banking institutions, similar instruments) maturing not more than one year after
the date of acquisition, issued by, or time deposit of, a commercial banking
institution that is a member of the Federal Reserve System or a commercial
banking institution organized and located in a country recognized by the United
States of America, in each case, that has combined capital and surplus and
undivided profits of not less than $500 million (or the foreign currency
equivalent thereof), whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's Investors
Service, Inc. ("Moody's") or any successor rating agency or "A-1" (or higher)
according to Standard & Poor's Rating Group, a division of McGraw-Hill, Inc.
("S&P") or any successor rating agency, (iii) commercial paper, maturing not
more than one year after the date of acquisition, issued by a corporation (other
than an Affiliate or Subsidiary of the Company) organized and existing under the
laws of the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P, (iv) any money market deposit accounts or demand
deposit accounts issued or offered by a domestic commercial bank or a commercial
banking institution organized and located in a country recognized by the United
States of America, in each case having capital and surplus in excess of $500
million (or the foreign currency equivalent thereof); provided that the
short-term debt of such commercial bank has a rating, at the time of Investment,
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P
and (v) any other Investments, that at any one time do not exceed $100,000 in
the aggregate, issued or offered by any domestic commercial bank or any
commercial banking institution organized and located in a country recognized by
the United States of America.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
any successor statute.
"12% Notes" means the Senior Notes Due 2003 of the Company.
"12 3/4% Discount Notes" means the Senior Discount Notes Due 1998 of White
Rose.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
exists on the Issue Date and is so designated as an Unrestricted Subsidiary on a
schedule attached to the Indenture, (ii) any subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the board of directors of the Company, as provided below) and (iii) any
subsidiary of an Unrestricted Subsidiary. The
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board of directors of the Company may designate any subsidiary of the Company
(including any newly acquired or newly formed subsidiary) to be an Unrestricted
Subsidiary if all of the following conditions apply: (a) neither the Company nor
any of its Subsidiaries provides credit support for Indebtedness of such
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness), (b) such Unrestricted Subsidiary is not liable,
directly or indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness, (c) any Investment by the Company (other than
Investments described in clause (viii) of the definition "Permitted
Investments") in such Unrestricted Subsidiary made as a result of designating
such subsidiary an Unrestricted Subsidiary shall not violate the provisions
described under "-- Certain Covenants -- Limitation on Unrestricted
Subsidiaries" and such Unrestricted Subsidiary is not party to any agreement,
contract, arrangement or understanding at such time with the Company or any
other subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such other subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company or, in the event such condition is not
satisfied, the value of such agreement, contract, arrangement or understanding
to such Unrestricted Subsidiary shall be deemed an Investment, and (d) such
Unrestricted Subsidiary does not own any Capital Stock in any subsidiary of the
Company which is not simultaneously being designated an Unrestricted Subsidiary.
Any such designation by the board of directors of the Company shall be evidenced
to the Trustee by filing with the Trustee a board resolution giving effect to
such designation and an officers' certificate certifying that such designation
complies with the foregoing conditions and any Investment by the Company (other
than Investments described in clause (viii) and (ix) of the definition of
"Permitted Investments") in such Unrestricted Subsidiary shall be deemed a
Restricted Payment on the date of designation in an amount equal to the greater
of (1) the net book value of such Investment or (2) the Fair Market Value of
such Investment as determined in good faith by the Company's board of directors.
The board of directors of the Company may designate any Unrestricted Subsidiary
as a Subsidiary; provided (i) that if such Unrestricted Subsidiary has any
Indebtedness, that immediately after giving effect to such designation, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness or Permitted Subsidiary Indebtedness) pursuant to the restrictions
under "-- Certain Covenants -- Limitation on Indebtedness" and (ii) that all
Indebtedness of such Subsidiary shall be deemed to be incurred on the date such
Unrestricted Subsidiary becomes a Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither the Company
nor any subsidiary is directly or indirectly liable (by virtue of the Company or
any such subsidiary being the primary obligor on, guarantor of, or otherwise
liable in any respect to, such Indebtedness) and, (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any subsidiary to declare, a
default on such Indebtedness of the Company or any subsidiary or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity.
"Voting Stock" means Capital Stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"White Rose" means White Rose Foods, Inc., a Delaware corporation.
"White Rose Dividend" means the dividend by the Company of certain non-cash
assets with a book value of approximately $4.2 million to White Rose, which
White Rose will in turn dividend to its shareholders pursuant to the
Refinancing.
"White Rose Tender Offer" shall mean the tender offer by White Rose for its
12 3/4% Discount Notes.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
is owned by the Company or another Wholly Owned Subsidiary.
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BOOK-ENTRY DELIVERY AND FORM
The Old Notes offered and sold to qualified institutional buyers (as
defined under Rule 144A) ("QIBs") were each registered in book-entry form, are
represented by a single, global note, in definitive, fully registered form
without interest coupons (the "U.S. Global Note") and were deposited with the
Trustee as custodian for DTC and registered in the name of Cede & Co. or such
other nominee as DTC may designate.
The Old Notes (i) originally purchased by or transferred to "accredited
investors" (as defined in Rule 501(a)(1),(2),(3) and (7) under the Securities
Act) ("Institutional Accredited Investors") who are not QIBs or (ii) held by
QIBs who elected to take physical delivery of their certificates instead of
holding their interest through the U.S. Global Note (and which are then unable
to trade through DTC) (collectively referred to herein as the "Non-Global
Purchasers"), were issued in registered form without interest coupons
("Certificated Notes"). Upon the transfer of such Certificated Notes held by a
Non-Global Purchaser to a QIB, such Certificated Notes will, unless the
transferee requests otherwise or the U.S. Global Note has previously been
exchanged in whole for Certificated Notes, be exchanged for an interest in the
U.S. Global Note.
The Old Notes offered and sold to persons outside the United States who
received such Old Notes pursuant to sales in accordance with Regulation S under
the Securities Act were each initially represented by a global note certificate
in fully registered form without interest coupons (the "Offshore Global Note"
and, together with the U.S. Global Note, the "Global Notes"). The Offshore
Global Note was deposited with the Trustee as custodian for DTC and registered
in the name of Cede and Co. Prior to the expiration of the "40-day restricted
period" within the meaning of Rule 903 of Regulation S under the Securities Act,
transfers of interest in the Offshore Global Note may only be effected through
records maintained by DTC, Cedel Bank, societe anonyme ("Cedel") or Euroclear
System ("Euroclear").
Except as set forth below, it is expected that the New Notes will be issued
in global form (the "New Global Notes"). The Company expects that pursuant to
procedures established by DTC (a) upon the issuance of the New Global Notes, DTC
or its custodian will credit on its internal system portions of the New Global
Notes which shall be comprised of the corresponding respective principal amount
of the New Global Notes to the respective accounts of persons who have accounts
with such depositary and (b) ownership of the New Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC or its nominee (with respect to interests of Participants (as
defined)) and the records of Participants (with respect to interests of persons
other than Participants). Such accounts initially will be designated by the
Exchange Agent and ownership of beneficial interests in the New Global Notes
will be limited to persons who have accounts with DTC ("Participants") or
persons who hold interests through Participants. QIBs may hold their interests
in the New Global Notes directly through DTC if they are Participants in such
system, or indirectly through organizations which are Participants in such
system.
So long as DTC or its nominee is the registered owner or holder of the New
Notes, DTC or such nominee, as the case may be, will be considered the sole
record owner or holder of the New Notes represented by the New Global Notes for
all purposes under the Indenture and the New Notes. No beneficial owners of an
interest in the New Global Notes will be able to transfer that interest except
in accordance with the applicable procedures of DTC, Euroclear and Cedel, in
addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on the New
Global Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Company, the Trustee, nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the New
Global Notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal of, premium, if any, or interest in respect of the New Global Notes
will credit Participants' accounts with payments in amounts proportionate to
their respective beneficial ownership interests in the principal amount of such
New Global Notes, as shown on the records of DTC or its nominee. The Company
also expects that payments by Participants to owners of beneficial interests in
such New Global Notes held through such participants will be
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governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between Participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in immediately available funds.
