<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 95-0615250
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
------------------------
2601 South Eastern Avenue
Los Angeles, California 90040
(213) 723-7476
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
Alfred A. Plamann, President and Chief Executive Officer
Certified Grocers of California, Ltd.
2601 South Eastern Avenue
Los Angeles, California 90040
(213) 723-7476
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code of Agent for Service)
------------------------------
Copy to:
Neil F. Yeager
Burke, Williams & Sorensen
611 W. Sixth Street
25th Floor
Los Angeles, California 90017
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS
PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF 1933 CHECK THE FOLLOWING
BOX /X/
IF THE REGISTRANT ELECTS TO DELIVER ITS LATEST ANNUAL REPORT TO SECURITY
HOLDERS, OR A COMPLETE AND LEGIBLE FACSIMILE THEREOF, PURSUANT TO ITEM 11(A)(1)
OF THIS FORM, CHECK THE FOLLOWING BOX / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE FEE
<S> <C> <C> <C> <C>
$3,000,000 Subordinated Patronage
Dividend Certificates Due December
15, 2002........................... $3,000,000 none $3,000,000 $1,035
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
Cross-reference between items of Part 1 of Form S-2 and Prospectus filed by
Certified Grocers of California, Ltd., as part of Registration Statement
covering Subordinated Patronage Dividend Certificates Due December 15, 2002.
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
- ----------------------------------------- ------------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Cover page; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page of
Prospectus; Outside Back Cover Page
of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ Outside Front Cover Page of
Prospectus; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds..................... Use of Proceeds
5. Determination of Offering Price..... (Not Applicable)
6. Dilution............................ (Not Applicable)
7. Selling Security Holders............ (Not Applicable)
8. Plan of Distribution................ Method of Offering
9. Description of Securities to Be
Registered......................... Outside Front Cover Page of
Prospectus; Description of the
Certificates
10. Interests of Named Experts and
Counsel............................ (Not Applicable)
11. Information with Respect to the
Registrant......................... Outside Front Cover Page of
Prospectus; Business; Tax Matters;
Selected Consolidated Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Index to
Financial Statements
12. Incorporation of Certain Information
by Reference....................... Inside Front Cover Page of
Prospectus
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ (Not Applicable)
</TABLE>
<PAGE>
PROSPECTUS
CERTIFIED GROCERS OF CALIFORNIA, LTD.
$3,000,000 SUBORDINATED
PATRONAGE DIVIDEND CERTIFICATES
DUE DECEMBER 15, 2002
This Prospectus relates to the issuance by Certified Grocers of California,
Ltd. ("Certified") of Subordinated Patronage Dividend Certificates Due December
15, 2002 (the "Certificates"). Unless otherwise indicated by the context, all
references to the "Company" include Certified and its subsidiaries. The
Certificates will be issued to member-patrons and associate patrons (sometimes
referred to collectively as "patrons") of Certified and will evidence the
indebtedness of Certified respecting that portion of the patronage dividends to
be distributed to such patrons for Certified's fiscal year ended September 2,
1995 and to be allocated by Certified on its books to such patrons' required
patronage dividend deposit accounts. As to patronage dividends to be distributed
with respect to Certified's 1995 fiscal year, Certificates will be issued
evidencing the allocation of an amount of such dividends equal to 40% of the
patronage dividends of all divisions, except the dairy division, and 20% of the
first and second quarter dairy division patronage dividends. However, as to any
particular patron, if such amount is less than $500.00, then Certified will not
issue a Certificate nor make such allocation in connection with the distribution
of such patron's patronage dividend. The Certificates will bear interest from
the date of issuance at the rate of 7% per annum, payable annually on December
15 in each year, commencing December 15, 1996. The Certificates are subject to
redemption, in whole or in part, at any time at the option of Certified.
Certified will have the right, at its option, to set off against the principal
of and interest accrued on a Certificate amounts owing to Certified or any of
its subsidiaries by the holder of the Certificate. The Certificates will be
unsecured general obligations of Certified and will be subordinated to all
existing and future Senior Indebtedness (as defined) of Certified. The
Certificates will be issued under an Indenture between Certified and First
Interstate Bank of California, as Trustee. See, "BUSINESS -- Patronage
Dividends" and "DESCRIPTION OF THE CERTIFICATES."
---------------------
CAREFUL CONSIDERATION SHOULD BE GIVEN TO THE MATTERS DISCUSSED UNDER "RISK
FACTORS," BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS
PRICE DISCOUNTS AND TO THE
TO PUBLIC COMMISSIONS COMPANY(1)(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$3,000,000 Subordinated Patronage
Dividend Certificates Due
December 15, 2002................ $3,000,000 none $3,000,000
- -------------------------------------------------------------------------------------------
<FN>
(1) Before deducting expenses payable by Certified estimated at $34,535.
(2) Based on the assumption that this amount of Certificates will be issued.
There is no assurance that this amount will be issued.
</TABLE>
THIS OFFER IS NOT UNDERWRITTEN.
THE DATE OF THIS PROSPECTUS IS , 1995
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR MADE SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY STATE
IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------
AVAILABLE INFORMATION
Certified is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
("Commission"). Copies of such materials can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
In addition, such material can be inspected and copied at the public reference
facilities maintained by the Commission and located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 75
Park Place, New York, New York 10007.
ADDITIONAL INFORMATION
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information and exhibits contained in a Registration Statement on
Form S-2 filed by Certified with the Commission. For further information,
reference is made to the Registration Statement including the exhibits filed as
a part thereof. Copies of the Registration Statement and exhibits may be
obtained from the principal office of the Commission in Washington, D.C. upon
payment of the fee prescribed by the rules and regulations of the Commission.
INCORPORATION BY REFERENCE
The following documents filed by Certified with the Commission are
incorporated by reference into this Prospectus: (1) Annual Report on Form 10-K
for the fiscal year ended September 3, 1994; (2) Amendment No. 1 to Annual
Report on Form 10K/A for the fiscal year ended September 3, 1994; (3) Quarterly
Report on Form 10-Q for the quarter ended December 3, 1994; (4) Quarterly Report
on Form 10-Q for the quarter ended March 4, 1995; and (5) Quarterly Report on
Form 10-Q for the quarter ended June 3, 1995.
Certified will provide without charge to each person or shareholder of
Certified to whom a copy of this Prospectus is delivered, upon the written or
oral request of such person or shareholder, a copy of the foregoing Reports
incorporated by reference herein, other than exhibits to such Reports. Requests
should be directed to: Certified Grocers of California, Ltd., 2601 South Eastern
Avenue, Los Angeles, California 90040, Attention: Corporate Secretary, (213)
723-7476.
2
<PAGE>
RISK FACTORS
CAREFUL CONSIDERATION SHOULD BE GIVEN TO THE FOLLOWING FACTORS CONCERNING
CERTIFIED AND THE SECURITIES OFFERED IN THIS PROSPECTUS:
SUBORDINATION
The indebtedness evidenced by the Certificates will be subordinated to the
prior payment in full of Senior Indebtedness (as defined) of Certified. As such,
no payment can be made by Certified with respect to the Certificates in the
event of an uncured default by Certified under such Senior Indebtedness, or in
the event of dissolution, liquidation or insolvency proceedings involving
Certified, until all Senior Indebtedness has been paid in full. The total amount
of outstanding Senior Indebtedness of Certified aggregated $172,769,000 as of
October 10, 1995. There is no limitation under the Indenture on Certified's
creation of additional Senior Indebtedness.
SET OFF
Certified will have the right at any time, at its option, to set off against
the principal of and interest accrued on a Certificate all or any portion of the
amounts owing to Certified or any of its subsidiaries by the holder of the
Certificate. Upon any such set off, unpaid interest accrued on, and, if
applicable, the principal amount of, the Certificate shall be reduced and be
deemed to have been paid by Certified to the extent of such set off. The holder
of a Certificate shall have no right to set off amounts which the holder owes to
Certified or any of its subsidiaries against the principal of or interest
accrued on the Certificate.
CERTIFICATES NOT TRANSFERABLE
The Certificates are nontransferable without the consent of Certified, which
consent Certified is under no obligation to give. Accordingly, there is no
market for the Certificates and none is expected to develop.
UNSECURED OBLIGATIONS
The Certificates will be unsecured general obligations of Certified, and
Certified will not establish any sinking fund for their repayment. Thus, there
can be no assurance that Certified would have the ability to repay the
Certificates in the event of insolvency or other financial difficulty.
VOLUME LOSSES IN RECENT PERIODS
The Company experienced reductions in sales volume from fiscal 1991 levels
totalling approximately $800 million over fiscal years 1992 and 1993. During
this period, certain large patrons either grew to the size where they elected to
establish self-distribution programs or were acquired by chains that had
existing self-distribution programs. Fiscal 1994 sales decreased approximately
$133 million over fiscal year 1993. This decline is primarily due to sales
volume lost as a result of the decision of certain large patrons (Hughes
Markets, Alpha Beta, Save Mart Supermarkets, Bel Air Mart, and Raleys) to expand
their own warehousing and distribution operations in fiscal 1994 and the
decision of one patron (Nob Hill) to utilize another source of supply. During
the third quarter of fiscal 1995, the Company added two significant customers
which contributed approximately $58 million in net sales through June 3, 1995.
The Company estimates these new customers will increase net sales by
approximately $257 million on an annualized basis. The Company is attempting to
increase sales volume by adding new customers and expanding the volume of sales
to existing customers.
There can be no assurance that future volume reductions in the Company's
sales will not occur, whether by merger or acquisition of patrons or election by
patrons to switch to self-distribution or other supply sources. However, except
for patrons already engaged in self-distribution, the Company is not aware of
any member-patron whose size is sufficient, in the Company's view, to justify
the establishment of a self-distribution program. At this time, including
patrons already engaged in self-distribution, there is no patron whose purchases
represent more than 10% of the Company's sales volume. Also, excluding patrons
already engaged in self-distribution, there is no patron whose purchases
represent greater than 5% of the Company's sales volume.
3
<PAGE>
INCOME TAX LIABILITY INCIDENTAL TO PATRONAGE DIVIDENDS
A patron will be required to report as gross income, for federal income tax
purposes, the patronage dividends, if any, distributed by Certified to such
patron. The stated dollar amount of the Certificates issued as a part of a
patronage dividend must be reported as income in the year received. Certificates
issued as a part of a patronage dividend are also subject to state income and
corporation franchise taxes in California, and may be subject to such taxes in
other states. See, "TAX MATTERS."
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THIRTY-NINE FISCAL YEAR
WEEKS ENDED -----------------------------------------------------
JUNE 3, 1995 1994 1993 1992 1991 1990
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)..................... 1.59x 1.63x 1.78x 1.44x 1.57x 2.72x
<FN>
- ------------------------
(1) Earnings used in computing the ratio of earnings to fixed charges consist
of earnings before patronage dividends, provision (benefit) for income
taxes, and cumulative effect of change in accounting principle in 1994 of
$2.5 million, plus fixed charges. Fixed charges consist of interest expense
(including amortization of deferred financing costs) and the portion of
rental expense that is representative of the interest factor.
</TABLE>
BUSINESS
GENERAL
Certified, a California corporation organized in 1925, is a wholesale
grocery distributor which does business primarily on a cooperative basis with
those patrons who qualify and have been accepted as "member-patrons." It also
does some business on a cooperative basis with some patrons who are not
member-patrons and who are referred to as "associate patrons." Pursuant to
Certified's Bylaws, the net earnings of Certified on business done on a
cooperative basis are distributed as patronage dividends to member-patrons and
associate patrons based in amount on the volume of such business transacted with
the patron. For the fiscal year ended September 3, 1994, declared patronage
dividends totalled $10,837,000.
Certified also does business on a nonpatronage basis (that is, no patronage
dividends are distributed) with other customers and in some instances with
member-patrons and associate patrons. Certified's subsidiaries do business on a
nonpatronage basis with member-patrons, associate patrons and other customers.
Patrons engaged in the retail grocery business who purchase 350 or more dry
grocery cases weekly (approximately $5,000), or whose combined average weekly
purchases (excluding cigarettes) are $5,000 or more, are required to become
member-patrons. Associate patrons generally purchase 200 or more dry grocery
cases weekly and have combined average weekly purchases of less than $5,000. At
June 3, 1995, Certified had 497 member-patrons operating a total of 2,322 retail
food stores and 301 associate patrons operating a total of 707 retail food
stores.
Certified sells a full line of branded grocery and nonfood items supplied by
unrelated manufacturers and also sells merchandise under its own private labels,
including the Springfield, Gingham, Special Value and Golden Creme labels.
Grocers Specialty Company, a subsidiary, carries a product line consisting of
specialty-type items, such as ethnic and fancy foods, and also carries a general
product line. General merchandise products are primarily sold by another
subsidiary, Grocers General Merchandise Company.
4
<PAGE>
Sales by product line, including drop shipments (which are sales directly
from suppliers), for the fiscal year ended September 3, 1994, are as follows
(dollar amounts in thousands):
<TABLE>
<S> <C>
Dry Grocery....................................... $1,035,213
General Merchandise............................... 222,574
Delicatessen...................................... 180,159
Frozen Food....................................... 142,852
Meat.............................................. 138,082
Dairy............................................. 71,024
Other............................................. 30,108
Ice Cream......................................... 22,071
Bakery............................................ 13,037
Drop Shipment..................................... 12,447
Beans and Rice.................................... 6,305
----------
Total......................................... $1,873,872
----------
----------
</TABLE>
Certified and its subsidiaries currently distribute their various product
lines from four warehouse complexes and two manufacturing plants (dairy and
bakery) located in the Los Angeles Metropolitan Area, two warehouses in
Stockton, California and one warehouse in Fresno, California.