If a holder requires physical delivery of a Certificated Note for any reason,
including to sell New Notes to persons in states which require physical delivery
of such New Notes or to pledge such New Notes, such holder must transfer its
interest in the New Global Notes, in accordance with the normal procedures of
DTC and the procedures set forth in the Indenture. Transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more Participants
to whose account the DTC interests in the New Global Notes are credited and only
in respect of such portion of the aggregate principal amount of New Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the New Global Notes for Certificated Notes.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the New Global Notes
among Participants of DTC, they are under no obligation to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trustee will have any responsibility for the performance by DTC,
Euroclear or Cedel or the Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
Interests in the New Global Notes will be exchangeable or transferable, as
the case may be, for Certificated Notes if (i) DTC notifies the Company that it
is unwilling or unable to continue as depositary for such New Global Notes, or
DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a
successor depositary is not appointed by the Company within 90 days, or (ii) an
Event of Default has occurred and is continuing with respect to such New Notes.
Upon the occurrence of any of the events described in the preceding sentence,
the Company will cause the appropriate Certificated Notes to be delivered.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the issuance of New Notes and the Exchange Offer. This summary
does not discuss all aspects of federal income taxation that may be relevant to
particular holders of Notes (the "Holders"), especially in light of a Holder's
personal investment circumstances, or to certain types of Holders subject to
special treatment under the federal income tax laws (for example, life insurance
companies, tax-exempt organizations and foreign corporations and individuals who
are not citizens or residents of the United States) and does not discuss any
aspects of state, local or foreign taxation. This discussion is limited to those
Holders who will hold the Notes as "capital assets" (generally, property held
for investment) within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code").
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This summary is based upon laws, regulations, rulings and decisions now in
effect and upon proposed regulations, all of which are subject to change
(possibly with retroactive effect) by legislation, administrative action or
judicial decision.
Exchange Offer. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer should not be treated as a taxable "exchange" because the New
Notes should not be considered to differ materially in kind or extent from the
Old Notes. Rather, the New Notes received by a Holder of the Old Notes should be
treated as a continuation of the Old Notes in the hands of such Holder. As a
result, there should be no gain or loss to Holders exchanging the Old Notes for
the New Notes pursuant to the Exchange Offer.
Interest. A Holder will be required to include in gross income the stated
interest on the Old Notes or the New Notes in accordance with the Holder's
method of tax accounting.
Tax Basis. Generally, a Holder's tax basis in an Old Note will initially
be the Holder's purchase price for the Old Note and will be decreased by the
amount of any principal payments received. If a Holder exchanges an Old Note for
a New Note pursuant to the Exchange Offer, the tax basis of the New Note
immediately after such exchange should equal the Holder's tax basis in the Old
Note immediately prior to the exchange.
Sale or Redemption. The sale, exchange, redemption or other disposition of
an Old Note or a New Note (other than pursuant to the Exchange Offer) generally
will be a taxable event. A Holder generally will recognize gain or loss equal to
the difference between (i) the amount of cash plus the fair market value of any
property received upon such sale, exchange, redemption or other taxable
disposition of an Old Note or a New Note (other than in respect of accrued
interest thereon) and (ii) the Holder's adjusted tax basis in such Old Note or
New Note. Such gain or loss will be capital gain or loss and would be long-term
capital gain or loss if the Old Notes or New Notes were held by the Holder for
the applicable holding period (currently more than one year) at the time of such
sale or other disposition. The holding period of each New Note would include the
holding period of the Old Notes exchanged therefor.
Purchasers of Notes at Other than Original Issuance. The foregoing summary
does not discuss special rules which may affect the treatment of purchasers that
acquire Notes other than at original issuance, including those provisions of the
Code relating to the treatment of "market discount" and "acquisition premium."
Any such Purchaser should consult its tax advisor as to the consequences to him
of the acquisition, ownership and disposition of Old Notes and the New Notes.
Backup Withholding. Unless a Holder or other payee provides his correct
taxpayer identification number (employer identification number or social
security number) to the Company (as payor) and certifies that such number is
correct, under the federal income tax backup withholding rules, generally 31% of
(1) the interest paid on the Notes, and (2) proceeds of sale or other
disposition of the Notes must be withheld and remitted to the United States
Department of the Treasury. Therefore, each Holder should complete and sign the
Substitute Form W-9 included so as to provide the information and certification
necessary to avoid backup withholding. However, certain exchanging Holders
(including, among others, certain foreign individuals) are not subject to these
backup withholding and reporting requirements. In order for a foreign individual
to qualify as an exempt foreign recipient, that exchanging Holder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt foreign status.
Withholding is not an additional federal income tax. Rather, the federal
income tax liability of a person subject to withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY. EACH
HOLDER OF NOTES OR EXCHANGE NOTES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OFFER, INCLUDING
THE APPLICATION OF AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making or other trading activities. The Company has agreed that
this Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of such New
Notes. However, a Participating Broker-Dealer who intends to use this Prospectus
in connection with the resale of New Notes received in exchange for Old Notes
pursuant to the Exchange Offer must notify the Company, or cause the Company to
be notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer -- the Exchange Agent;
Assistance." See "The Exchange Offer -- Resales of the New Notes."
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. New Notes received by broker-dealers for their own
accounts in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transaction, through the writing of options on the new Notes or a combination of
such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells new Notes that were received by it for its
own account in connection with the Exchange Offer or any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
Notes offered hereby will be passed upon for the Company by Morgan, Lewis &
Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of Di Giorgio Corporation and
subsidiaries as of December 28, 1996 and December 30, 1995 and for each of the
three years in the period ended December 28, 1996 included in this Prospectus
and the related financial statement schedule included elsewhere in the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
Registration Statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
DI GIORGIO CORPORATION AND SUBSIDIARIES
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996............ F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 28, 1996.................................................................. F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended December 28, 1996..................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 28, 1996.................................................................. F-6
Notes to Consolidated Financial Statements........................................... F-8
Consolidated Condensed Balance Sheets as of December 28, 1996 and June 28, 1997
(Unaudited)........................................................................ F-21
Consolidated Condensed Statements of Operations for the twenty-six weeks ended June
29, 1996 and June 28, 1997 (Unaudited)............................................. F-22
Consolidated Condensed Statements of Stockholders' Equity (Deficit) for the
twenty-six weeks ended June 28, 1997 (Unaudited)................................... F-23
Consolidated Condensed Statements of Cash Flows for the twenty-six weeks ended June
29, 1996 and June 28, 1997 (Unaudited)............................................. F-24
Notes to Consolidated Condensed Financial Statements (Unaudited)..................... F-25
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Di Giorgio Corporation
Carteret, New Jersey
We have audited the consolidated balance sheets of Di Giorgio Corporation
and subsidiaries (the "Company") as of December 30, 1995 and December 28, 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 28, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 30,
1995 and December 28, 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 28, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 21, 1997
(June 20, 1997 as to Notes 1 and 18)
F-2
<PAGE> 82
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................. $ 447 $ 1,749
Accounts and notes receivable -- net............................. 70,864 61,550
Inventories...................................................... 52,331 49,563
Prepaid expenses................................................. 3,497 3,706
-------- --------
Total current assets..................................... 127,139 116,568
Property, plant and equipment -- net............................... 60,058 56,270
Long-term notes receivable......................................... 14,631 19,276
Deferred financing costs........................................... 5,309 4,172
Other assets....................................................... 12,680 12,216
Excess of cost over net assets acquired............................ 98,613 92,567
-------- --------
Total.............................................................. $318,430 $301,069
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................................... $ 32,303 $ 26,719
Current portion of long-term debt................................ 1,540 1,299
Accounts payable -- trade........................................ 58,414 49,468
Accrued expenses................................................. 25,307 24,362
Current installment -- capital lease liability................... 2,231 2,378
-------- --------
Total current liabilities................................ 119,795 104,226
Long-term debt..................................................... 153,567 153,389
Capital lease liability............................................ 33,902 31,523
Other long-term liabilities........................................ 9,131 7,826
Stockholders' equity:
Common stock, Class A, $.01 par value -- authorized, 1,000
shares; issued and outstanding, 101.62 shares................. -- --
Common stock, Class B, $.01 par value -- authorized, 1,000
shares; issued and outstanding, 100 shares.................... -- --
Additional paid-in capital....................................... 17,225 17,225
Accumulated deficit.............................................. (15,190) (13,120)
-------- --------
Total stockholders' equity............................... 2,035 4,105
-------- --------
Total.............................................................. $318,430 $301,069
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 83
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Net sales........................................... $932,386 $1,018,218 $1,045,161
Other revenue....................................... 4,461 4,823 5,045
-------- ---------- ----------
Total revenue............................... 936,847 1,023,041 1,050,206
Cost of products sold................................. 835,526 915,536 935,719
-------- ---------- ----------
Gross profit -- exclusive of warehouse
expense shown separately below............ 101,321 107,505 114,487
Operating expenses:
Warehouse expense................................... 37,503 39,196 40,343
Transportation expense.............................. 21,354 22,759 21,624
Selling, general and administrative expenses........ 20,277 22,357 23,389
Facility integration expense........................ 3,986 -- --
Amortization -- excess of cost over net assets
acquired......................................... 2,766 2,892 2,892
-------- ---------- ----------
Operating income...................................... 15,435 20,301 26,239
Interest expense...................................... 20,370 24,887 23,955
Amortization -- deferred financing costs.............. 1,479 1,457 1,138
Other income -- net................................... (2,939) (3,842) (3,758)
-------- ---------- ----------
(Loss) Income before income taxes and extraordinary
item................................................ (3,475) (2,201) 4,904
Income taxes.......................................... 63 105 3,053
-------- ---------- ----------
(Loss) Income before extraordinary item............... (3,538) (2,306) 1,851
Extraordinary item:
Gain on extinguishment of debt -- net of tax........ -- 510 219
-------- ---------- ----------
Net (loss) income..................................... $ (3,538) $ (1,796) $ 2,070
======== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 84
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
--------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994......... 101.62 $ -- 100.00 $ -- $ 18,444 $ (9,856) $ 8,588
Net loss....................... -- -- -- -- -- (3,538) (3,538)
-- --
------ ------ ------ --------- -------
Balance, December 31, 1994....... 101.62 -- 100.00 -- 18,444 (13,394) 5,050
Net loss....................... -- -- -- -- -- (1,796) (1,796)
Dividend to shareholders....... -- -- -- -- (1,219) -- (1,219)
-- --
------ ------ ------ --------- -------
Balance, December 30, 1995....... 101.62 -- 100.00 -- 17,225 (15,190) 2,035
Net income..................... -- -- -- -- -- 2,070 2,070
-- --
------ ------ ------ --------- -------
Balance, December 28, 1996....... 101.62 $ -- 100.00 $ -- $ 17,225 $ (13,120) $ 4,105
====== == ====== == ====== ========= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 85
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income....................................... $ (3,538) $ (1,796) $ 2,070
Adjustments to reconcile net (loss) income to net cash
provided by operations:
Extraordinary gain on extinguishment of debt -- net
of tax............................................. -- (510) (219)
Depreciation and amortization........................ 2,812 3,949 4,488
Amortization of deferred financing costs............. 1,479 1,457 1,138
Amortization of excess of cost over net assets
acquired........................................... 2,766 2,892 2,892
Other amortization................................... 477 527 527
Provision for doubtful accounts...................... 2,100 2,100 1,850
Increase in prepaid pension cost..................... (960) (720) (461)
Non-cash interest expense............................ 5,376 5,775 5,890
Non-cash interest income............................. (788) (846) (981)
Loss on sale of property............................. 459 -- --
Income tax benefit offset against excess of cost over
net assets acquired................................ -- -- 3,008
Changes in assets and liabilities:
(Increase) decrease in:
Accounts and notes receivable...................... (11,364) 1,609 7,464
Inventories........................................ (9,071) 1,272 2,768
Prepaid expenses................................... (150) (327) (169)
Other assets....................................... 161 595 661
Long-term receivables.............................. (520) 1,560 (3,666)
Increase (decrease) in:
Accounts payable................................... 21,827 (6,304) (8,946)
Accrued expenses and other liabilities............. (1,846) (2,426) (2,250)
-------- ------- --------
Net cash provided by operating activities....... 9,220 8,807 16,064
-------- ------- --------
Cash flows from investing activities:
Additions to property, plant and equipment.............. (1,390) (1,920) (1,004)
Proceeds from sale of property.......................... 730 -- --
Cash paid to acquire business........................... (9,700) -- --
Proceeds from contingent reimbursement.................. 489 1,063 --
-------- ------- --------
Net cash used in investing activities........... (9,871) (857) (1,004)
-------- ------- --------
</TABLE>
(Continued)
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 86
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings/repayments from revolving credit
facility -- net...................................... $ 291 $ (6,529) $ (5,584)
Refinancing............................................. -- 6,600 --
Payments of transaction fees and expenses............... (479) (600) --
Repayments of capital lease obligations................. (1,618) (3,990) (2,232)
Repayments of debt...................................... (1,083) (3,529) (5,942)
Dividend to shareholders................................ -- (1,219) --
Proceeds from equipment sale............................ 3,500 -- --
-------- ------- --------
Net cash provided by (used in) financing
activities.................................... 611 (9,267) (13,758)
-------- ------- --------
Net (decrease) increase in cash and cash equivalents...... (40) (1,317) 1,302
Cash and cash equivalents, beginning of year.............. 1,804 1,764 447
-------- ------- --------
Cash and cash equivalents, end of year.................... $ 1,764 $ 447 $ 1,749
======== ======= ========
Supplemental schedule of non-cash investing activities:
Business acquired:
Fair value of assets acquired........................ $ 9,298 $ -- $ --
Liabilities assumed or created....................... (3,596) -- --
Net cash paid for business acquired.................. (9,211) -- --
Present value of note payable issued................. (7,021) -- --
-------- ------- --------
Excess of cost over net assets acquired................... $ 10,530 $ -- $ --
======== ======= ========
Supplemental schedule of non-cash investing activities:
Acquisition of warehouse facility and machinery in
exchange for capital lease........................... $ -- $ 28,391 $ --
======== ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest............................................. $ 15,807 $ 19,635 $ 18,569
======== ======= ========
Income taxes......................................... $ 37 $ 125 $ 73
======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 87
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- On February 9, 1990, DIG Acquisition Corp., a wholly-owned
subsidiary of DIG Holding Corp. ("DIG Holding"), acquired 95% of the outstanding
stock of Di Giorgio Corporation (the "Company") pursuant to a cash tender offer
at $30 per share for the Class A common stock. The remaining 5% of Di Giorgio
common stock was obtained via a merger of DIG Acquisition Corp. and Di Giorgio.
The acquisition was accounted for as a purchase and the cost of Di
Giorgio's stock, together with the related acquisition fees and expenses was
allocated to the assets acquired and liabilities assumed based on fair values.
As of December 30, 1995 and December 28, 1996, accumulated amortization of
excess costs over net assets acquired was approximately $16,003,000 and
$18,895,000, respectively.
On June 19, 1992, DIG Holding contributed all of the outstanding capital
stock of Di Giorgio to a newly formed Delaware corporation, White Rose Foods,
Inc. ("White Rose"), in exchange for 91.8 shares of White Rose's common stock.
As the stockholders of White Rose were identical to the stockholders of DIG
Holding, the exchange of shares was a transaction among entities under common
control and has been reflected in an accounting manner similar to a pooling of
interest.
In February 1993, the Company issued 100 shares of Class B common stock to
DIG Holding in exchange for a capital contribution of $25 million. In September
1993, White Rose purchased the 100 shares of Class B common stock from DIG
Holding so that, as of September 1993, White Rose owned 100% of the Company.
Since this transaction was between companies under common control, the
acquisition of the minority interest has been accounted for as if it were a
pooling of interest. The purchase price exceeded DIG Holding's historical basis
by $2.5 million.
On December 27, 1996, White Rose and its parent, DIG Holding, effected a
merger with White Rose continuing as the surviving corporation. As the
stockholders of White Rose are identical to the stockholders of DIG Holding, the
exchange of shares was a transfer of interest among entities under common
control, and is being accounted for at historical cost in a manner similar to
pooling of interests accounting.
On June 20, 1997, the Company and White Rose consummated a merger, with the
Company as the survivor. Since the stockholders of the Company are identical to
the stockholders of White Rose, the exchange of shares was a transfer of
interest among entities under common control, and is being accounted for at
historical cost in a manner similar to pooling of interests accounting.
Accordingly, the consolidated financial statements presented herein reflect the
assets and liabilities and related results of operations for the combined entity
for all periods. See Note 18 for information relating to the refinancing actions
taken in connection with the merger.
DESCRIPTION OF BUSINESS -- The Company is a wholesale food distributor
serving both independent retailers and supermarket chains principally in the New
York City metropolitan area including Long Island, northern New Jersey and to a
lesser extent, the Philadelphia area. The Company distributes three primary
supermarket product categories: grocery, frozen and dairy.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
INVENTORIES -- Inventories, primarily consisting of finished goods, are
valued at the lower of cost (weighted average cost method) or market.