In addition to supplying a wide variety of grocery and nonfood items,
Certified and its subsidiaries also provide patrons with a variety of other
support services, including advertising programs, insurance services, store site
selection and site evaluation services, store design and layout, front end
layout and support, store equipment and inventory financing, store remodeling
support services, data processing, and in store counseling services.
PATRONAGE DIVIDENDS
Certified distributes patronage dividends based upon its net earnings from
patronage business during the fiscal year. Certified's net earnings from
patronage business are distributed to each patron in proportion to the dollar
volume of purchases from each division of Certified by the patron. Patronage
dividends are distributed annually, usually in December, except for dividends on
dairy products which are distributed after the close of each fiscal quarter.
Certified's bylaws provide that patronage dividends may be distributed in
money or in any other form which constitutes a written notice of allocation
under Section 1388 of the Internal Revenue Code. Section 1388 defines the term
"written notice of allocation" to mean any capital stock, revolving fund
certificate, retain certificate, certificate of indebtedness, letter of advice,
or other written notice, which discloses to the recipient the stated dollar
amount allocated to the recipient by Certified and the portion thereof, if any,
which constitutes a patronage dividend.
In the past, Certified has distributed at least 20% of the patronage
dividends in cash and has distributed Class B Shares as a portion of the
patronage dividends distributed to its member-patrons. Certified intends to
continue distributing at least 20% of the patronage dividends in cash and to
continue distributing Class B Shares as a portion of the patronage dividends
distributed to member-patrons. In addition, Certified issued subordinated
certificates similar to the Certificates in connection with the distribution of
patronage dividends for fiscal years 1993 and 1994. These outstanding
certificates are described as follows:
<TABLE>
<CAPTION>
AGGREGATE
PRINCIPAL ANNUAL MATURITY
FISCAL YEAR AMOUNT INTEREST RATE DATE
- ----------- ------------ ------------- ---------
<S> <C> <C> <C>
1993 $ 2,018,000 7% 12/15/00
1994 $ 2,426,000 8% 12/15/01
</TABLE>
As described in this Prospectus, Certified intends to allocate a portion of
the patronage dividends to be distributed for fiscal year 1995 to the required
patronage dividend deposit accounts of its member-patrons and associate patrons
and to issue the Certificates as evidence of its indebtedness respecting the
amounts so
5
<PAGE>
allocated. Additionally, in future years, Certified proposes to issue similar
certificates in connection with the distribution of patronage dividends.
Certificates issued in future years will evidence the indebtedness of Certified
respecting the portion of the patronage dividends for such years which have been
allocated by Certified on its books to the required patronage dividend deposit
accounts of patrons. The portion of the patronage dividends to be so allocated
in future years will be determined each year by Certified's Board of Directors.
Certificates issued in future years will bear interest at a rate determined by
the Board of Directors prior to their issuance, and are presently expected to be
repayable seven years from the date of issuance (subject to prior redemption or
set off at Certified's option) and to be subordinated to the same extent as the
Certificates which are the subject of this Prospectus. Certificates issued in
future years will be unsecured general obligations of Certified and will be
nontransferable without the consent of Certified, which consent Certified will
be under no obligation to give.
Certified expects to continue to distribute patronage dividends in the
future, although there can be no assurance of the amounts of any such future
dividends.
TAX MATTERS
Certified is a corporation operating on a cooperative basis. Certified is
subject to federal and state income and franchise taxes and must pay other taxes
applicable to corporations, such as sales, excise, real and personal property
taxes.
As a corporation operating on a cooperative basis, Certified is subject to
Subchapter T of the Internal Revenue Code ("Subchapter T"). Under Subchapter T,
Certified pays patronage dividends to patrons pertaining to its fiscal year
within 8 1/2 months of the close of such fiscal year. To qualify as patronage
dividends, payments must be made on the basis of the value of the business done
with or for patrons, under a preexisting obligation to make such payment, and
with reference to the net earnings from business done with or for the
cooperative's patrons. Patronage dividends are paid in cash, or written notices
of allocation. A written notice of allocation is distributed to the patron and
provides notice of the amount allocated to the patron by Certified and the
portion thereof which constitutes a patronage dividend.
Under Subchapter T, Certified may deduct, in the fiscal year for which they
are paid, the amount of patronage dividends paid in cash and qualified notices
of allocation. A written notice of allocation will be qualified, if Certified
pays at least 20% of the patronage dividend in money, and the patron consents to
take the stated dollar amount of the written notice into income in the year in
which it is received. Certified deducts for tax purposes the entire amount of
its patronage dividends by paying at least 20% in cash and issuing qualified
notices of allocation.
Certified intends to make patronage distributions to patrons comprised of
money and qualified notices of allocation including the Certificates. At least
20% of patronage dividends will be paid in cash. Certified will notify patrons
of the stated dollar amount allocated to them and the portion thereof which is a
patronage dividend. Patrons are required to consent to include in their gross
income, in the year received, all cash as well as the stated dollar amount of
all qualified notices of allocation including the Certificates distributed to
them as patronage dividends.
Certificates distributed as a part of the patronage dividend are also
subject to state income and corporation franchise taxes in California and may be
subject to such taxes in other states.
Certified is subject to federal income tax and California franchise tax on
net earnings of business with or for patrons which is not distributed as
deductible patronage dividends and on net earnings derived from nonpatronage
business. Certified files consolidated returns with its subsidiaries, none of
which is a cooperative and each of which is therefore subject to tax.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued to evidence the indebtedness of Certified
respecting that portion of the patronage dividends to be distributed to patrons
for Certified's fiscal year ended September 2, 1995 and to be allocated by
Certified on its books to such patrons' required patronage dividend deposit
accounts.
6
<PAGE>
Certificates will be issued evidencing the allocation of an amount of such
dividends equal to 40% of the patronage dividends of all divisions, except the
dairy division, and 20% of the first and second quarter dairy division patronage
dividends. However, as to any particular patron, if such amount is less than
$500.00, then Certified will not issue a Certificate nor make such allocation in
connection with the distribution of such patron's patronage dividend.
The Certificates will be issued under an Indenture (the "Indenture") between
Certified and First Interstate Bank of California, as trustee (the "Trustee").
The terms of the Certificates include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended from time to time (the "Trust Indenture Act"). The Certificates are
subject to all such terms, and holders of the Certificates are referred to the
Indenture and the Trust Indenture Act for a statement of those terms. The
following summary of certain provisions of the Certificates and the Indenture
does not purport to be complete and is qualified in its entirety by reference to
the Certificates and the Indenture. A copy of the form 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 not otherwise
defined have the meanings assigned to them in the Indenture.
GENERAL
The Certificates will mature on December 15, 2002 and will bear interest
from the date of issuance at the rate of 7% per annum, payable on December 15 in
each year, commencing December 15, 1996, and continuing until the principal
thereof is paid or duly made available for payment. Interest will be paid to the
holder in whose name the Certificate is registered at the close of business on
the 15th day next preceding the interest payment date. The aggregate principal
amount of Certificates that may be issued will be limited to $3,000,000. The
Certificates will be issued in minimum denominations of $500.00 and in any
greater denominations which are an integral multiple of $1.00.
REDEMPTION
The Certificates are subject to redemption, at any time in whole and from
time to time in part, without premium, at the option of Certified. The Indenture
provides that written notice of redemption will be mailed to each holder of
Certificates to be redeemed, at its address appearing in the note register, not
less than 15 nor more than 60 days prior to the redemption date. If less than
all of the Certificates are to be redeemed, it is provided that the Trustee will
select the Certificates or portions thereof to be redeemed pro rata, by lot or
by such other method as the Trustee shall deem fair and appropriate; however, no
Certificate may be selected for partial redemption if the principal balance of
such Certificate remaining after redemption would be less than $500.00. The
notice of redemption will identify the Certificates being redeemed and, in the
case of partial redemption, will identify the respective principal amounts of
the Certificates being partially redeemed.
There is no provision for a sinking fund for the retirement of the
Certificates.
SET OFF
The Certificates and Indenture provide that Certified shall have the right
at any time, at its option, to set off against the principal of and interest
accrued on a Certificate all or any portion of the amounts owing to Certified or
any of its subsidiaries by the holder of the Certificate, such set off to be
made first against interest accrued to the date of such set off and then in
increments of $1.00 against the principal amount of the Certificate. As
specified in the Indenture, Certified will give written notice of such set off
to the Trustee and the holder of the Certificate, but the giving of such notice
is not a condition to Certified's exercise of its right of set off. From and
after the date of any such set off as specified in such notice, unpaid interest
accrued on, and, if applicable, the principal amount of, the Certificate shall,
for all purposes of the Indenture and the Certificate, be reduced and be deemed
to have been paid by Certified to the extent specified in such notice, and
interest shall cease to accrue on the portion, if any, of the principal amount
of the Certificate so reduced and deemed to have been paid. If the principal
amount of a Certificate identified in Certified's notice has been reduced and
been deemed to have been paid to an extent such that the remaining unpaid
portion of the principal of such Certificate is less than $500.00, then such
Certificate shall become due and payable on the date of the set off as specified
in Certified's notice, and, on and after the earlier of the date on which such
7
<PAGE>
Certificate is surrendered for payment and 7 days following the date of
Certified's notice, such Certificate shall cease to bear interest. If prior to
the date of the set off as specified in Certified's notice, a notice of
redemption has been given with respect to the Certificate, and if the redemption
price of the Certificate has not yet been paid, then, notwithstanding such
redemption notice, such redemption price shall, for all purposes of the
Indenture and the Certificate, be reduced and be deemed to have been paid by
Certified to the extent specified in Certified's notice, and on the redemption
date, the holder of the Certificate shall only be entitled to receive the
remaining balance, if any, of the redemption price. No delay by Certified in
giving a notice of set off shall impair its validity or effect once given.
The holder of a Certificate shall have no right to set off any amounts which
the holder owes to Certified or any of its subsidiaries against the principal of
or interest accrued on the Certificate, and by acceptance of a Certificate the
holder waives and relinquishes any such right.
SUBORDINATION
The indebtedness evidenced by the Certificates will be subordinated and
junior in right of payment to the prior payment in full of all Senior
Indebtedness.
The term "Senior Indebtedness" means all indebtedness, liabilities or
obligations of Certified, contingent or otherwise, whether existing on the date
of the Indenture or thereafter incurred, (A) in respect of borrowed money; (B)
evidenced by bonds, notes, debentures or other instruments of indebtedness; (C)
evidenced by letters of credit, banker's acceptances or similar credit
instruments; (D) in respect of Capitalized Lease Obligations; (E) in respect of
the deferred purchase price of property or assets (whether real, personal,
tangible or intangible) or in respect of any mortgage, security agreement, title
retention agreement or conditional sale contract; (F) in respect of any interest
rate swap agreement, interest rate collar agreement or other similar agreement
or arrangement designed to provide interest rate protection; (G) in respect of
all indebtedness, liabilities or obligations of other Persons of any of the
types referred to in clauses (A) through (F) for which Certified is responsible
or liable as obligor, guarantor or otherwise or in respect of which recourse may
be had against any of the property or assets (whether real, personal, tangible
or intangible) of Certified; and (H) in respect of all modifications, renewals,
extensions, replacements and refundings of any indebtedness, liabilities or
obligations of any of the types described in clauses (A) through (G); provided,
however, that the term "Senior Indebtedness" shall not mean any indebtedness,
liabilities or obligations of Certified, contingent or otherwise, whether
existing on the date of the Indenture or thereafter incurred, (i) to trade
creditors arising or incurred in the ordinary course of Certified's business,
(ii) in respect of any redemption, repurchase or other payments on capital
stock, (iii) in respect of Patrons' Deposits, (iv) in respect of Patronage
Dividend Certificates or (v) in respect of the Certificates.
For purposes of the foregoing definition, "Capitalized Lease Obligations"
means the discounted present value of the rental obligations of any Person under
any lease of any property which, in accordance with generally accepted
accounting principles, has been recorded on the balance sheet of such Person as
a capitalized lease obligation; "Patrons' Deposits" means the deposits from time
to time required to be made or maintained with Certified by its patrons or
customers in accordance with the bylaws of Certified in effect from time to time
or in accordance with the policies for the servicing of accounts of patrons or
customers established from time to time by Certified, and any deposits from time
to time made or maintained with Certified by its patrons or customers in excess
of such required deposits; and "Patronage Dividend Certificates" means any
notes, revolving fund certificates, retain certificates, certificates of
indebtedness, patronage dividend certificates or any other written evidences of
indebtedness of Certified at any time outstanding which evidence the
indebtedness of Certified respecting the distribution by Certified of patronage
dividends.
The subordination is such that:
1. In the event of any insolvency or bankruptcy proceedings relative to
Certified or its property, and any receivership, liquidation,
reorganization, arrangement or other similar proceedings in connection
therewith, or in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of Certified, the holders of Senior
Indebtedness shall be entitled to receive payment in full of all
8
<PAGE>
Senior Indebtedness (whether accrued prior or subsequent to the commencement
of such proceedings) before the holders of the Certificates are entitled to
receive any payment with respect to the Certificates; and upon any such
proceedings, any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities or by set off or
otherwise (other than securities which are subordinated and junior in right
of payment, at least to the extent provided in the Indenture with respect to
the Certificates to the payment of all Senior Indebtedness then outstanding)
to which the holders of the Certificates would be entitled, except for the
provisions of the Indenture, shall be paid to the holders of Senior
Indebtedness to the extent necessary to pay all Senior Indebtedness in full.