PROPERTY, PLANT AND EQUIPMENT -- Owned property, plant and equipment is
stated at cost. Capitalized leases are stated at the lesser of the present value
of future minimum lease payments or the fair value of the leased property.
Depreciation and amortization are computed using the straight-line method over
the lesser of the estimated life of the asset or the lease.
F-8
<PAGE> 88
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the event that facts and circumstances indicate that the cost of
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.
EXCESS OF COST OVER NET ASSETS ACQUIRED -- The excess of cost over net
assets acquired ("goodwill") is being amortized by the straight-line method over
40 years.
Management assesses the recoverability of goodwill by comparing the
Company's forecasts of cash flows from future operating results, on an
undiscounted basis, to the unamortized balance of goodwill at each quarterly
balance sheet date. If the results of such comparison indicate that an
impairment may be likely, the Company will recognize a charge to operations at
that time based upon the difference of the present value of the expected cash
flows from future operating results (utilizing a discount rate equal to the
Company's average cost of funds at the time), and the then balance sheet value.
The recoverability of goodwill is at risk to the extent the Company is unable to
achieve its forecast assumptions regarding cash flows from operating results.
Management believes, at this time, that the goodwill carrying value and useful
life continues to be appropriate.
DEFERRED FINANCING COSTS -- Deferred financing costs are being amortized
over the life of the related debt using the interest method.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS -- Cash equivalents are investments with original
maturities of three months or less from the date of purchase.
FISCAL YEAR -- The Company's fiscal year-end is the Saturday closest to
December 31. The financial statements for each of the three years in the period
ended December 28, 1996 comprised 52 weeks.
RECLASSIFICATIONS -- Previously, the Company classified as other income
reclamation service fees, label income and other customer related services.
Commencing in the year ended December 28, 1996, the Company is classifying these
items as other revenue. Prior year amounts have been reclassified accordingly.
The change in classification has no effect on previously reported net income.
Certain other reclassifications were made to prior years' financial
statements to conform to the current year presentation.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable........................................ $ 60,231 $ 52,688
Notes receivable........................................... 7,737 7,192
Other receivables.......................................... 6,837 5,981
Less allowance for doubtful accounts....................... (3,941) (4,311)
-------
$ 70,864 $ 61,550
=======
</TABLE>
F-9
<PAGE> 89
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 30, DECEMBER 28,
IN YEARS 1995 1996
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land........................................... -- $ 900 $ 900
Buildings and improvements..................... 10 6,366 6,275
Machinery and equipment........................ 3 - 10 9,662 10,495
Less accumulated depreciation.................. (6,194) (8,024)
------- -------
10,734 9,646
------- -------
Capital leases:
Building and improvements.................... 45,705 45,705
Equipment.................................... 8,410 8,410
Less accumulated amortization................ (4,791) (7,491)
------- -------
49,324 46,624
------- -------
$ 60,058 $ 56,270
======= =======
</TABLE>
4. ACQUISITION
ROYAL ACQUISITION -- On June 20, 1994, the Company acquired substantially
all of the operating properties, assets and business of the dairy and deli
distribution business based in Woodbridge, New Jersey known as Royal Foods
("Royal") from Fleming Foods East, Inc. and its parent corporation, Fleming
Companies Inc. The total purchase price was approximately $16.2 million,
consisting of an $8 million seller-financed note (present value of $7 million at
date of issuance) and $8.2 million in cash (net of $489,000 of contingent
reimbursement received during the year ended December 31, 1994 and an additional
$1 million received during the year ended December 30, 1995).
The acquisition was accounted for as a purchase and the cost was allocated
to the assets acquired and liabilities assumed based on fair values. The cost of
the acquisition exceeded the total fair value of the net assets acquired. The
results of operations are included in the statement of operations from April 25,
1994, the date of the first closing. The Company did not purchase all assets
and/or operations of the seller and did not obtain all of the seller's
customers. As such it is not possible to present pro forma results estimating
combined results of operations as if the purchase acquisition was consummated on
January 2, 1994.
The Company incurred an approximate $4.0 million charge in the period ended
December 31, 1994, which has been paid as of December 28, 1996, for the
integration of its two dairy facilities. During fiscal 1994, the Company moved
its existing dairy business from its Kearny, New Jersey facility to its
Woodbridge, New Jersey facility. As part of this integration, the Company
developed an exit plan for its Kearny facility. The charge includes
approximately $3.0 million relating to contractual costs, including $2 million
of fixed Kearny facility expenses, primarily for the rent and real estate taxes.
The charge also included approximately $900,000 of costs paid through October 1,
1994 relating to temporary incremental expenses that were a direct result of the
plan to exit Kearny and move to Woodbridge in an orderly and timely fashion.
These charges primarily reflect duplicate and incremental labor charges during
the physical integration that did not appreciably add to the generating of
revenue.
Although the Company continues to investigate subleasing the Kearny
facility, the facility was placed back into operations in the second quarter of
fiscal 1996. The Company currently operates a storage facility at the location.
F-10
<PAGE> 90
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. FARMINGDALE WAREHOUSE FACILITY
On July 27, 1993, the Company, through its wholly-owned subsidiary, MF
Corp., entered into an agreement for the sublease of Farmingdale the Company's
old grocery facility. The initial term of the sublease is five years. The
sublessee was also granted an option, which is exercisable under certain
circumstances, to purchase the property. The Company and the fee owner will
share the economic benefits, if any, of the resulting income stream, and any
excess proceeds of financing related thereto with 80% to the Company and 20% to
the fee owner.
On March 9, 1995, the Company, through MF Corp. and in conjunction with the
fee owner, completed a $6.6 million mortgage financing of Farmingdale. The
Company realized proceeds in the amount of $3.4 million after deducting a $2.2
million capital lease liability payment and $1 million representing associated
fees, escrow deposits and a payment to the fee owner.
Included in other income for the three years ended December 28, 1996 is net
rental income of approximately $798,000, $954,000 and $1 million, respectively,
related to the facility.
6. FINANCING
Debt consists of the following:
<TABLE>
<CAPTION>
INTEREST
RATE AT
DECEMBER 28, DECEMBER 30, DECEMBER 28,
1996 1995 1996
--------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable -- Di Giorgio revolving 8.09% $ 32,303 $ 26,719
credit facility (b)................
======== ========
Current portion of long-term debt:
Mortgage payable (d)............... 9.00% $ 627 $ 685
Fleming note payable (e)........... 6.37% 593 614
Other.............................. 6.75% 320 --
-------- --------
$ 1,540 $ 1,299
======== ========
Long-term debt:
Di Giorgio senior notes (a)........ 12.00% $ 97,655 $ 92,890
Senior discount notes (c).......... 12.75% 44,758 50,646
Mortgage payable (d)............... 9.00% 5,585 4,901
Fleming note payable (e)........... 6.37% 5,569 4,952
-------- --------
$ 153,567 $ 153,389
======== ========
</TABLE>
- ---------------
(a) Senior Notes -- The Di Giorgio senior notes were issued in fully registered
form under an Indenture dated as of February 10, 1993 between the Company
and The Bank of New York, as Trustee. The Di Giorgio senior notes are
general unsecured obligations of Di Giorgio initially issued in $100,000,000
principal amount due February 15, 2003, bearing interest at the rate of 12%
payable semi-annually and redeemable by Di Giorgio in certain circumstances.
The Di Giorgio senior notes may not be redeemed prior to February 15, 1998.
After February 15, 1998, the senior notes are redeemable at Di Giorgio's
option, in whole or in part, at a premium declining from 4.5% in 1998 to par
in 2001 and subsequent years until maturity in 2003. If a change of control
occurs, Di Giorgio shall make an offer to repurchase all of the senior notes
then outstanding on a date 60 days
F-11
<PAGE> 91
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
after the date of such change of control at a cash purchase price equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest.
During the years ended December 30, 1995 and December 28, 1996, Di Giorgio
retired $2,345,000 and $4,765,000, respectively, of the senior notes that it
purchased on the open market and recorded an extraordinary gain of $510,000
(net of $-0- taxes) and $219,000 (net of taxes of $146,000), respectively.
Payments of principal and interest on the Di Giorgio senior notes are
subordinate to Di Giorgio's secured obligations, including borrowings under
the revolving credit facility, capital lease obligations (see Note 11) and
other secured indebtedness of the Company and its subsidiaries.