2. No payments with respect to the Certificates shall be made in the
event that any default shall occur and be continuing with respect to the
payment of any Senior Indebtedness, unless payment in full shall have first
been made on all Senior Indebtedness or such default with respect to such
Senior Indebtedness shall have been cured or waived.
3. In the event that any default (other than those referred to in
paragraph 2 above) shall occur and be continuing with respect to any Senior
Indebtedness permitting the holders of such Senior Indebtedness to
accelerate the maturity thereof, unless payment in full shall have first
been made on all Senior Indebtedness or such default with respect to such
Senior Indebtedness shall have been cured or waived, no payments with
respect to the Certificates shall be made during any period: (a) of 180 days
after the earlier of the giving of written notice of such default by the
holders of Senior Indebtedness to the Company and the Trustee or the giving
of written notice of such default by the Company to the holders of the
Certificates, or (b) in which judicial proceedings shall be pending in
respect of such default, a notice of acceleration of the maturity of such
Senior Indebtedness shall have been transmitted to the Company and the
Trustee in respect of such default and such judicial proceedings shall be
diligently pursued in good faith. With respect to clause (a) above, only one
such notice shall be given in any twelve consecutive months.
4. In the event that the principal of any Certificate shall become due
and payable before its maturity date, as expressed in the Certificate, as a
result of a declaration of acceleration following an Event of Default (under
circumstances where the provisions of the foregoing paragraphs 1, 2 and 3
shall not or shall no longer be applicable), the holders of the Senior
Indebtedness outstanding at the time shall be entitled to receive payment in
full of all Senior Indebtedness before the holders of the Certificates are
entitled to receive any payment with respect to the Certificates.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of Certified who are holders of Senior Indebtedness may recover more
ratably than holders of the Certificates, and creditors of Certified who are not
holders of Senior Indebtedness or of the Certificates may recover less ratably
than holders of Senior Indebtedness and may recover more ratably than holders of
the Certificates.
The total amount of outstanding Senior Indebtedness of Certified aggregated
$172,769,000 as of October 10, 1995. There is no limitation under the Indenture
on Certified's creation of additional Senior Indebtedness.
SECURITY
There is no provision of any kind for a lien upon any of the assets or
properties of Certified to secure the Certificates. There is no restriction on
Certified putting liens on its assets or properties to secure debt other than
that represented by the Certificates. There is no restriction on Certified in
respect to the creation of additional securities.
TRANSFER
The Certificates may not be transferred or exchanged without the consent of
Certified, which consent Certified is under no obligation to give. If Certified
consents to a transfer, the holder of the Certificate may be required to furnish
appropriate endorsements and transfer documents and may be required to pay any
tax or other governmental charge that may be imposed in connection with the
transfer.
9
<PAGE>
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that Certified shall not consolidate or merge into
any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless (i) the corporation formed by
such consolidation or into which Certified is merged or the Person which
acquires by conveyance or transfer the properties and assets of Certified
substantially as an entirety is a corporation organized under the laws of the
United States, any state thereof or the District of Columbia and expressly
assumes by supplemental indenture all of the obligations of Certified under the
Indenture and the Certificates; and, (ii) immediately after giving effect to
such transaction, no Event of Default, and no event which, after notice or lapse
of time, or both, would become an Event of Default, shall have happened and be
continuing. Upon any consolidation or merger, or any conveyance or transfer of
the properties and assets of Certified substantially as an entirety, the
successor corporation formed by such consolidation or into which Certified is
merged or the Person to which such conveyance or transfer is made shall succeed
to, and shall be substituted for, and may exercise every right and power of,
Certified under the Indenture with the same effect as if such successor
corporation or Person had been named as Certified therein, and thereafter all
obligations of Certified under the Indenture and the Certificates shall
terminate.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
PAYMENT OF TAXES AND OTHER CLAIMS. Certified will pay or discharge or cause
to be paid or discharged, before the same become delinquent, (i) all taxes,
assessments and governmental charges levied or imposed upon it or upon its
income, profits or property, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon its property;
provided, however, that Certified shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
MAINTENANCE OF PROPERTIES. Certified will cause all its properties used or
useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of Certified may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this covenant shall prevent Certified from discontinuing the
operation and maintenance of any of its properties if such discontinuance is, in
the judgment of Certified, desirable in the conduct of its business and not
disadvantageous in any material respect to the holders of the Certificates.
CORPORATE EXISTENCE. Subject to the provisions of the Indenture relating to
consolidation, merger and sale of assets, Certified will do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that Certified shall not be required to preserve any right or franchise if
Certified shall determine that the preservation thereof is no longer desirable
in the conduct of the business of Certified and that the loss thereof is not
disadvantageous in any material respect to the holders of the Certificates.
The Indenture contains no covenants limiting Certified's incurrence of
additional indebtedness, including Senior Indebtedness. There are no covenants
or provisions which afford the holders of the Certificates any rights, including
the right to require the repurchase of the Certificates, in the event of a
highly leveraged transaction (such as an acquisition, refinancing or other
recapitalization), whether or not involving a change in control of Certified.
There is no restriction on Certified's ability to incur other indebtedness,
including Senior Indebtedness, having the protection of such covenants or
provisions.
EVENTS OF DEFAULT
An Event of Default includes (i) default in the payment of the principal of
any Certificate at its Maturity, (ii) default in the payment of any interest on
any Certificate when it becomes due and payable, and continuance of such default
for a period of 30 days, (iii) default, for 60 days after notice to Certified by
the
10
<PAGE>
Trustee or to Certified and the Trustee by holders of at least 25% in principal
amount of the outstanding Certificates, in performance of any other covenant in
the Indenture, and (iv) certain events of bankruptcy, insolvency and
reorganization.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default which is known to it, give to the holders of the
Certificates notice of such default; provided, except in the case of default in
the payment of principal or interest on any of the Certificates, the Trustee
shall be protected in withholding such notice if it in good faith determines
that the withholding of such notice is in the interests of the holders of the
Certificates; and provided further, that the Trustee shall not be charged with
knowledge of any default or Event of Default unless written notice thereof shall
have been given to the Trustee by Certified or by the holders of at least 25% in
principal amount of the outstanding Certificates. The term "default" for the
purpose of this provision means any event which is or after notice or lapse of
time would become an Event of Default.
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during the continuance of an Event of Default of which it
has knowledge to act with the required standard of care, to be indemnified by
the holders of the Certificates before proceeding to exercise any right under
the Indenture at the request of the holders of the Certificates. The Indenture
provides that the holders of a majority in principal amount of the outstanding
Certificates may direct the time, method and place of conducting any proceedings
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee.
The Indenture provides that if an Event of Default specified therein occurs
and is continuing, either the Trustee or holders of not less than 25% in
principal amount of the Certificates then outstanding may declare the principal
of all such Certificates to be due and payable.
A holder of the Certificates will not have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder unless (i)
such holder has previously given written notice to the Trustee of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Certificates shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee, (iii) such holder or holders have offered to the Trustee reasonable
indemnity and (iv) the Trustee shall not have received from the holders of a
majority in principal amount of the outstanding Certificates a direction
inconsistent with such request and shall have failed to institute such
proceedings within 60 days. However, the holder of any Certificate will have an
absolute right to receive payment of the principal of and interest on such
Certificate on or after the respective due dates and to institute suit for the
enforcement of any such payment.
AMENDMENTS AND SUPPLEMENTS
With certain limited exceptions which permit amendments of and supplements
to the Indenture by Certified and the Trustee only, the Indenture may be amended
or supplemented only with the consent of the holders of not less than a majority
in principal amount of outstanding Certificates; provided, however, that no such
amendment or supplement shall without the consent of the holder of each
Certificate affected thereby (i) change the stated Maturity of the principal of,
or the due date of any installment of interest on, any Certificate, (ii) reduce
the principal of, or rate of interest on, any Certificate, (iii) change the coin
or currency in which any portion of the principal of, or interest on, any
Certificate is payable, (iv) impair the right to institute suit for the
enforcement of any such payment, (v) reduce the above stated percentage of
holders of the outstanding Certificates necessary to modify the Indenture, or
(vi) modify the foregoing requirements or the provision of the Indenture
regarding waiver of past defaults by the holders of the Certificates.
TRUSTEE AND CERTIFICATE REGISTRAR
First Interstate Bank of California is the Trustee under the Indenture and
has also been appointed as the initial Certificate Registrar and Paying Agent.
11
<PAGE>
METHOD OF OFFERING
The Certificates will be issued to patrons and will evidence the
indebtedness of Certified respecting that portion of the patronage dividends to
be distributed to such patrons for Certified's fiscal year ended September 2,
1995 and to be allocated by Certified on its books to such patrons' required
patronage dividend deposit accounts. The offering of the Certificates is made by
Certified only through its regular employees who will not receive any additional
remuneration in connection therewith.
USE OF PROCEEDS
The proceeds to Certified from the issuance of the Certificates will be
utilized as working capital.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
THIRTY-NINE FISCAL YEAR
WEEKS ENDED --------------------------------------------------------------------
JUNE 3, 1995 1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------ ------------
(THOUSANDS OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $1,341,118 $ 1,873,872 $ 2,007,288 $ 2,377,740 $ 2,767,996 $ 2,696,233
Patronage dividends ......... 6,477 10,837 12,880 12,977 19,979 30,641
Net earnings (loss).......... 524 94 473 (3,648) (4,682) 2,332
Total assets................. 390,826 401,096 403,979 449,713 469,010 485,038
Long-term notes payable...... 140,045 149,673 158,585 178,702 159,898 152,424
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE FISCAL YEARS ENDED SEPTEMBER 3, 1994
OVERVIEW
Fiscal 1994 was characterized by significant restructuring of Certified's
leadership, business processes and operational cost structures. During fiscal
1994, Alfred Plamann was elected President and Chief Executive Officer of
Certified. Utilizing his perspective gained from experiences as the Company's
Chief Financial Officer, Mr. Plamann led the Company toward a significant
restructuring of Company operations and business processes to more precisely
meet the changing environment in which Certified operates and more closely align
the Company with its customers. As part of this restructuring, the Company
developed a new delivery system which relies on sophisticated computer assisted
routing of Company deliveries to maximize efficiencies and more precisely meet
customer demands. Similarly, the Company streamlined the operations of its
specialty products subsidiary, Grocers Specialty Company, by combining its
warehousing and distribution functions with the Company's highly efficient
grocery division.
During the year, the Company reduced other costs and eliminated unnecessary
business processes. Headcount decreased from approximately 2,900 to 2,600 or 10%
and formal programs reduced workplace accidents and helped hold down medical
costs. Net earnings in fiscal 1994 decreased primarily because of a $1.6 million
expense associated with the facility relocation discussed above, postretirement
expenses of $2.5 million, volume losses, and lease related charges, offset by
improved earnings in the insurance subsidiaries and the $2.5 million cumulative
effect of adopting Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109").
The management actions discussed above were taken in response to the
difficult business environment in California. The Company's customers,
independent grocery retailers, have been challenged by this environment as well
as increased competition from aggressive major chains. The overall reaction has
been a squeeze on prices necessary to attract customers at the retail level.
This reaction has been transferred to Certified in terms of its customers'
demands that products be delivered at very low cost.
More specifically, Certified has been adversely impacted by the volatile
nature of this grocery environment due to mergers of its customers into chain
businesses and other customers developing alternative
12
<PAGE>
distribution patterns to attempt to obtain product at lower costs. While some of
the sales losses are a result of the evolutionary development of a maturing
customer base, Company management believes the newly enacted cost controls will
enable Certified to continue to be the low cost provider of products and
services required by the independent grocer. Such cost structure should
eliminate further erosion of the sales as experienced over the past few years.
In fiscal 1991 and 1992, the Company experienced a number of factors which
negatively impacted volume and profitability. In 1991, the Company began to
experience a reduction in purchases by certain large retailers who commenced
self-distribution programs or were acquired by chains already engaged in self-
distribution. In addition, in both 1991 and 1992, a deterioration in economic
conditions and changing vendor promotional practices reduced opportunities to
profit from forward buying. The relocation in 1991 of Grocers General
Merchandise Company ("GM") to Fresno, California resulted in a $4.4 million net
loss to that subsidiary for that year, while increases in workers' compensation
insurance reserves were a major contributor to subsidiary losses in 1992.
While volume losses continued to impact the Company in fiscal 1993 and 1994,
management has taken a number of steps in fiscal 1994 designed to restructure
the Company's operations to reflect the changes in its business as discussed
above. In addition, fiscal 1993 included such changes as fee and price increases
in both Certified's cooperative business and in the businesses conducted by its
subsidiaries, disposition of certain unprofitable operations, and formation of a
joint venture to utilize excess warehouse capacity. As a result, fiscal 1993 net
earnings, as compared to fiscal 1992, increased $4.1 million on a sales decline
of $370.5 million.