The Di Giorgio Senior Note Indenture limits the ability of the Company and
its restricted subsidiaries to create, incur, assume, issue, guarantee or
become liable for any indebtedness, pay dividends, redeem capital stock of
the Company or a restricted subsidiary, and make certain investments. The Di
Giorgio Senior Note Indenture further restricts the Company's and its
restricted subsidiaries' ability to sell or issue a restricted subsidiaries'
capital stock, create liens, issue subordinated indebtedness, sell assets,
and undertake transactions with affiliates. No consolidation, merger or
other sale of all or substantially all of its assets in one transaction or
series of related transactions is permitted, except in limited instances.
See Note 18 for information relating to a refinancing of the Di Giorgio
senior notes.
(b) Di Giorgio Revolving Credit Facility -- As of December 28, 1996, borrowings
under the $90 million credit facility bore interest at the Company's option,
at the rate of bank prime plus 1.0% or the adjusted Eurodollar rate plus
2.5%. Prior to September 1995, borrowings bore interest, at Di Giorgio's
option, at the rate of bank prime plus 1.5% or the adjusted Eurodollar rate
plus 3%. On February 1, 1997, the interest rate was lowered by .25% to prime
plus .75% or the adjusted Eurodollar rate plus 2.25% because of the
Company's ability to meet certain financial tests.
Although the Company's credit facility expires on June 30, 1997, management
of the Company believes the facility will either be extended or replaced on
either substantially the same terms or better terms.
Availability for direct borrowings and letter of credit obligations under
the revolving credit facility is limited, in the aggregate to the lesser of
i) $90 million or ii) a borrowing base of 80% of eligible amount of
receivable and 60% of eligible inventory. As of December 28, 1996, Di
Giorgio had an additional $35 million of borrowing base availability.
The borrowings under the revolving credit facility are secured by the
Company's inventory and accounts receivable as well as certain general
intangibles and documents of title. Di Giorgio also pledged as security the
Las Plumas Lumber Corp. ("Las Plumas") note (see Note 16).
Di Giorgio's $90 million revolving credit facility, among other matters,
contains certain restrictive covenants relating to net worth, interest
coverage, current ratio and capital expenditures. The facility also
prohibits the payment of dividends. Di Giorgio was in compliance with the
covenants as of December 28, 1996.
(c) Senior Discount Notes -- In November 1993 $63.5 million principal amount at
maturity of Series A Senior discount notes due 1998 were issued by White
Rose Foods, Inc. The notes were issued net of an original issue discount of
$29.2 million. The yield to maturity is 12.75% per annum and the notes do
not pay any periodic cash interest. As of December 28, 1996, the notes were
recorded at $50,646,000 which included $16,336,000 of accreted interest.
The notes are not redeemable by the Company, except upon the occurrence of
an equity offering or a change of control (as defined in the Indenture) in
each case at the redemption price of 108% of accreted value. The notes are
subordinate to all liabilities of the Company's subsidiaries.
The Indenture contains covenants that, among other things, limit the ability
of the Company, in certain cases (unless otherwise permitted by the Di
Giorgio Senior Note Indenture (Note 6(a)) to issue additional debt; and to
pay dividends.
F-12
<PAGE> 92
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1994, White Rose Foods, Inc. exchanged the Series A Senior
discount notes with $1,000 principal amount of its Series B Senior discount
notes which were registered under the Securities Act of 1933. The form and
terms of the Series B Senior discount notes are the same as the form and
terms of the Series A Senior discount notes.
See Note 18 for information relating to a refinancing of the senior discount
notes.
(d) Mortgage Payable -- The terms of the eight-year, nonrecourse mortgage
payable of Di Giorgio's wholly-owned subsidiary, MF Corp., are payments of
$96,691 a month, including interest at 9% through 2004. Beginning in fiscal
1998, the interest rate adjusts to Moody's A Corporate Bond Index Daily Rate
minus one-eighth of 1%. The mortgage includes customary prepayment
penalties.
(e) Fleming Note Payable -- The terms of the note require quarterly principal
payments of $200,000 plus interest at a rate equal to the prime rate (as
stated in the Wall Street Journal) minus 2%, divided by two. Currently, cash
interest is 3.25% and is to be reset every eighteen months. The note matures
on June 20, 1999. The note has been discounted at a rate of 6.37% for
financial statement purposes. As of December 28, 1996, the remaining
principal amount on the note is $6 million. The note is secured by a $1.5
million letter of credit.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 28, 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE AMOUNT VALUE AMOUNT
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt (Note 6):
Di Giorgio revolving credit facility.......... $ 32,303 $ 32,303 $ 26,719 $ 26,719
Di Giorgio 12% senior notes................... 97,655 80,077 92,890 99,968
Senior 12.75% discount notes.................. 44,758 34,925 50,646 50,406
Other notes payable........................... 12,694 12,694 11,152 11,152
Accounts and notes receivable -- current (Note 70,864 70,864 61,550 61,550
2)............................................
Notes receivable -- long-term................... 14,631 14,631 19,276 19,276
</TABLE>
The fair value of the Di Giorgio 12% senior notes as of December 30, 1995
and December 28, 1996 are based on yields of 16.44% (as of February 29, 1996)
and 10.28% (as of December 30, 1996), respectively. The fair value of the 12.75%
senior discount notes as of December 30, 1995 and December 28, 1996 are based on
the trade prices representing a yield of 23.8% (as of February 29, 1996) and
13.0% (as of December 30, 1996), respectively. Based on the borrowing rate
currently available to the Company, the revolving credit facility is considered
to be equivalent to its fair value. The fair values of other notes payable were
assumed to reasonably approximate their carrying amounts since they have
variable interest rates.
The book value of the current and long-term accounts and notes receivable
is equivalent to fair value which is estimated by management by discounting the
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
F-13
<PAGE> 93
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Legal............................................... $ 1,127 $ 1,123
Environmental....................................... 1,017 708
Interest............................................ 4,914 4,412
Employee benefits................................... 5,693 5,957
Due to vendors/customers............................ 2,659 3,219
Non-compete agreements.............................. 568 --
Facility integration expenses....................... 609 --
Other............................................... 8,720 8,943
------- -------
$ 25,307 $ 24,362
======= =======
</TABLE>
9. RETIREMENT
a. Pension Plans -- The Company maintains a noncontributory defined benefit
pension plan covering substantially all of its non-collective bargaining
employees. Pension costs for these plans and related disclosures are
determined under the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions." The Company makes
annual contributions to the plans in accordance with the funding requirements
of the Employee Retirement Income Security Act of 1974. Assets of the
Company's pension plan are invested in Treasury notes, U.S. Government agency
bonds, and temporary investments.
Plan Changes -- Effective January 1, 1995, the method for determining market
and related value of assets was changed from the market value to a five-year
moving market value with asset gains/losses recognized over five years.
The pension credit included in operations for the years ended December 31,
1994, December 30, 1995 and December 28, 1996 includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31 DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the $ 393 $ 345 $ 585
period....................................
Interest cost on projected benefit 2,951 3,350 3,350
obligation................................
Return on assets -- actual.................. 1,139 (7,138) (4,302)
Net amortization and deferral............... (5,464) 2,746 (117)
-------- -------- --------
Net periodic pension credit................. $ (981) $ (697) $ (484)
======== ======== ========
</TABLE>
F-14
<PAGE> 94
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following sets forth the status of the plan as of the most recent
actuarial report:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $ 44,283 $ 45,179
======= =======
Accumulated benefit obligation......................... $ 45,063 $ 46,187
======= =======
Projected benefit obligation............................. $ 45,632 $ 46,976
Plan assets at fair value................................ 49,132 50,213
------- -------
Plan assets in excess of projected benefit obligation.... 3,500 3,237
Unrecognized prior service cost.......................... 180 165
Unrecognized net (gain) loss............................. 4,255 5,017
------- -------
Prepaid pension cost..................................... $ 7,935 $ 8,419
======= =======
</TABLE>
The prepaid pension cost is included in other assets on the consolidated
balance sheets.