In addition to improvements in its operations, the Company adopted during
fiscal 1993 a patronage dividend retention program to enable the Company to
strengthen its capitalization. Prior to fiscal 1993, the Company distributed to
its patrons, in cash, all of its net earnings from patronage sources after
patrons' required deposits and required stockholding. In fiscal 1993, the
Company's Board of Directors authorized a program to issue patronage dividend
certificates in lieu of a portion of cash distributions. The Company intends
this program to be long-term, with the amount and interest rate of such
certificates to be reviewed each year. Certificates for each year will be
unsecured general obligations of the Company and will be subordinated to certain
other indebtedness of the Company. The Board of Directors determined that, in
fiscal 1993, 20% of the fourth quarter patronage dividend from dairy products
and 40% of the fiscal year's patronage dividend from non-dairy products would be
distributed in seven-year patronage dividend certificates bearing interest at 7%
per annum. The Board of Directors approved the patronage dividend retention
program for fiscal year 1994. The retention will be 20% of the quarterly dairy
patronage dividends and 40% of the fiscal year's dividend for non-dairy products
and will have a maturity date of December 15, 2001 and carry an 8% annual
interest rate, payable in cash. The Company expects to continue to distribute
patronage dividends in the future, although there can be no assurance of the
amounts of such dividends.
As a result of differences arising in recording certain items for financial
statement and tax purposes on the Company's nonpatronage activities, the Company
has recognized net benefits related to these deferred tax assets of $5.6
million. Based on sufficient projected earnings and tax planning strategies, the
Company expects to realize tax benefits associated with these differences. The
Company has also established a valuation reserve of $1.4 million for the
likelihood that a portion of the tax assets will not be realized.
The Company, together with others, has been designated as a potentially
responsible party ("PRP") by the Environmental Protection Agency ("EPA") with
respect to the clean up of hazardous waste at Operating Industries, Inc.
Superfund Site ("OII Site") in Monterey Park, California. The Company has been
identified as disposing hazardous waste at the OII site during a period in the
1970's and early 1980's as was common and acceptable practice at that time. The
Company has not disposed of any materials at the site since, and believes its
current disposal policies to be in accordance with federal, state and local
government laws. Clean up of this site will occur in five phases and could
entail estimated total clean up costs of $650 million to $800 million. However,
the Company's share of clean up costs for the first three phases has been
established at approximately $380,000. While the Company's share of the cost for
the remaining two phases has not yet been established, based upon overall
estimates of the range of potential cost, the Company believes that its
13
<PAGE>
share for those phases will not exceed approximately $1.1 million. An initial
reserve of $0.4 million was established in fiscal 1993 and an additional reserve
of $1.1 million added for fiscal 1994, providing an accumulated reserve for
environmental liabilities of $1.5 million as of September 3, 1994. Because of
the uncertainties associated with environmental assessment and remediation
activities, the Company's future expenses to remediate the currently identified
site could be higher than the accrued liability. Although it is difficult to
estimate the liability of the Company related to these environmental matters,
management believes that these matters will not have a materially adverse effect
on the Company's financial position or consolidated statement of earnings.
The Company, subsequent to its year-end, completed a sale leaseback
transaction with Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated
third party, wherein it sold approximately 5.5 acres of real property in the
City of Commerce, together with all buildings, structures and improvements
located on such real property, including an office building containing
approximately 100,000 square feet and a cafeteria building containing
approximately 8,000 square feet. The total sales price for the property was
$11,500,000 in cash. Concurrent with the sale of the real property, the Company
and Trinet entered into a twenty year lease of the property, with two ten year
extension options. The monthly rental is approximately $108,000 and is subject
to CPI adjustment commencing on the first day of the sixth, eleventh and
sixteenth years. However, such CPI adjustments shall not exceed four percent per
annum on a cumulative basis during each five year period.
In an effort to assist existing customers to better compete in the
marketplace and develop new formats that fit the ever changing retail
environment, the Company, where appropriate, takes an equity position rather
than debt with certain member-patrons. In September 1992, the Company invested
approximately $1.5 million in common and preferred stock of Major Market Inc.
("MMI"). The Company is finalizing a divestiture agreement with MMI whereby MMI
will repurchase the Company's stock for a consideration aggregating $2.7 million
and the Company will realize a $603,000 pre-tax gain. After completion of the
transaction, the Company will retain a minority ownership interest of 20%.
RESULTS OF OPERATIONS
The following table sets forth selected financial data of the Company
expressed as a percentage of net sales for the periods indicated below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
SEPTEMBER 3, AUGUST 28, AUGUST 29,
1994 1993 1992
-------------- ------------ ------------
<S> <C> <C> <C>
Net sales................................................................... 100.0% 100.0% 100.0%
Cost of sales............................................................... 90.6 90.8 91.9
Distribution, selling and administrative.................................... 8.0 7.7 7.0
Operating income............................................................ 1.4 1.5 1.1
Interest expense............................................................ 0.8 0.8 0.7
Other expense, net.......................................................... 0.1 0.0 0.0
Earnings before patronage dividends and provision (benefit) for income
taxes...................................................................... 0.5 0.7 0.4
Patronage dividends......................................................... 0.6 0.7 0.6
Cumulative effect of accounting change...................................... 0.1 -- --
Net earnings (loss)......................................................... 0.0 0.0 (0.2)
</TABLE>
FISCAL YEAR ENDED SEPTEMBER 3, 1994 ("FISCAL 1994") COMPARED TO FISCAL YEAR
ENDED AUGUST 28, 1993 ("FISCAL 1993")
NET SALES. Net sales decreased $133 million (6.6%) to slightly less than
$1.9 billion in fiscal 1994. This is a result of the previously noted decision
of certain large patrons to expand their own warehousing and distribution
operations. After adjusting for the anticipated patron self-distribution volume
loss, the Company obtained an additional $31 million of new business from new
members, and expanded its existing customers' sales volume.
14
<PAGE>
COST OF SALES. Cost of sales decreased $124.7 million (6.8%) to $1.7
billion in fiscal 1994 as compared to fiscal 1993. The majority of this decrease
is in response to the lower sales volume as discussed above; however, additional
reduction in cost of sales is reflective of management's efforts to eliminate
unprofitable business and maximize vendor related deal programs.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $149.3 million or 8.0% of net sales in fiscal 1994,
as compared to $153.6 million or 7.7% of net sales in fiscal 1993. The decrease
in total expenses was primarily due to the reduction of payroll costs
(approximately $5.2 million offset by an incremental increase of $2.5 million in
accrued postretirement benefits for a net payroll decrease of $2.7 million) and
the implementation of other cost reduction efforts.
OPERATING INCOME. Operating income decreased to $25.6 million for fiscal
1994 as compared to $30 million for fiscal 1993. As a percentage of net sales,
operating income for fiscal 1994 was consistent with fiscal 1993 but lower in
total dollars as a result of lower sales volume discussed above.
INTEREST. Interest expense decreased by $0.4 million, to $15.4 million in
fiscal 1994 from $15.8 million in fiscal 1993, as a result of reduced working
capital requirements related to the volume changes.
OTHER EXPENSE, NET. During fiscal 1994, the Company adopted a formal plan
to relocate its Grocers Specialty Company ("GSC") warehouse operations in
Corona, California to the Company's corporate warehouse facilities in Los
Angeles, California. It is anticipated that the warehouse relocation will result
in more effective utilization of Company assets, transportation and warehousing
efficiencies, and enhanced service to GSC customers and members of the
cooperative. In connection with this consolidation plan, the Company recorded a
$1.6 million charge. The charge primarily consists of warehouse and inventory
relocation costs as well as reprogramming costs of certain financial and
operating systems. The warehouse relocation was completed during October 1994.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. The Company adopted SFAS No. 109,
effective August 29, 1993. The adoption of this new accounting method resulted
in a positive $2.5 million impact for fiscal 1994.
NET EARNINGS. Net earnings in fiscal 1994 decreased primarily because of a
$1.6 million expense associated with the facility relocation discussed above,
postretirement expenses of $2.5 million, volume losses, and lease related
charges, offset by improved earnings in the insurance subsidiaries and the $2.5
million cumulative effect of adopting SFAS No. 109.
FISCAL YEAR ENDED AUGUST 28, 1993 ("FISCAL 1993") COMPARED TO FISCAL YEAR
ENDED AUGUST 29, 1992 ("FISCAL 1992")
NET SALES. Net sales decreased 15.6% to $2 billion in fiscal 1993 primarily
as a result of the loss of certain large member-patrons. Certain member-patrons
were acquired by other larger retailers operating their own distribution
facilities, while certain other large member-patrons either acquired or expanded
their own warehousing and distribution operations. In addition, the lingering
effects of the 1992 Los Angeles civil unrest and the stagnant California economy
contributed to lower sales. Although some further loss of sales volume from
these factors occurred in fiscal 1994, management is aggressively attempting to
replace lost sales volume by adding new customers and expanding the volume of
sales to existing customers.
COST OF SALES. Cost of sales as a percentage of sales decreased from 91.9%
in the 1992 period to 90.8% in the 1993 period. This decrease is primarily due
to fee and price increases for fiscal 1993 of lower volume discounts.
DISTRIBUTION, SELLING AND ADMINISTRATIVE. Distribution, selling and
administrative expenses were $153.7 million or 7.7% of net sales in fiscal 1993,
as compared to $166.7 million or 7.0% of net sales in fiscal 1992. While cost
reductions did not keep pace with volume reductions primarily because of the
relationship of fixed and semifixed costs on lower sales, the decrease in total
expense was primarily due to the reduction of payroll costs (approximately $14.2
million) and the implementation of cost reduction efforts, offset, in part, by
increased workers' compensation, property tax and insurance expenses.
15
<PAGE>
OPERATING INCOME. Operating income increased to $30 million for fiscal
1993, compared to $26.4 million for fiscal 1992. The increase in operating
income was primarily the result of fee and price increases coupled with the cost
reduction program.
INTEREST. Interest expense decreased by $1.5 million, to $15.8 million in
fiscal 1993 from $17.3 million in fiscal 1992, as a result of reduced working
capital requirements related to the volume changes coupled with lower prevailing
interest rates.
NET EARNINGS. Net earnings for fiscal 1993 were $473,000 as compared to a
net loss of $3.6 million in fiscal 1992. Fee and price increases, significant
cost and expense reductions, and the absence in the 1993 period of start-up and
restructuring costs incurred in fiscal 1992 in the subsidiary operations were
the primary reasons for the earnings improvement.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon cash flow from operations, patron deposits,
Patronage Certificates, shareholdings and borrowings under the Company's credit
lines, to finance operations. Net cash provided from operating activities
totalled $18.2 million for fiscal 1994 as compared to $38.2 million for fiscal
1993. The Company's cost and expense reductions, revised marketing programs, and
the dividend retention program provide adequate operating cash flow to conduct
the Company's business operations. At September 1994, working capital was $96.8
million and the current ratio was 1.6 to 1, down from 1.74 to 1 at the fiscal
1993 year end. Working capital varies throughout the year primarily as a result
of seasonal inventory requirements.
Capital expenditures totalled $5.9 million in fiscal 1994 and $8.9 million
in fiscal 1993.
The Company has agreements with certain banks that provide for committed
lines of credit. These credit lines are available for general working capital,
acquisitions, and maturing long-term debt. At the end of fiscal 1994, the
Company had $160 million in committed lines of credit, of which $82.6 million
was not utilized. In March 1994, the Company refinanced its existing $125
million credit line with a new $135 million secured, committed line of credit.
The new credit agreement, which matures March 17, 1997, is collateralized by
accounts receivable, inventory, and certain other assets of Certified Grocers of
California, Ltd. and two of its principal subsidiaries, excluding equipment,
real property and the assets of Grocers Capital Company ("GCC"). The agreement
provides for Eurodollar basis or prime basis borrowings at the Company's option.
As of September 3, 1994, the Company's outstanding borrowings, including
obligations under capital leases of approximately $7.8 million, amounted to
$152.6 million, of which $149.7 million was classified as noncurrent.
Certified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons. In addition, under a patronage dividend retention program
authorized by Certified's Board of Directors, Certified retains a portion of the
patronage dividends to be distributed for a fiscal year and issues patronage
certificates ("Patronage Certificates") evidencing its indebtedness respecting
the retained amounts. The program provides for the issuance of Patronage
Certificates to patrons on an annual basis in a portion and at an interest rate
to be determined annually by the Board of Directors. Patronage Certificates for
each year are unsecured general obligations of Certified, are subordinated to
certain other indebtedness of Certified, and are nontransferable without the
consent of Certified. The Patronage Certificates are subject to redemption, at
any time in whole and from time to time in part, without premium, at the option
of Certified, and are subject to being set off, at the option of Certified,
against all or any portion of the amounts owing to the Company by the holder.
Subject to the payment of at least 20% of the patronage dividend in cash, the
portion of the patronage dividend retained is deducted from each patron's
patronage dividend prior to the issuance of Class B Shares as a portion of such
dividend.
For fiscal 1993, the portion of the patronage dividend retained and
evidenced by the issuance of Patronage Certificates was 20% of the fourth
quarter dividend for dairy products and 40% of the fiscal year's dividend for
non-dairy products. However, as to any particular patron, if such amount was
less than $500, then no retention occurred and a Patronage Certificate was not
issued. Patronage Certificates issued for
16
<PAGE>
fiscal year 1993 have a seven year term, maturing on December 15, 2000, and
carry a 7% annual interest rate, payable in cash. The Board of Directors
approved the patronage dividend retention program for fiscal year 1994. The
retention will be 20% of the quarterly dairy patronage dividends and 40% of the
fiscal year's dividend for non-dairy products and will have a maturity date of
December 15, 2001 and carry an 8% annual interest rate, payable in cash. The
Company expects to continue to distribute patronage dividends in the future,
although there can be no assurance of the amounts of such dividends.
Patrons are generally required to maintain subordinated deposits with the
Company and member-patrons purchase shares of stock of the Company. Upon
termination of patron status, the withdrawing patron will be entitled to recover
deposits in excess of its obligations to the Company if permitted by the
applicable subordination provisions, and a member-patron also will be entitled
to have its shares redeemed, subject to applicable legal requirements, Company
policies and credit agreement limitations. The Company's current redemption
policy limits the Class B Shares that the Company is obligated to redeem in any
year to 5% of the number of Class B Shares deemed outstanding at the end of the
preceding fiscal year. In fiscal 1994, this limitation restricted the Company's
redemption of shares to 19,716 shares for $3,223,960. In fiscal 1995, the 5%
limitation will restrict the Company's redemption of shares to 19,414 shares for
$3,165,064. Due to the loss of a number of significant member-patrons, the
number of shares tendered for redemption at September 3, 1994 totalled 90,815
(or approximately $14.8 million, using fiscal 1994 year end book values), which
exceeds the amount that can be redeemed in fiscal 1995. Consequently, the
Company will be required to make redemptions in fiscal 1996, 1997 and 1998, with
such redemptions approximating $9.2 million to $9.5 million based on 1994 year
end book values and estimated share issuances for those years. The redemption
price for shares is based upon their book value as of the end of the year
preceding redemption. Cash flow to fund redemption of shares is provided from
operations, patron deposits, Patronage Certificates, current shareholdings and
borrowings under the Company's credit lines.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
POSTEMPLOYMENT BENEFITS
The FASB issued Statement of Financial Accounting Standards No. 112
"Employers' Accounting for Postemployment Benefits", which is effective for
fiscal years beginning after December 15, 1993. Accordingly, the Company will
conform to the new requirements in fiscal 1995. The new accounting standard
requires an accrual rather than a pay-as-you-go basis of recognizing expenses
for postemployment benefits (provided by an employer to former or inactive
employees after termination of employment but before retirement). Management
estimates the effect on its results of operations in fiscal 1995 will
approximate $1.5 million which it will accrue in that year as a non-cash
expense.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF JUNE 3, 1995, AND FOR THE THIRTY-NINE WEEKS
THEN ENDED AND THE COMPARABLE THIRTY-NINE WEEKS OF 1994
RESULTS OF OPERATIONS
The following table sets forth selected financial data of the Company
expressed as a percentage of sales for the periods indicated below:
<TABLE>
<CAPTION>
FOR THE THIRTY-NINE
WEEKS ENDED
--------------------------------
JUNE 3, 1995 MAY 28, 1994
--------------- ---------------
<S> <C> <C>
Net sales................................................................... 100% 100%
Cost of sales............................................................... 91.3 91.2
Distribution, selling and administrative.................................... 7.3 7.4
Operating income............................................................ 1.4 1.4
Interest expense............................................................ 0.9 0.8
Other income (expense), net................................................. 0.1 0.1
Estimated patronage dividends............................................... 0.5 0.7
Earnings (loss) after dividend and before income taxes...................... 0.1 (0.2)
Provision (benefit) for income taxes........................................ 0.1 (0.1)
Cumulative effect of accounting change...................................... 0.2
Net earnings................................................................ 0.0 0.1
</TABLE>
NET SALES
Net sales decreased 3.5% to $1.3 billion in the 1995 period as compared to
the 1994 period. This decrease was due to the effects of the loss of certain
customers and member-patrons. In addition, certain other large member-patrons
either acquired or expanded their own warehousing and distribution operations.
However, the decrease in sales as a result of these occurrences was partially
offset by improved sales growth in the Northern California grocery division.
During the third quarter of fiscal 1995, the Company added two significant
customers which contributed approximately $58 million in net sales through June
3, 1995. The Company projects increased net sales volume of approximately $125
million as of fiscal year end 1995. The Company estimates these new customers
will increase net sales by approximately $257 million on an annualized basis.
The Company is attempting to increase sales volume by adding new customers and
expanding the volume of sales to existing customers.
COST OF SALES
Cost of sales, as a percentage of sales, has remained consistent with the
comparable prior thirty-nine week period (91.2% in the 1994 period and 91.3% in
the 1995 period). Delivery fees have been reduced over the prior period by $2.4
million which accounts for the reduction. This planned reduction in delivery
fees reflects management's implementation of a revised delivery fee program
effective as of the beginning of fiscal 1995. In addition, the decrease in cost
of sales was also due to the result of lower sales volume as discussed above.
DISTRIBUTION, SELLING AND ADMINISTRATIVE
Distribution, selling and administrative expenses decreased from $102.5
million in the 1994 period to $98.3 million in the 1995 period. The expenses as
a percentage of sales have remained consistent with the comparable prior
thirty-nine week period.
OPERATING INCOME
Operating income totaled $18.6 million for the 1995 period, as compared to
$20.2 million for the 1994 period. As a percentage of net sales, operating
income was consistent with the same prior year period but lower in total dollars
as a result of lower sales volume as discussed above.
18
<PAGE>
OTHER INCOME (EXPENSE), NET
In fiscal year 1993, GCC acquired an 81% investment in MMI for $1.6 million.
The investment was previously consolidated in the Company's financial
statements. In second quarter 1995, GCC sold its preferred stock and 282,600
shares of common stock to MMI. GCC received proceeds of $120,000 and a note
receivable for approximately $2.6 million. GCC now has a minority interest in
MMI and accounts for the investment using the cost method. GCC recorded a pretax
gain of $511,000 on the sale of its investment.
INTEREST
Interest expense in the 1995 period has remained consistent in dollars and
as a percentage of sales with the comparable 1994 period.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
The adoption of this new accounting method resulted in a positive $2.5 million
impact on net earnings in the 1994 period.
NET EARNINGS
Net earnings for the 1995 period were $524,000 compared to net earnings of
$1,084,000 for the 1994 period. The adoption of SFAS No. 112 had a $1,119,000
impact on net earnings in the 1995 period; however, the decrease in net earnings
was primarily due to the cumulative effect of adopting SFAS No. 109 in the 1994
period. Excluding the impact of adopting SFAS No. 109 in the 1994 period, the
Company experienced an improvement in after-tax earnings of approximately $1.9
million for the 1995 period as compared to the 1994 period. This improvement was
the result of increased earnings in GCC ($0.6 million due primarily to the sale
of MMI as discussed previously), improved earnings of $0.4 million in the
Company's insurance operations, and a $0.9 million improvement in GSC due to
nonrecurring relocation costs incurred in the prior year. Other subsidiaries had
slightly improved earnings in the 1995 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon cash flow from operations, patron
deposits, Patronage Certificates, shareholdings, and borrowings under the
Company's credit lines, to finance operations. Net cash provided by operating
activities totaled $10.1 million for the first thirty-nine weeks of fiscal 1995
(the "1995 period"), as compared to $3.5 million for the first thirty-nine weeks
of fiscal 1994 (the "1994 period"). Net cash provided for the 1995 period
increased $6.6 million as compared to the 1994 period. This increase was due
primarily to increased cash provided by the change in inventories ($11.2
million) and accounts and notes receivable ($5.6 million), offset by increased
cash utilized by the change in accrued liabilities ($6.0 million), accounts
payable ($2.6 million), and other net operating activities ($1.6 million) for
the 1995 period as compared to the 1994 period. The improvement in inventories
is due primarily to reduced inventory in two of the Company's subsidiaries,
Grocers Specialty Company ("GSC") and Grocers General Merchandise Company
("GGMC"), while the improvement in accounts and notes receivable is due to
improved collections and reduced receivables in the cooperative, GGMC, finance
and insurance companies. The reduction in GSC's inventory reflects its
relocation and consolidation of inventory into the corporate warehousing
facilities, while GGMC's reduction occurred due to reduced volume. The increased
cash utilization for accrued liabilities and accounts payable occurred in
response to the increased cash provided by the changes in inventories and
accounts and notes receivable. In addition to the items indicated above, the
Company's cost and expense reductions, revised marketing programs, and the
dividend retention program provide adequate operating cash flow to conduct the
company's business operations. At June 3, 1995, working capital was $96.7
million, as compared to $96.8 million at September 3, 1994, and the Company's
current ratio was 1.6 to 1 at the end of the 1995 period and at fiscal 1994 year
end. Working capital varies primarily as a result of seasonal inventory
requirements.
Capital expenditures totaled $7.5 million in the first thirty-nine weeks of
fiscal 1995. The 1995 expenditures include purchases of warehouse, maintenance,
and computer equipment.
On December 6, 1994, the Company completed a sale leaseback transaction with
Trinet Corporate Realty Trust, Inc.("Trinet"), an unaffiliated third party,
wherein it sold approximately 5.5 acres of real
19
<PAGE>
property in the City of Commerce together with all buildings, structures and
improvements located on such real property, including an office building
containing approximately 100,000 square feet and a cafeteria building containing
approximately 8,000 square feet. The total sales price for the property was
$11.5 million. Concurrent with the sale of the real property, the Company and
Trinet entered into a twenty year lease of the property, with two ten year
extension options. The monthly rental is approximately $108,000 and is subject
to CPI adjustment commencing on the first day of the sixth, eleventh and
sixteenth years. However, such CPI adjustments shall not exceed four percent per
annum on a cumulative basis during each five year period. The $1.2 million gain
realized on the sale has been deferred and is being amortized in proportion to
rental payments over the period of the lease term.
In fiscal year 1993, Grocers Capital Company ("GCC") acquired an 81%
investment in Major Market Inc. ("MMI") for $1.6 million. The investment was
previously consolidated in the Company's financial statements. In second quarter
1995, GCC sold its preferred stock and 282,600 shares of common stock to MMI.
GCC received proceeds of $120,000 and a note receivable for approximately $2.6
million. GCC now has a minority interest in MMI and accounts for the investment
using the cost method. GCC recorded a pretax gain of $511,000 on the sale of its
investment. The net cash effect of this transaction is disclosed in the
Company's Consolidated Condensed Statements of Cash Flows for the thirty-nine
weeks ended June 3, 1995.
The Company has agreements with certain banks that provide for committed
lines of credit. These credit lines are available for general working capital,
acquisitions, and maturing long-term debt. At the end of the third quarter of
fiscal 1995, the Company had $160 million in committed lines of credit, of which
$90.5 million was not utilized. A $135 million committed line of credit with a
maturity date of March 17, 1997, is collateralized by accounts receivable,
inventory, and certain other assets of Certified Grocers of California, Ltd.,
and two of its principal subsidiaries, excluding equipment, real property and
the assets of GCC. The agreement provides for Eurodollar basis or prime basis
borrowings at the Company's option. As of June 3, 1995, the Company's
outstanding borrowings, including obligations under capital leases of
approximately $7.3 million, amounted to $143.1 million, of which $140 million
was classified as noncurrent.
Certified distributes at least 20% of the patronage dividends in cash and
distributes Class B Shares as a portion of the patronage dividends distributed
to its member-patrons. In addition, under a patronage dividend retention program
authorized by Certified's Board of Directors, Certified retains a portion of the
patronage dividends to be distributed for a fiscal year and issues Patronage
Certificates evidencing its indebtedness respecting the retained amounts. The
program provides for the issuance of Patronage Certificates to patrons on an
annual basis in a portion and at an interest rate to be determined annually by
the Board of Directors. However, as to any particular patron, if the amount of
the retention is less than $500, then no retention occurs and a Patronage
Certificate is not issued. Patronage Certificates for each year are unsecured
general obligations of Certified, are subordinated to certain other indebtedness
of Certified, and are nontransferable without the consent of Certified. The
Patronage Certificates are subject to redemption, at any time in whole and from
time to time in part, without premium, at the option of Certified, and are
subject to being set off, at the option of Certified, against all or any portion
of the amounts owing to the Company by the holder. Subject to the payment of at
least 20% of the patronage dividend in cash, the portion of the patronage
dividend retained is deducted from each patron's patronage dividend prior to the
issuance of Class B Shares as a portion of such dividend.
For fiscal year 1993, the portion of the patronage dividend retained and
evidenced by the issuance of Patronage Certificates was 20% of the fourth
quarter dividend for dairy products and 40% of the fiscal year's dividend for
non-dairy products. Patronage Certificates issued for fiscal year 1993 have a
seven year term, maturing on December 15, 2000, and carry a 7% annual interest
rate, payable in cash. The retention for 1994 was 20% of the quarterly dairy
patronage dividends and 40% of the fiscal year's dividend for non-dairy
products, and the Patronage Certificates have a maturity date of December 15,
2001 , and carry an 8% annual interest rate, payable in cash. During the third
quarter ended June 3, 1995, the Company's Board of Directors authorized the
Company to suspend patronage dividend retention with respect to the quarterly
20
<PAGE>
dividend for dairy products effective for the third and fourth quarters of
fiscal 1995. The Company expects to continue to distribute patronage dividends
in the future, although there can be no assurance of the amounts of such
dividends.