The following table provides the assumption used in determining the
actuarial present value of the projected benefit obligation at December 30, 1995
and December 28, 1996:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Weighted average discount rate........................... 7.50% 7.50%
Rate of increase in future compensation levels........... 6.00 6.00
Expected long-term rates of return on plan assets........ 9.00 9.00
</TABLE>
The Company also contributes to pension plans under collective bargaining
agreements. These contributions generally are based on hours worked. Pension
expense included in operations was as follows:
<TABLE>
<CAPTION>
YEAR ENDED (IN THOUSANDS)
--------------------------------------------------------------- --------------
<S> <C>
December 31, 1994.............................................. $ 605
December 30, 1995.............................................. 836
December 28, 1996.............................................. 1,082
</TABLE>
b. Savings Plan -- The Company maintains a defined contribution 401(k)
savings plan. Employees of the Company who are not covered by a collective
bargaining agreement (unless a bargaining agreement expressly provides for
participation) are eligible to participate in the plan after completing one year
of employment.
Eligible employees may elect to contribute on a tax deferred basis from 1%
to 10% of their total compensation (as defined in the savings plan), subject to
statutory limitations. A contribution of up to 5% is considered to be a "basic
contribution" and the Company makes a matching contribution equal to a
designated percentage of a participant's basic contribution (which all may be
subject to certain statutory limitations). Company contributions to the plan are
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED (IN THOUSANDS)
--------------------------------------------------------------- --------------
<S> <C>
December 31, 1994.............................................. $111
December 30, 1995.............................................. 144
December 28, 1996.............................................. 171
</TABLE>
F-15
<PAGE> 95
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Employee benefits.......................................... $4,206 $3,520
Legal...................................................... 1,877 2,633
Environmental.............................................. 1,378 1,337
Other...................................................... 1,670 336
------ ------
$9,131 $7,826
====== ======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
LEASES -- The Company conducts certain of its operations from leased
warehouse facilities and leases transportation and warehouse equipment. In
addition to rent, the Company pays property taxes, insurance and certain other
expenses relating to leased facilities and equipment.
The Company subleases one warehouse facility and certain equipment from
WRGFF Associates, L.P. ("WRGFF"), an affiliate of the Company. For each of the
years in the three-year period ended December 28, 1996, rental expense under
these leases with WRGFF amounted to approximately $1.1 million, $1.2 million and
$1.4 million, respectively.
The Company entered into a lease agreement to lease a dry warehouse
facility which the Company is using for its grocery division as well as for its
administrative headquarters. The lease commitment commenced on February 1, 1995.
The term of the lease expires in 2015 with two five-year renewal options. Rental
payments under the lease are approximately $2.9 million per year (through the
expiration date). The Company recorded the lease as a capitalized asset with a
related liability, having a net book value as of December 30, 1995 and December
28, 1996 of approximately $26.9 million and $25.5 million, respectively.
The following is a schedule of net minimum lease payments required under
capital and operating leases in effect as of December 28, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
---------------------------------------------------------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997............................................................ $ 4,969 $ 6,135
1998............................................................ 3,856 5,255
1999............................................................ 3,611 4,146
2000............................................................ 3,553 2,632
2001............................................................ 3,441 1,573
Thereafter...................................................... 42,589 1,074
------- -------
Net minimum lease payments...................................... 62,019 $20,815
=======
Less interest................................................... 28,118
-------
Present value of net minimum lease payments (including current
installments of $2,378)....................................... $33,901
=======
</TABLE>
F-16
<PAGE> 96
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense included in operations was as follows:
<TABLE>
<CAPTION>
YEAR ENDED (IN THOUSANDS)
---------------------------------------------------------------
<S> <C>
December 31, 1994.............................................. $7,121
December 30, 1995.............................................. 6,337
December 28, 1996.............................................. 6,622
</TABLE>
LETTERS OF CREDIT -- In the ordinary course of business, Di Giorgio is at
times required to issue letters of credit. Di Giorgio was contingently liable
for $11,346,000 and $11,979,000 on open letters of credit with a bank as of
December 30, 1995 and December 28, 1996, respectively.
EMPLOYMENT AGREEMENTS -- Di Giorgio has employment agreements with three
key executives expiring February 1997, March 1997 and April 1996, subject to
automatic renewals, absent notice. Under the agreements, combined annual
salaries of $778,000 are expected to be paid in fiscal 1997. In addition, the
executives are entitled to additional compensation upon occurrence of certain
events.
12. EQUITY
In November 1993 in connection with the senior discount note offering (Note
6(c)), the Company entered into a warrant agreement with a bank. The bank
currently owns 1.47% of the outstanding shares of common stock of the Company.
The bank holds warrants to purchase approximately 2.6% of the outstanding White
Rose Foods, Inc. common stock. A warrant entitles a holder to purchase one share
of Di Giorgio Corporation Class B common stock for $.10 per share. The warrants
are exercisable on the earlier to occur January 1, 1996, or the date of an
initial public offering of the Company or its subsidiaries or the occurrence of
other events as defined in the agreement. The warrants expire in February 2003.
In May 1995, DIG Holding purchased the Company's senior discount notes with
a face value of $3 million on the open market. The purchase price was $960,000
with an accreted value of $1,967,000. DIG Holding distributed the bonds to the
shareholders in December of 1995 when the bonds had a fair value of
approximately $1.2 million. The accreted value at the time of the dividend was
approximately $2,114,000. Interest income of $125,000 and bond amortization of
$115,000 was recorded in 1995.
13. OTHER INCOME -- NET
Other income consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income............................... $1,673 $2,301 $2,390
Net rental income............................. 1,037 954 1,020
Net (loss) gain on disposal of equipment...... (459) -- 63
Non-compete................................... 514 213 --
Other -- net.................................. 174 374 285
------ ------ ------
$2,939 $3,842 $3,758
====== ====== ======
</TABLE>
14. INCOME TAXES
The Company files a consolidated Federal tax return. The consolidated group
has adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
F-17
<PAGE> 97
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's deferred
tax asset has been reduced by a valuation allowance based on current evidence
indicating that it is not more likely than not that the future benefits of these
temporary differences will be realized. The tax effects of significant items
comprising the Company's deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.......................... $ 2,439 $ 1,814
Accrued expenses not deductible until paid............... 5,004 5,494
Net tax operating loss carryforwards..................... 16,658 13,207
-------- --------
Deferred tax asset......................................... 24,101 20,515
-------- --------
Deferred tax liabilities:
Difference between book and tax basis of property........ (4,783) (4,038)
Pension asset valuation.................................. (3,134) (3,296)
-------- --------
Deferred tax liabilities................................... (7,917) (7,334)
-------- --------
Net deferred tax assets.................................... 16,184 13,181
Less valuation allowance................................... (16,184) (13,181)
-------- --------
$ -- $ --
======== ========
</TABLE>
The valuation allowance relates to net deferred tax assets relating to
preacquisition temporary differences and operating loss carryforwards as well as
postacquisition temporary differences and loss carryforwards. The elimination of
the valuation allowance relating to (i) preacquisition amount is credited to the
excess of cost over net assets of business acquired and (ii) postacquisition
amount is credited to the income tax provision. There was no Federal provision
for the years ended December 31, 1994 and December 30, 1995 as a result of
operating losses for financial statement and tax purposes.
In the year ended December 31, 1994, the valuation reserve increased by
approximately $287,000 as a result of the increase in the net deferred asset.
For the year ended December 30, 1995, the tax provision has been reduced by
approximately $319,000 for the corresponding elimination of the valuation
allowance. For the year ended December 28, 1996, the excess of cost over the net
assets of business acquired has been reduced by approximately $2.8 million,
because of the utilization of preacquisition amounts.
As of December 28, 1996, approximately $38.9 million of net tax operating
loss carryforwards (which expire between the years 2006 and 2010) and
approximately $30 million of New Jersey state tax operating loss carryforward
(which expire between the years 1997 and 2002) are available, of which the tax
effect of $14 million will be credited to the excess of cost over net assets of
business acquired to the extent the valuation allowance relating to the
preacquisition amounts is eliminated and the balance will be credited to the tax
provision. As of December 28, 1996, there were no taxes currently payable.
The provision for income taxes consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 28,
1996
------------
<S> <C>
Current income tax............................................ $2,329
Deferred income tax........................................... 724
------
$3,053
======
</TABLE>
F-18
<PAGE> 98
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the Company's effective tax rate with the statutory
Federal tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate......................... $ (1,206) $ (846) $1,667
State and local taxes -- net of federal
benefit..................................... 42 287 497
Permanent differences -- amortization of
excess cost over net assets acquired........ 940 983 889
(Reduction) increase in valuation reserve..... 287 (319) --
------- ----- ------
$ 63 $ 105 $3,053
======= ===== ======
</TABLE>
15. LEGAL PROCEEDINGS AND CONTINGENT LIABILITIES
Various suits and claims arising in the course of business are pending
against the Company and its subsidiaries. In the opinion of management,
dispositions of these matters are appropriately provided for and are not
expected to materially affect the Company's financial position, cash flows or
results from operations.
The Company has been named in various claims and litigation relating to
potential environmental problems. In the opinion of management, these claims are
either without merit, covered by insurance, adequately provided for, or not
expected to result in any material loss to the Company.
16. RELATED PARTY TRANSACTIONS
In November 1993 approximately $11 million face value discount note was
loaned to Rose Partners, the holder of 98.53% of the common stock of White Rose
Foods, Inc. The note was issued at an original discount of approximately $5.3
million. The note evidencing this indebtedness matures April 1999 and is secured
by an amount of shares of common stock owned by Rose Partners representing
approximately 20% of the class outstanding. The note bears interest at a rate
equal to the Series B senior discount notes yield to maturity of 12.75% per
annum. As of December 30, 1995 and December 28, 1996, the $7.4 million and $8.4
million note is classified as long-term in the consolidated balance sheets. For
the years ended December 31, 1994, December 30, 1995 and December 28, 1996,
other income includes approximately $788,000, $846,000 and $981,000,
respectively, of interest income related to the note.
As of December 30, 1995 and December 28, 1996, Las Plumas, an affiliate of
the Company, owed Di Giorgio approximately $3.6 million and $3.5 million,
respectively, evidenced by a subordinated note. The note is secured by deeds of
trust relating to parcels of property of Las Plumas. The loan matures in June
1998 and bears interest at a fluctuating rate equal to the weighted average of
the interest rates paid by Di Giorgio. The entire note receivable is classified
as long-term in the consolidated balance sheet as of December 28, 1996. Interest
expense includes $319,000 in fiscal 1994 of nonoperating interest income earned
on the note, and upon collection of the note the Company is required to utilize
the proceeds to repay the borrowings under the revolving credit facility.
A director of the Company is a partner in a firm which provides legal
services to the Company on an on-going basis. The Company paid approximately
$222,000, $98,000 and $111,000, during each of the three years in the period
ended December 28, 1996, respectively, to the law firm for legal services.
The Company employs the services of a risk management and insurance
brokerage firm which is controlled by a director of the Company. Included in the
statement of operations are fees paid to the related party of $150,000 for each
of the three years in the period ended December 28, 1996.
F-19
<PAGE> 99
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded income of $184,000, $154,000 and $245,000 for each of
the three years in the period ended December 28, 1996, respectively, from an
affiliated entity of the President of the Company in connection with the sharing
of office facilities and administrative expenses.
Included in the consolidated statement of operations for the years ended
December 31, 1994 and December 30, 1995 was $119,000 of expenses related to
services provided by a consulting and investment banking firm whose general
partner is a former officer of the Company.
17. MAJOR CUSTOMERS
During the year ended December 31, 1994, sales to two individual customers
represented 21.2% and 18.7% of net sales, respectively, and sales to a group of
customers represented 13.9%.
During the year ended December 30, 1995, sales to two individual customers
represented 22.2% and 19.7% of net sales, respectively, and sales to a group of
customers represented 13.1%.
During the year ended December 28, 1996, sales to two individual customers
represented 22.4% and 20.1% of net sales, respectively, and sales to a group of
customers represented 12.4%.
18. SUBSEQUENT EVENT
In May 1997, the Company amended its bank credit facility to extend the
maturity date to June 30, 2000.
On June 20, 1997, the Company completed a refinancing (the "Refinancing")
of itself and its parent, White Rose, intended to extend debt maturities, reduce
interest expense and improve financial flexibility. The components of the
Refinancing were (i) the offering of $155 million of the Company's 10% Senior
Notes due 2007, (ii) the modification of the Company's bank credit facility,
(iii) the receipt of $8.9 million for the extinguishment of a note held by the
Company from Rose Partners, LP, which owns 98.54% of the Company, (iv) the
repurchase, through tender offers, of $85.4 million of the Company's 12% senior
notes due 2003 ($7.5 million remained outstanding) and the repurchase of $53.7
million of White Rose's 12 3/4% senior discount notes due 1998, (no notes
remained outstanding) and the payment of premiums of $10.8 million related to
such purchases, (v) the dividend by the Company to White Rose of certain
non-cash assets of approximately $4.2 million, primarily the Las Plumas note and
the subsequent dividend of those assets to White Rose's stockholders and (vi)
the merger of White Rose with and into the Company with the Company surviving
the merger.
F-20
<PAGE> 100
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, JUNE 28,
1996 1997
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................................. $ 1,749 $ 1,989
Accounts and notes receivable -- net.............................. 61,550 65,889
Inventories....................................................... 49,563 51,103
Prepaid expenses.................................................. 3,706 4,677
-------- --------
Total current assets...................................... 116,568 123,658
-------- --------
Property, plant and equipment -- net................................ 56,270 55,119
Long-term notes receivable.......................................... 19,276 7,196
Other assets........................................................ 12,216 22,928
Deferred financing costs............................................ 4,172 6,165
Excess of costs over net assets acquired............................ 92,567 91,229
-------- --------
$ 301,069 $ 306,295
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY/<DEFICIT>
Current Liabilities:
Notes payable..................................................... $ 26,719 $ 30,170
Accounts payable.................................................. 49,468 48,777
Accrued expenses.................................................. 24,362 22,911
Current installment long-term obligations......................... 3,677 2,456
-------- --------
Total current liabilities................................. 104,226 104,314
-------- --------
Long-term debt...................................................... 153,389 171,640
Capital lease liability............................................. 31,523 30,702
Other long-term liabilities......................................... 7,826 7,456
Stockholders' Equity/(Deficit):
Common stock...................................................... -- --
Additional paid-in-capital........................................ 17,225 13,002
Accumulated deficit............................................... (13,120) (20,819)
-------- --------
Total stockholders' equity/(deficit)...................... 4,105 (7,817)
-------- --------
$ 301,069 $ 306,295
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
F-21
<PAGE> 101
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
---------------------
JUNE 29, JUNE 28,
1996 1997
-------- --------
<S> <C> <C>
REVENUE:
Net Sales............................................................ $522,183 $516,566
Other revenue........................................................ 2,425 3,286
-------- --------
Total revenue................................................ 524,608 519,852
Cost of Products Sold.................................................. 467,214 463,062
-------- --------
Gross Profit -- exclusive of warehouse expense shown below............. 57,394 56,790
Warehouse expense.................................................... 20,596 21,250
Transportation expense............................................... 10,955 10,674
Selling, general and administrative expense.......................... 11,791 11,305
Amortization -- excess of cost over net assets acquired.............. 1,446 1,338
-------- --------
Operating Income....................................................... 12,606 12,223
Interest expense..................................................... 12,027 11,693
Amortization -- deferred financing costs............................. 568 651
Other (income) -- net................................................ (1,537) (2,201)
-------- --------
Income before income taxes and extraordinary items..................... 1,548 2,080
Income taxes........................................................... -- 1,312
-------- --------
Income before extraordinary items...................................... 1,548 768
Extraordinary gain (loss)on extinguishment of debt-net of tax.......... 219 (8,467)
-------- --------
Net income (loss)...................................................... $ 1,767 $ (7,699)
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-22
<PAGE> 102
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
--------------- --------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ------ ------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28,
1996................... 101.62 $ -- 100.00 $ -- $ 17,225 $(13,120) $ 4,105
Net loss................. -- -- -- -- -- (7,699) (7,699)
Dividend to
stockholders........... -- -- -- -- (4,223) -- (4,223)
------ ---- ------ ---- ------- --------- ------
Balance at June 28,
1997................... 101.62 $ -- 100.00 $ -- $ 13,002 $(20,819) $(7,817)
====== ==== ====== ==== ======= ========= ======
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-23
<PAGE> 103
DI GIORGIO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------
JUNE 29, JUNE 28,
1996 1997
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ 1,767 $ (7,699)
Adjustments to reconcile net income to net cash provided by(used
in) operating activities
Extraordinary (gain) loss on extinguishment of debt............ (219) 8,467
Depreciation and amortization.................................. 2,315 2,436
Amortization................................................... 2,277 2,320
Provision for bad debts........................................ 1,300 750
Increase in prepaid pension cost............................... (210) (150)
Accretion of 12 3/4% senior discount notes..................... 2,853 3,010
Noncash interest income........................................ (473) --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts & notes receivable.................................... 5,242 (5,089)