Patrons are generally required to maintain subordinated deposits with the
Company and member-patrons purchase shares of stock of the Company. Upon
termination of patron status, the withdrawing patron will be entitled to recover
deposits in excess of its obligations to the Company if permitted by the
applicable subordination provisions, and a member-patron also will be entitled
to have its shares redeemed, subject to applicable legal requirements, Company
policies and credit agreement limitations. The Company's current redemption
policy limits the Class B Shares that the Company is obligated to redeem in any
year to 5% of the number of Class B Shares deemed outstanding at the end of the
preceding fiscal year. In fiscal 1995, this limitation restricted the Company's
redemption of shares to 19,414 shares for $3,165,064, and as of June 3, 1995,
that number of shares has been redeemed. Due to the loss of a number of
significant member-patrons in past fiscal years, the number of shares tendered
for redemption at July 24, 1995, totaled 66,660 (or approximately $11 million
using fiscal 1994 year end book values), which exceeds the amount that can be
redeemed in fiscal 1995. Consequently, the Company will be required to make
redemptions in fiscal 1996, 1997, and 1998, with such redemptions approximating
$9.2 million to $9.5 million based on 1994 year end book values and estimated
share issuances for those years. Shares are redeemed at their book value as of
the end of the year preceding redemption. Cash flow to fund redemption of shares
is provided from operations, patron deposits, Patronage Certificates, current
shareholdings and borrowings under the Company's credit lines.
LEGAL MATTERS
The validity of the Certificates has been passed upon for Certified by
Burke, Williams & Sorensen, Los Angeles, California.
EXPERTS
The consolidated balance sheets of Certified and subsidiaries as of
September 3, 1994 and August 28, 1993, and the related consolidated statements
of earnings, shareholders' equity and cash flows for each of the three fiscal
years in the period ended September 3, 1994, included in this Prospectus, and
included in the Annual Report on Form 10-K of the Company and Amendment No. 1
thereto on Form 10-K/A, incorporated by reference into this Prospectus, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
21
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants........................................................................ 23
Consolidated Balance Sheets as of September 3, 1994 and August 28, 1993.................................. 24
Consolidated Statements of Earnings for Fiscal Years Ended September 3, 1994, August 28, 1993, and August
29, 1992................................................................................................ 25
Consolidated Statements of Shareholders' Equity for Fiscal Years Ended September 3, 1994, August 28,
1993, and August 29, 1992............................................................................... 26
Consolidated Statements of Cash Flows for Fiscal Years Ended September 3, 1994, August 28, 1993, and
August 29, 1992......................................................................................... 27
Notes to Consolidated Financial Statements............................................................... 28
Unaudited Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheet as of June 3, 1995.................................................. 45
Consolidated Condensed Statements of Earnings for the Thirty-Nine Weeks Ended June 3, 1995 and May 28,
1994.................................................................................................... 46
Consolidated Condensed Statements of Cash Flows for the Thirty-Nine Weeks Ended June 3, 1995 and May 28,
1994.................................................................................................... 47
Notes to Unaudited Consolidated Condensed Financial Statements........................................... 48
</TABLE>
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Certified Grocers of California, Ltd.
We have audited the consolidated balance sheets of Certified Grocers of
California, Ltd. and subsidiaries as of September 3, 1994 and August 28, 1993,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended September 3,
1994. 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Certified Grocers of California, Ltd. and subsidiaries as of September 3, 1994
and August 28, 1993, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended September 3, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994. In addition, as
discussed in Note 11 to the financial statements, the Company changed its method
of accounting for postretirement benefits other than pensions.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
November 30, 1994
23
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OMITTED)
SEPTEMBER 3, 1994 AND AUGUST 28, 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Current
Cash and cash equivalents............................................................ $ 7,702 $ 11,411
Accounts and notes receivable........................................................ 96,545 99,973
Inventories.......................................................................... 146,869 148,480
Prepaid expenses..................................................................... 3,810 3,980
---------- ----------
Total current assets........................................................... 254,926 263,844
Properties............................................................................. 86,683 91,884
Investments............................................................................ 20,274 12,604
Notes receivable....................................................................... 23,335 26,055
Other assets........................................................................... 15,878 9,592
---------- ----------
TOTAL ASSETS................................................................. $ 401,096 $ 403,979
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable..................................................................... $ 82,137 $ 84,878
Accrued liabilities.................................................................. 61,428 49,106
Notes payable........................................................................ 2,978 3,132
Patrons' excess deposits and declared patronage dividends............................ 11,541 14,746
---------- ----------
Total current liabilities...................................................... 158,084 151,862
Notes payable, due after one year...................................................... 149,673 158,585
Commitments and contingencies
Patrons' deposits and certificates:
Patrons' required deposits........................................................... 17,589 18,901
Subordinated patronage dividend certificates......................................... 4,444 2,023
Shareholders' equity
Class A Shares....................................................................... 4,704 4,285
Class B Shares ...................................................................... 56,593 57,238
Retained earnings ................................................................... 10,313 11,085
Net unrealized loss on investments................................................... (304)
---------- ----------
Total shareholders' equity..................................................... 71,306 72,608
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 401,096 $ 403,979
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(THOUSANDS OMITTED)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Net sales......................................................... $ 1,873,872 $ 2,007,288 $ 2,377,740
Costs and expenses
Cost of sales................................................... 1,698,930 1,823,592 2,184,700
Distribution, selling and administrative........................ 149,303 153,656 166,657
------------ ------------ ------------
Operating income.................................................. 25,639 30,040 26,383
Interest expense.................................................. (15,405) (15,784) (17,253)
Other expense, net................................................ (1,600) (373) (595)
------------ ------------ ------------
Earnings before patronage dividends, provision (benefit) for
income taxes and cumulative effect of accounting change.......... 8,634 13,883 8,535
Declared patronage dividends...................................... (10,837) (12,880) (12,977)
------------ ------------ ------------
Earnings (loss) before income tax provision (benefit) and
cumulative effect of accounting change........................... (2,203) 1,003 (4,442)
Provision (benefit) for income taxes.............................. 203 530 (794)
------------ ------------ ------------
Earnings (loss) before cumulative effect of accounting change..... (2,406) 473 (3,648)
Cumulative effect of accounting change............................ 2,500
------------ ------------ ------------
Net earnings (loss)............................................... $ 94 $ 473 $ (3,648)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
<TABLE>
<CAPTION>
CLASS A CLASS B NET UNREALIZED
-------------------- -------------------- RETAINED LOSS ON
SHARES AMOUNT SHARES AMOUNT EARNINGS INVESTMENTS
--------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1991...................... 59,700 $ 5,096 400,764 $ 57,304 $ 16,249 $
Class A Shares issued....................... 200 34
Class A Shares redeemed..................... (6,200) (619) (440)
Class B Shares issued....................... 19,987 3,253
Class B Shares redeemed..................... (20,038) (2,748) (674)
Net loss.................................... (3,648)
--------- --------- --------- --------- ---------
Balance, August 29, 1992...................... 53,700 4,511 400,713 57,809 11,487
Class A Shares issued....................... 1,900 309
Class A Shares redeemed..................... (5,900) (535) (424)
Class B Shares issued....................... 13,649 2,232
Class B Shares redeemed..................... (20,036) (2,803) (451)
Net earnings................................ 473
--------- --------- --------- --------- ---------
Balance, August 28, 1993...................... 49,700 4,285 394,326 57,238 11,085
Class A Shares issued....................... 6,000 981
Class A Shares redeemed..................... (6,600) (562) (517)
Class B Shares issued....................... 13,676 2,230
Class B Shares redeemed..................... (19,716) (2,875) (349)
Net earnings................................ 94
Net unrealized loss on investments.......... (304)
--------- --------- --------- --------- --------- -----
Balance, September 3, 1994.................... 49,100 $ 4,704 388,286 $ 56,593 $ 10,313 $ (304)
--------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- -----
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OMITTED)
FOR FISCAL YEARS ENDED SEPTEMBER 3, 1994, AUGUST 28, 1993, AND AUGUST 29, 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(53 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................................................ $ 94 $ 473 $ (3,648)
----------- ----------- -----------
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Cumulative effect of accounting change................................. (2,500)
Facility relocation.................................................... 520
Depreciation and amortization.......................................... 10,680 11,890 11,581
(Gain) loss on disposal of properties.................................. (445) 3 51
Accrued postretirement benefit costs................................... 2,509
Accrued environmental liabilities...................................... 1,100 400
Accrued sublease liability............................................. 1,228
Decrease (increase) in assets:
Accounts and notes receivable........................................ 3,428 26,454 (2,611)
Inventories.......................................................... 1,611 20,480 23,065
Prepaid expenses..................................................... 170 180 1,386
Notes receivable..................................................... 2,720 (1,277) (2,488)
Increase (decrease) in liabilities:
Accounts payable..................................................... (2,741) (13,940) (19,531)
Accrued liabilities.................................................. 3,015 (6,458) 8,265
Patrons' excess deposits and declared patronage dividends............ (3,205) (9,040)
----------- ----------- -----------
Total adjustments ....................................................... 18,090 37,732 10,678
----------- ----------- -----------
Net cash provided by operating activities.................................. 18,184 38,205 7,030
----------- ----------- -----------
Cash flows from investing activities:
Purchase of properties................................................... (5,921) (8,858) (9,369)
Proceeds from sales of properties........................................ 1,295 1,836 1,408
(Increase) decrease in other assets...................................... (244) 43 (99)
Investment in preferred stocks, net...................................... (2,552) (4,000)
Investment in long-term bonds, net....................................... (3,102) (2,312) (1,730)
Investment in common stocks.............................................. (2,320)
Purchase of intangible assets............................................ (1,540)
----------- ----------- -----------
Net cash utilized by investing activities.................................. (12,844) (10,831) (13,790)
----------- ----------- -----------
Cash flows from financing activities:
Additions to long-term notes payable..................................... 331 83,364
Reduction of long-term notes payable..................................... (5,934) (17,360) (61,445)
Additions to short-term notes payable.................................... 38
Reduction of short-term notes payable.................................... (3,132) (3,905) (15,846)
Decrease in members' required deposits................................... (1,312) (5,664) (222)
Issuance of subordinated patronage dividend certificates................. 2,421 2,023
Repurchase of shares from members........................................ (4,303) (4,213) (4,481)
Issuance of shares to members............................................ 3,211 2,541 3,287
----------- ----------- -----------
Net cash (utilized) provided by financing activities....................... (9,049) (26,209) 4,657
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents....................... (3,709) 1,165 (2,103)
Cash and cash equivalents at beginning of year ............................ 11,411 10,246 12,349
----------- ----------- -----------
Cash and cash equivalents at end of year................................... $ 7,702 $ 11,411 $ 10,246
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................................. $ 15,232 $ 15,499 $ 17,722
Income taxes ............................................................ 70 1,155 129
----------- ----------- -----------
$ 15,302 $ 16,654 $ 17,851
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Certified
Grocers of California, Ltd. and all of its subsidiaries ("Certified" or the
"Company"). Intercompany transactions and accounts with subsidiaries have been
eliminated.
NATURE OF BUSINESS:
The Company is a cooperative organization engaged primarily in the
distribution of food products and related nonfood items to retail establishments
owned by shareholders of the Company. All establishments with which directors
are affiliated, as members of the Company, purchase groceries, related products
and store equipment from the Company in the ordinary course of business at
prices and on terms available to members generally. In accordance with the
Company's various member services, certain directors (or their firms) receive
benefits for which all members are eligible.
The Company's fiscal year ends on the Saturday nearest to August 31.
RECLASSIFICATIONS:
Certain reclassifications have been made to prior years' financial
statements to present them on a basis comparable with the current period's
presentation.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK:
The Company is required by Statement of Financial Accounting Standards No.
105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk" ("SFAS No. 105"), to disclose significant concentrations of credit risk.
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by SFAS No. 105, consist primarily of trade receivables
and lease guarantees for certain member-patrons. These concentrations of credit
risk may be affected by changes in economic or other conditions affecting the
Western United States, particularly California. However, management believes
that receivables are well diversified and the allowances for doubtful accounts
are sufficient to absorb estimated losses. Obligations of member-patrons to the
Company, including lease guarantees, are generally supported by the Company's
right of offset, upon default, against the member-patrons' cash deposits,
shareholdings and Patronage Certificates, as well as personal guarantees and
reimbursement and indemnification agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments ("SFAS No. 107"), requires disclosure of fair
value information about most financial instruments, both on and off the balance
sheet, if it is practicable to estimate. SFAS No. 107 excludes certain financial
instruments, such as certain insurance contracts, and all non-financial
instruments from its disclosure requirements. A financial instrument is defined
as a contractual obligation that ultimately ends with the delivery of cash or an
ownership interest in an entity. Disclosures regarding the fair value of
financial instruments have been derived using external market sources, estimates
using present value or other valuation techniques.
28
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the carrying values and the estimated fair
values as of September 3, 1994 and August 28, 1993, of the Company's financial
instruments reportable pursuant to SFAS No. 107:
<TABLE>
<CAPTION>
1994 1993
------------------------------ ------------------------------
ESTIMATED ESTIMATED
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.................... $ 7,702,000 $ 7,702,000 $ 11,411,000 $ 11,411,000
Investments.................................. 20,274,000 20,274,000 12,604,000 12,903,000
Notes receivable............................. 23,335,000 23,335,000 26,055,000 26,055,000
Liabilities:
Notes payable and Notes payable, due after
one year.................................... $ 152,651,000 $ 148,637,000 $ 161,717,000 $ 155,628,000
Patrons' excess deposits and declared
patronage dividends......................... 11,541,000 11,541,000 14,746,000 14,746,000
Patrons' required deposits................... 17,589,000 17,589,000 18,901,000 18,901,000
Subordinated patronage dividend
certificates................................ 4,444,000 4,444,000 2,023,000 2,023,000
</TABLE>
The methods and assumptions used to estimate the fair values of the
Company's financial instruments at September 3, 1994 and August 28, 1993 were
based on estimates of market conditions and risks existing at that time. These
values merely represent an approximation of possible value and may never
actually be realized.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short
maturity of these instruments.
INVESTMENTS AND NOTES RECEIVABLE
The fair values for Investments and Notes receivable are based
primarily on quoted market prices for those or similar instruments.
NOTES PAYABLE AND NOTES PAYABLE DUE AFTER ONE YEAR
The fair values for Notes payable and Notes payable, due after one
year are based primarily on rates currently available to the Company for
debt with similar terms and remaining maturities.
PATRONS' EXCESS DEPOSITS AND DECLARED PATRONAGE DIVIDENDS, PATRONS' REQUIRED
DEPOSITS, AND SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES
The carrying amount approximates fair value due primarily to the
limitations imposed on deposit fund redemptions as provided in the
subordinating provisions to which they are subject.
INVENTORIES:
Inventories are valued at the lower of cost (first-in, first-out) or market.
DEPRECIATION:
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which approximate 40 years for buildings and 10 years
for equipment. Expenditures for replacements or major improvements are
capitalized; expenditures for normal maintenance and repairs are charged to
operations as incurred. Upon sale or retirement of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or loss is
included in operations.
29
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
POSTRETIREMENT BENEFITS:
Effective August 29, 1993, the Company implemented Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). This statement requires that the cost of
these benefits, which are primarily for health care and life insurance, be
recognized in the financial statements throughout the employees' active working
careers. The Company's previous practice was to expense these costs on a cash
basis, principally after retirement. The transition obligation is being
amortized on a straight-line basis over twenty years as allowed under SFAS No.
106. The incremental effect on the Company's results of operations for fiscal
1994 is approximately $2.5 million which has been accrued as a non-cash expense.
Management is considering benefit plan changes that will reduce the impact of
SFAS No. 106. Alternatives under consideration include plan redesign for such
items as cost sharing, modification of eligibility requirements, and limitation
of benefit payouts.
POSTEMPLOYMENT BENEFITS:
The FASB issued Statement No. 112 "Employers' Accounting for Postemployment
Benefits", which is effective for fiscal years beginning after December 15,
1993. Accordingly, the Company will conform to the new requirements in fiscal
1995. The new accounting standard requires an accrual rather than a pay-as-you-
go basis of recognizing expenses for postemployment benefits (provided by an
employer to former or inactive employees after termination of employment but
before retirement). Management estimates the effect on its results of operations
in fiscal 1995 will approximate $1.5 million which it will accrue in that year
as a noncash expense.
ENVIRONMENTAL COSTS:
The Company expenses, on a current basis, certain recurring costs incurred
in complying with environmental regulations and remediating environmental
pollution. The Company also reserves for certain non-recurring future costs
required to remediate environmental pollution for which the Company is liable
whenever, by diligent legal and technical investigation, the scope or extent of
pollution has been determined, the Company's contribution to the pollution has
been ascertained, remedial measures have been specifically identified as
practical and viable, and the cost of remediation and the Company's
proportionate share can be reasonably estimated.
INCOME TAXES:
Effective August 29, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires the use of the liability method of accounting for deferred income
taxes; prior periods have not been restated. The cumulative effect of this
change in accounting principle increased the Company's net earnings by $2.5
million.
INVESTMENTS:
Effective September 3, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"); prior periods have not been restated. The
cumulative effect of such adoption amounted to an unrealized loss of $304,000,
net of deferred tax, and has been reported separately in the Consolidated
Statements of Shareholders' Equity. There was no effect on the Consolidated
Statements of Earnings. The gross amount of $461,000 reflects a non-cash
investing activity. Investment income is recorded when earned. The market value
of investments was supplied by Bank of America. These market values are
considered fair value.
Prior to the implementation of SFAS No. 115, investments in fixed maturities
which might, under certain circumstances, be sold prior to their dates of
maturity were classified as investments "held for sale" and such portfolio was
recorded at the lower of cost or market value. Unrealized losses, net of
deferred taxes, on such investments, if any, were recorded as a charge directly
to shareholders' equity. In addition, the
30
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company identified certain investments in fixed maturities held for trading
purposes. Such investments were recorded at market value and unrealized gains or
losses on such investments, net of deferred taxes, were credited or charged
directly to shareholders' equity.
The cost of securities sold is determined by the "identified certificate"
method.
2. PROPERTIES:
Properties at September 3, 1994, and August 28, 1993 stated at cost, are
comprised of:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Land................................................................... $ 11,488,000 $ 11,488,000
Buildings and leasehold improvements................................... 71,854,000 70,928,000
Equipment.............................................................. 64,637,000 63,388,000
Equipment under capital leases......................................... 10,345,000 11,547,000
-------------- --------------
158,324,000 157,351,000
Less, accumulated depreciation and
amortization.......................................................... 71,641,000 65,467,000
-------------- --------------
$ 86,683,000 $ 91,884,000
-------------- --------------
-------------- --------------
</TABLE>
3. INVESTMENTS:
The amortized cost and fair values of investments available-for-sale were as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 3, 1994 COSTS GAINS LOSSES VALUE
- ------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies..... $ 10,102,000 $ 10,000 $ 415,000 $ 9,697,000
Corporate securities........................... 306,000 8,000 298,000
Mortgage backed securities..................... 1,455,000 1,000 49,000 1,407,000
------------- ----------- ----------- -------------
Sub-total.................................... 11,863,000 11,000 472,000 11,402,000
Redeemable preferred stock....................... 6,552,000 6,552,000
Equity securities................................ 2,320,000 2,320,000
------------- ----------- ----------- -------------
$ 20,735,000 $ 11,000 $ 472,000 $ 20,274,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AUGUST 28, 1993 COST GAINS LOSSES VALUE
- ------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed Maturities:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies..... $ 7,530,000 $ 251,000 $ 7,781,000
Corporate securities........................... 597,000 14,000 611,000
Mortgage backed securities..................... 477,000 34,000 511,000
------------- ----------- ----------- -------------
Sub-total.................................... 8,604,000 299,000 8,903,000
Redeemable preferred stock....................... 4,000,000 4,000,000
------------- ----------- ----------- -------------
$ 12,604,000 $ 299,000 $ $ 12,903,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
31
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fixed maturity investments as of September 3, 1994 are due as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
SEPTEMBER 3, 1994 COST VALUE
- ------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Fixed Maturities Available for Sale:
Due in one year or less................................................ $ 852,000 $ 828,000
Due after one year through five years.................................. 7,292,000 7,042,000
Due after five years through ten years................................. 2,790,000 2,632,000
Due after ten years.................................................... 929,000 900,000
------------- -------------
$ 11,863,000 $ 11,402,000
------------- -------------
------------- -------------
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are shown as being due at
their average expected maturity dates.
Investment income is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Fixed Maturities.............................................. $ 1,094,000 $ 1,267,000 $ 1,406,000
Preferred Stock............................................... 461,000 311,000
Cash and cash equivalents..................................... 95,000 122,000 59,000
------------ ------------ ------------
1,630,000 1,700,000 1,465,000
Less: investment expenses..................................... (110,000) (64,000) (69,000)
------------ ------------ ------------
Net investment income..................................... $ 1,520,000 $ 1,636,000 $ 1,396,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Investments carried at $20,150,000 and $17,940,000 at September 3, 1994 and
August 28, 1993, respectively, (market value $20,150,000 and $18,592,000
respectively) are on deposit with regulatory authorities in compliance with
insurance company regulations.
32
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE:
Notes payable at September 3, 1994 and August 28, 1993 are summarized as
follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Notes payable to banks under revolving credit agreements, expiring
March 17, 1997, interest rate at prime (7.75% and 6.0% at September 3,
1994 and August 28, 1993, respectively) plus 1/2% or Eurodollar (4.81%
and 3.37% at September 3, 1994 and August 28, 1993, respectively) plus
1 1/2%................................................................ $ 59,352,000 $ 64,022,000
Note payable to banks under revolving credit agreements, expiring March
17, 1997, interest rate at prime (7.75% at September 3, 1994) plus
1/2% or Eurodollar (4.81% at September 3, 1994) plus 1 1/2%........... 18,000,000
Subordinated note payable to a life insurance company, due April 1,
1999, interest rate of 10.8%, $8,750,000 due April 1 each year
beginning in 1996..................................................... 35,000,000 35,000,000
Senior note payable to a life insurance company, unsecured, due January
15, 2005, interest rate of 9.55%, $62,500 due monthly each year
beginning in 1992 through 2000 and then $220,833 monthly until
maturity.............................................................. 17,250,000 18,000,000
Note payable to bank under revolving credit agreement, refinanced on
April 25, 1994 interest rate at prime (6% at August 28, 1993) plus
1/2% or LIBOR (3.37% at August 28, 1993) plus 1 1/2%.................. 19,000,000
Notes payable, collateralized by land and warehouses, payable monthly,
approximately $60,000 plus interest at 9.88%, due February 1, 2006.... 15,211,000 15,889,000
Obligations under capital leases....................................... 7,838,000 9,806,000
-------------- --------------
152,651,000 161,717,000
Less, portion due within one year...................................... (2,978,000) (3,132,000)
-------------- --------------
$ 149,673,000 $ 158,585,000
-------------- --------------
-------------- --------------
</TABLE>
Maturities of long-term debt as of September 3, 1994 are:
<TABLE>
<S> <C>
1995................................................................. $ 2,978,000
1996................................................................. 29,577,000
1997................................................................. 70,811,000
1998................................................................. 11,337,000
1999................................................................. 11,353,000
Beyond 1999.......................................................... 26,595,000
------------
$152,651,000
------------
------------
</TABLE>
Weighted average interest rates on short-term borrowings for fiscal year
ends 1994, 1993, and 1992 approximated 9.71%, 9.14%, and 7.29%, respectively.
Weighted average interest rates during each fiscal year, calculated on a
quarterly basis, approximated respective year end average rates. The average
amounts of short-term borrowings outstanding during fiscal years 1994, 1993, and
1992 were $3,147,000, $3,206,000, and $42,192,000, respectively. Short-term
borrowings amounted to as much as $3,158,000 in 1994, $3,616,000 in 1993, and
$118,141,000 in 1992.
33
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has credit agreements with certain banks that provide for
committed lines of credit. These credit lines are available for general working
capital, acquisitions, and maturing long-term debt. At the end of fiscal year
1994, the Company had $160 million in committed lines of credit, of which $82.6
million was not utilized. The unused portion of these credit lines are subject
to annual commitment fees of 0.375%.
Overall borrowings are limited by various financial covenants pertaining to
working capital, debt-to-equity relationships, tangible net worth, earnings, and
similar provisions. In addition, on the required portion of member deposits, no
payment may be made if there exists a default with respect to any senior
indebtedness, as defined, until such default has been cured or waived or until
such senior indebtedness has been paid in full.
A credit agreement of $135 million is collateralized by accounts receivable,
inventory and certain other assets, excluding equipment and real property. The
maturity date is March 17, 1997, but is subject to extension by the mutual
consent of the Company and the banks. The agreement provides for Eurodollar
basis or prime basis borrowings at the Company's option.
A credit agreement for $25 million is collateralized by Grocers Capital
Company's ("GCC") eligible receivables. The maturity date is March 17, 1997, but
is subject to extension by the mutual consent of the Company and the banks. The
agreement provides for prime basis or Eurodollar basis borrowings at the
Company's option.
As a result of maturing long-term debt (a non-cash financing activity), the
Company reclassified from long to short-term debt $2,978,000, $3,088,000 and
$3,115,000 in fiscal 1994, 1993 and 1992, respectively.
The fair values of the Company's notes payable, excluding obligations under
capital leases, approximated $141 million at September 3, 1994. Rates currently
available to the Company for debt with similar terms and remaining maturities
are used to estimate the fair values of notes payable.
5. LEASES:
The Company has entered into both operating and capital leases for certain
warehouse, transportation and data processing computer equipment. The Company
has also entered into operating leases for approximately 33 retail supermarkets.
The majority of these locations are subleased to various member-patrons of the
Company. The operating leases and subleases are noncancellable, renewable,
include purchase options in certain instances, and require payment of taxes,
insurance and maintenance. In addition, the Company is contingently liable with
respect to lease guarantees for certain member-patrons. The total commitment for
such lease guarantees approximates $30.9 million to $32.9 million. The Company's
security respecting these lease guarantees is discussed in Note 1 under
"Concentration of Credit Risk."
Total rent expense was $22,707,000, $23,326,000, and $22,082,000 in 1994,
1993, and 1992 respectively. Sublease rental income was $4,713,000, $4,657,000,
and $2,554,000 in 1994, 1993, and 1992 respectively.