Inventory...................................................... 2,211 (1,540)
Prepaid expenses............................................... (204) (901)
Long-term receivables.......................................... (1,759) (572)
Other assets................................................... 322 (10,972)
(Decrease) increase in:
Accounts payable, accrued expenses and other liabilities....... (12,370) 2,435
-------- -------
Net cash provided by (used in) operating activities................. 3,052 (7,505)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, and equipment......................... (342) (1,702)
-------- -------
Net cash used in investing activities............................... (342) (1,702)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under revolving line-of-credit....................... 3,684 3,451
Capital lease payments.............................................. (1,101) (2,065)
Premiums on completed tender offers................................. -- (10,829)
Repayment of Rose Partner note receivable........................... -- 8,917
Dividend paid....................................................... -- (61)
Finance fees paid................................................... -- (5,230)
New note offering................................................... -- 155,000
Long-term debt payments............................................. (5,020) (139,736)
-------- -------
Net cash (used in) provided by financing activities................. (2,437) 9,447
-------- -------
Increase in cash.................................................... 273 240
Cash at beginning of period......................................... 365 1,749
-------- -------
Cash at end of period............................................... $ 638 $ 1,989
======== =======
Supplemental Disclosure of Cash Flow Information
Cash paid during the period:
Interest....................................................... $ 9,604 $ 15,085
======== =======
Income Taxes................................................... $ 71 $ 185
======== =======
Non-cash dividend of notes receivable and land held for sale........ $ 4,162
======== =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-24
<PAGE> 104
DI GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (UNAUDITED)
1. BASIS OF PRESENTATION
On June 20, 1997, the Company and White Rose Foods, Inc. ("White Rose"),
its parent company, consummated a merger in which White Rose was merged with and
into the Company, with the Company as the survivor (the "Merger"). Since the
stockholders of the Company are identical to the stockholders of White Rose, the
exchange of shares was a transfer of interest among entities under common
control, and is being accounted for at historical cost in a manner similar to
pooling-of-interests accounting. Accordingly, the consolidated financial
statements presented herein reflect the assets and liabilities and related
results of operations for the combined entity for all periods. Revenue for the
twenty-six weeks ended June 29,1996 and June 28, 1997 were the same for the
separate entities prior to the combination. Income before extraordinary items
would have been approximately $1.5 million and $281,000 higher for Di Giorgio
than White Rose for the twenty-six weeks ended June 28, 1997 and June 29, 1996,
respectively, prior to the combination due to additional White Rose net interest
expense. See Note 2 for information relating to the refinancing actions taken in
connection with the merger.
The consolidated condensed balance sheet as of June 28, 1997, the
consolidated condensed statements of operations for the twenty-six weeks and
thirteen weeks ended June 29, 1996 and June 28, 1997, the consolidated condensed
statements of cash flows and stockholders' equity/(deficit) for the twenty-six
weeks ended June 28, 1997, and related notes are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying unaudited interim
consolidated condensed financial statements and related notes should be read in
conjunction with the financial statements and related notes included in the Form
10-K for the fiscal year ended December 28, 1996, and Form 10-Q for the quarter
ended March 29, 1997. The information furnished reflects, in the opinion of the
management of the Company, all adjustments, consisting of normal recurring
accruals, which are necessary to present a fair statement of the results for the
interim periods presented.
Previously, the Company classified as other income reclamation service
fees, label income and other customer related services. Commencing in the year
ended December 28, 1996, the Company is classifying these items as other
revenue. Prior year amounts have been reclassified accordingly. The change in
classification has no effect on previously reported net income.
The interim figures are not necessarily indicative of the results to be
expected for the full fiscal year.
2. REFINANCING
On June 20, 1997, the Company completed a refinancing (the 'Refinancing")
of itself and White Rose, intended to extend debt maturities, reduce interest
expense and improve financial flexibility. The components of the Refinancing
were (i) the offering of $155 million 10% senior notes (the "10% Notes") due
2007 (the "Offering"), (ii) the modification of the Company's bank credit
facility (the "Bank Credit Facility"), (iii) the receipt of an $8.9 million
payment for the extinguishment of a note held by the Company from Rose Partners,
LP ("Rose Partners"), which owns 98.54% of the Company, (iv) the consummation of
the tender offers and consent solicitations commenced by the company (the
"Company Tender Offer") and White Rose (the "White Rose Tender Offer." and
together with the Company Tender Offer") and White Rose (the "White Rose Tender
Offer." and together with the Company Tender Offer, the "Tender Offers") on May
16, 1997 in respect of the Company's 12% Senior Notes due 2003 (the "12% Notes")
and White Rose's 12 3/4% Senior Discount Notes due 1998 (the "12 3/4% Notes"),
respectively, (v) the $4.2 million dividend by the Company to White Rose of
certain non-cash assets which were unrelated to the Company's primary business
and the subsequent dividend of those assets to White Rose's stockholders and
(vi) the Merger.
F-25
<PAGE> 105
Di GIORGIO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (Unaudited) --
(Continued)
Immediately following the Refinancing and as of June 28, 1997, no 12 3/4%
Notes remained outstanding and $7.45 million aggregate principal amount of 12%
Notes remained outstanding; however, the Indenture pursuant to which the 12%
Notes were issued has been substantially amended effective as of June 9, 1997
pursuant to the Company Tender Offer.
Interest on the 10% Notes is payable semi-annually, in arrears, on June 15
and December 15 of each year, commencing December 15, 1997. The 10% Notes mature
on June 15, 2007. The Company made redeem the 10% Notes, in whole or in part at
any time on or after June 15, 2002 at redemption prices further defined in the
indenture governing the 10% Notes (the "Indenture"). In addition, on or prior to
June 15, 2002, the Company may redeem up to 35% of the notes under conditions as
so defined in the Indenture.
As a result of the Refinancing, the Company recorded an $8.5 million
extraordinary charge, net of a tax benefit of $5.6 million, on the
extinguishment of debt relating to premiums paid as a result of the Tender
Offers and the write-off of the deferred financing fees associated with the 12%
Notes and 12 3/4% Notes.
3. SUBSEQUENT EVENT
In August 1997, the Company completed the sale of the option it held on its
Farmingdale facility, the site of its former grocery warehouse and headquarters,
which had been under lease to a third party. The Company realized net cash
proceeds of approximately $7.3 million after the repayment of a mortgage
included in the Company's balance sheet at June 28, 1997 in the amount of
approximately $5.3 million. For book purposes the Company does not expect to
recognize any gain or loss due to the original valuation of the property
although the Company expects to use its net operating loss carryforwards to
offset an approximate $12.0 million taxable gain.
4. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information, which will be effective for financial
statements beginning after December 15, 1997. SFAS No. 131 redefines how
operating segments are determined and requires expanded quantitative and
qualitative disclosures relating to a company's operating segments. The Company
has not yet completed its analysis of how it will be effected.
F-26
<PAGE> 106
===============================================================
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Hand, Registered or Certified Mail
or Overnight Courier:
The Bank of New York
101 Barclay Street, 21st Floor West
New York, NY 10286
By Facsimile: (212) 815-6339
Attention: Henry Lopez
Confirm by telephone: (212) 815-2742
(Originals of all documents submitted by facsimile should be sent promptly
by hand, overnight courier, or registered or certified mail.)
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information......................... 4
Forward Looking Statements.................... 5
Summary....................................... 6
Risk Factors.................................. 17
The Exchange Offer............................ 21
The Refinancing............................... 29
Capitalization................................ 30
Selected Consolidated Financial Data.......... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 33
Business...................................... 39
Management.................................... 45
Certain Transactions.......................... 48
Description of the Bank Credit Facility....... 49
Description of New Notes...................... 49
Certain Federal Income Tax Considerations..... 77
Plan of Distribution.......................... 79
Legal Matters................................. 79
Experts....................................... 79
Index to Financial Statements................. F-1
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF
TRANSMITTAL, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE NEW NOTES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR
BOTH TOGETHER NOR ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
===============================================================
===============================================================
$155,000,000
[WHITEROSE LOGO]
DI GIORGIO CORPORATION
10% SERIES B
SENIOR NOTES DUE 2007
--------------------
PROSPECTUS
--------------------
SEPTEMBER 3, 1997
===============================================================