34
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum rentals (exclusive of real estate taxes, insurance, and other
expenses payable under the terms of the leases) as of September 3, 1994, are
summarized as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES OPERATING LEASES
------------- ----------------
<S> <C> <C>
1995........................................................ $ 2,062,000 $ 18,636,000
1996........................................................ 1,772,000 16,510,000
1997........................................................ 1,119,000 13,679,000
1998........................................................ 982,000 9,168,000
1999........................................................ 852,000 6,289,000
Beyond 1999................................................. 1,192,000 22,226,000
------------- ----------------
Total minimum lease payments.............................. 7,979,000 $ 86,508,000
----------------
----------------
Less, amount representing interest.......................... (141,000)
-------------
Present value of net minimum lease payments................. 7,838,000
Less, current portion....................................... (1,479,000)
-------------
Total long-term portion................................... $ 6,359,000
-------------
-------------
</TABLE>
Minimum sublease rentals (exclusive of real estate taxes, insurance and
other expenses payable under the terms of the leases) as of September 3, 1994,
are summarized as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-------------
<S> <C>
1995........................................................................... $ 4,645,000
1996........................................................................... 4,548,000
1997........................................................................... 4,439,000
1998........................................................................... 2,309,000
1999........................................................................... 1,719,000
Beyond 1999.................................................................... 11,474,000
-------------
$ 29,134,000
-------------
-------------
</TABLE>
6. ACCRUED LIABILITIES:
The Company's insurance subsidiary maintains restricted certificates of
deposit and marketable securities from which the ceding companies can draw to
settle claims or certain other balances due ($9,827,000 and $8,732,000 at
September 3, 1994 and August 28, 1993, respectively). Accordingly, the loss
reserves and balances payable to the ceding companies which pertain to the
restricted certificates of deposit, marketable investments, and related
reinsurance balances receivable from the ceding companies have been offset in
the Company's consolidated balance sheets.
35
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES:
The significant components of income tax expense (benefit) attributable to
continuing operations are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ---------- -----------
<S> <C> <C> <C>
Federal:
Current tax expense................................. $ 2,049,000 $ 396,000 $
Utilization of net operating loss
carryforwards...................................... (800,000)
Deferred tax (benefit) expense...................... (1,156,000) 58,000 (705,000)
------------- ---------- -----------
93,000 454,000 (705,000)
------------- ---------- -----------
State:
Current tax expense................................. 377,000 57,000
Deferred tax benefit................................ (267,000) 19,000 (89,000)
------------- ---------- -----------
110,000 76,000 (89,000)
------------- ---------- -----------
$ 203,000 $ 530,000 $ (794,000)
------------- ---------- -----------
------------- ---------- -----------
</TABLE>
The Company's income taxes currently payable in 1994 and 1993 are in part
due to alternative minimum tax.
Deferred income taxes for temporary differences associated with the
patronage earnings have not been recorded because the Company allocates its
patronage income on an annual basis to its members. Under federal and state
income tax regulations applicable to cooperative organizations, patronage
dividends are deductible in computing taxable income.
36
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of nonpatronage temporary differences and other items that give
rise to deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
SEPTEMBER 3, AUGUST 29,
1994 1993
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable..................................................... $ 895,000 $ 794,000
Accrued vacation/incentives............................................. 299,000 275,000
Postretirement benefits other than pension.............................. 505,000
Insurance reserves...................................................... 1,789,000 1,606,000
Closed store reserves................................................... 632,000 515,000
Lease reserve........................................................... 528,000
Other................................................................... 638,000 134,000
Net operating loss carryforwards........................................ 571,000 973,000
Alternative minimum tax credits......................................... 1,948,000 1,342,000
Tax credits............................................................. 277,000 241,000
------------- -------------
Total gross deferred tax assets....................................... 8,082,000 5,880,000
Less valuation allowance................................................ (1,400,000) (1,000,000)
------------- -------------
Net deferred tax assets............................................... $ 6,682,000 $ 4,880,000
------------- -------------
------------- -------------
Deferred tax liabilities:
Property, plant and equipment........................................... $ 2,029,000 $ 1,787,000
Deferred state taxes.................................................... 273,000
Other................................................................... 195,000 320,000
------------- -------------
Total gross deferred tax liabilities.................................. $ 2,497,000 $ 2,107,000
------------- -------------
------------- -------------
</TABLE>
Net deferred tax assets are included in Other assets and total gross deferred
tax liabilities are included in Accrued liabilities on the Company's
Consolidated Balance Sheet as of September 3, 1994. The net change in valuation
allowance for deferred tax assets was an increase of $400,000 due to the
uncertainty of the realization of the benefit of loss carryforwards and certain
tax credits.
The reconciliation of the statutory federal income tax rate and the
Company's effective tax rate is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax (benefit) rate........................... (34.0)% 34.0% (34.0)%
State income taxes, net of federal income tax benefit....... 3.4 8.8 (2.0)
Loss on insurance subsidiary not recognized for federal
taxes...................................................... 6.7 16.1
Alternative minimum tax..................................... 17.5
Increase in valuation reserve............................... 17.8
Other, net.................................................. 4.9 3.3 2.0
--------- --------- ---------
Effective tax rate (benefit)................................ 9.6% 52.8% (17.9)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
At September 3, 1994, the Company has alternative minimum tax credit
carryforwards of approximately $1.9 million available to offset future regular
income taxes payable to the extent such regular taxes exceed alternative minimum
taxes payable.
8. SUBORDINATED PATRONAGE DIVIDEND CERTIFICATES:
In December 1992, the Company's Board of Directors (the "Board") authorized
a patronage dividend retention program to be effective commencing with the
dividends payable for fiscal 1993, whereby Certified
37
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
retains a portion of the patronage dividends and issues Patronage Certificates
(the "Certificates") evidencing its indebtedness respecting the retained
amounts. In addition, the program provides for the issuance of the Certificates
to patrons on an annual basis in a portion and at an interest rate to be
determined annually. Certificates for each year are unsecured general
obligations of Certified, are subordinated to certain other Certified
indebtedness, and are nontransferable without the consent of Certified. The
certificates are subject to redemption, at any time in whole and from time to
time in part, without premium, at the option of Certified.
For fiscal 1993, the portion of the patronage dividend retained and
evidenced by the issuance of patronage certificates was 20% of the fourth
quarter dividend for dairy products and 40% of the fiscal year's dividend for
non-dairy products. However, as to any particular patron, if such amount was
less than $500, then no retention occurred and a Patronage Certificate was not
issued. The initial series issued for fiscal 1993 was for a seven year term,
maturing on December 15, 2000, and carried a 7% annual interest rate, payable in
cash. The Board of Directors approved the patronage dividend program for fiscal
year 1994. The retention will be 20% of the quarterly dairy patronage dividends
and 40% of the fiscal year's dividend for non-dairy products and will have a
maturity date of December 15, 2001 and carry an 8% annual interest rate, payable
in cash. The Company expects to continue to distribute patronage dividends in
the future, although there can be no assurance of the amounts of such dividends.
9. CAPITAL SHARES:
The Company requires that member-patrons hold Class B Shares in an amount
equal to the lesser of the amount of the member-patron's required deposit or
twice the member-patron's average weekly purchases (the "Class B Share
requirement"). Additionally, each Class B Share held by a member-patron is
valued at the book value of Certified's outstanding shares as of the close of
the fiscal year last ended prior to the issuance of such Class B Share.
After payment of at least 20% of the patronage dividend in cash and the
issuance of the Patronage Certificates, Class B Shares are issued as a portion
of each member-patron's patronage dividend and, to the extent necessary to
fulfill the member-patron's Class B Share requirement, by crediting the
member-patron's cash deposit account for the issuance values of such shares.
All shares of a terminated member will be redeemed by the Company (subject
to certain legal limitations, provisions of the Company's redemption policy, and
provisions of certain of the Company's committed lines of credit) at a price
equal to the greater of the book value of the shares as of the close of the
fiscal year ended prior to the redemption, less all amounts that may be owing by
the member to the Company, or one cent per share. All shares are pledged to the
Company to secure the Company's redemption rights and as collateral for any debt
obligations to the Company.
The Company is not obligated in any fiscal year to redeem more than 5% of
the sum of the number of Class B Shares outstanding as of the close of the
preceding fiscal year and the number of Class B Shares issued as a part of the
patronage dividend for the preceding year (the "5% limit"). Thus, shares
tendered for redemption in a given fiscal year may not necessarily be redeemed
in that fiscal year. The 5% limit for fiscal year 1995 will allow for redemption
of 19,414 shares. Of the 20,942 shares tendered in fiscal year 1991, 48,644
shares tendered in fiscal year 1992, 36,998 shares tendered in fiscal year 1993,
40,824 shares tendered in fiscal year 1994 and 3,197 tendered in fiscal year
1995 and presently approved for redemption, 20,038 shares were redeemed in
fiscal year 1992, 20,036 shares were redeemed in fiscal year 1993, 19,716 shares
were redeemed in fiscal year 1994 and 19,414 shares will be redeemed in fiscal
year 1995 due to the 5% limit having been reached. Because the 5% limit for
fiscal year 1995 has been met, the remaining 71,401 shares (or approximately
$11.6 million, using fiscal 1994 year end book values) not redeemed in fiscal
year 1995 as well as the redemption of any additional Class B Shares tendered
during fiscal 1995 will require the prior approval of the Company's Board of
Directors. At present, such approval is not expected to be given.
38
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accordingly, since the Company's fiscal 1995 5% share redemption limitation has
been met, future redemptions for the 1995 fiscal year will be postponed. The
total of Class B Shares tendered and awaiting redemption has caused the 5% limit
for fiscal 1995, and will cause the limits for fiscal 1996 through 1998 to be
met, thereby delaying the redemption of Class B Shares in excess of such limit.
The redemptions required for fiscal years 1996 through 1998 approximate $9.2
million to $9.5 million based on 1994 year end book values and estimated share
issuances for those years. Cash flow to fund redemption of shares is provided
from operations, patron deposits, Patronage Certificates, current shareholdings
and borrowings under the Company's credit lines. Any additional large tenderings
of Class B Shares could also potentially cause future year 5% limitations to be
exceeded. Therefore, the Company's ability to redeem additional shares in excess
of the 5% limit without prior approval of the Board may also be limited.
There are 500,000 authorized Class A Shares, of which 49,100 and 49,700 were
outstanding at September 3, 1994 and August 28, 1993, respectively. There are
2,000,000 authorized Class B Shares, of which 388,286 and 394,326 were
outstanding at September 3, 1994 and August 28, 1993, respectively. Once
redeemed, such shares are not available for reissuance to member-patrons.
Each member-patron of the Company is required to hold one hundred Class A
Shares. No member-patron may hold more than one hundred Class A Shares. However,
it is possible that a member may have an interest in another member, or that a
person may have an interest in more than one member, and thus have an interest
in more than one hundred Class A Shares. The Board of Directors is authorized to
accept member-patrons without the issuance of Class A Shares when the Board of
Directors determines that such action is justified by reason of the fact that
the ownership of the patron is the same, or sufficiently the same, as that of
another member-patron holding one hundred Class A Shares. The price for such
shares will be the book value per share of outstanding shares at the close of
the fiscal year last ended.
There are also 19 authorized Class C Shares of which 17 are outstanding.
These shares are valued at $10 per share, and ownership is limited to members of
the Board of Directors with no rights as to dividends or other distributions.
10. BENEFIT PLANS:
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its nonunion employees. The benefits under the plan
generally are based on the employee's years of service and average earnings for
the three highest consecutive calendar years of compensation during the ten
years immediately preceding retirement. The Company makes contributions to the
pension plan in amounts which are at least sufficient to meet the minimum
funding requirements of applicable laws and regulations but no more than amounts
deductible for federal income tax purposes. Benefits under the plan are included
in a trust providing benefits through annuity contracts, and part of the plan
assets are held by a trustee.
39
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The funded status of the plan and the amounts recognized in the balance
sheet are:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits......................................................... $ 24,518,828 $ 22,025,105 $ 21,322,403
Effect of assumed future increase in compensation
levels........................................................... 10,380,043 10,025,238 10,327,360
------------- ------------- -------------
Projected benefit obligation for services rendered to
date............................................................. 34,898,871 32,050,343 31,649,763
------------- ------------- -------------
Plan assets at fair value........................................... 31,537,760 31,184,804 29,059,148
------------- ------------- -------------
Plan assets in deficiency of projected benefit obligations.......... 3,361,111 865,539 2,590,615
Unrecognized net gain............................................... (6,091,920) (3,544,459) (5,464,059)
Unrecognized transition asset....................................... 2,147,998 2,457,063 2,766,127
Unrecognized prior service cost..................................... 380,517 (99,259) (109,151)
------------- ------------- -------------
Prepaid pension costs at June 1..................................... (202,294) (321,116) (216,468)
------------- ------------- -------------
Fourth quarter contribution......................................... (320,645) (381,592) (236,516)
Fourth quarter net periodic pension cost............................ 228,948 337,730 263,455
------------- ------------- -------------
Prepaid pension cost at fiscal year end............................. $ (293,991) $ (364,978) $ (189,529)
------------- ------------- -------------
------------- ------------- -------------
Net pension cost included the following components:
Service cost -- benefits earned during the period................. $ 1,398,109 $ 1,384,636 $ 1,447,135
Interest cost on projected benefit obligation..................... 2,649,854 2,424,520 2,405,245
Actual return on plan assets...................................... (2,660,602) (2,627,861) (2,419,035)
Net amortization and deferral..................................... (83,873) (265,502) (82,426)
------------- ------------- -------------
Net periodic pension cost......................................... $ 1,303,488 $ 915,793 $ 1,350,919
------------- ------------- -------------
------------- ------------- -------------
Major assumptions:
Assumed discount rate............................................. 7.50% 7.50% 7.50%
Assumed rate of future compensation increases..................... 5.50% 5.50% 5.50%
Expected rate of return on plan assets............................ 8.50% 8.50% 8.50%
</TABLE>
The method used to compute the vested benefit obligation is the actuarial
present value of the vested benefits to which the employee is entitled if the
employee separates immediately. The vested benefit obligation was $24,029,411,
$21,441,766, and $20,751,462 in 1994, 1993, and 1992, respectively.
The Company also made contributions of $4,820,000, $5,155,000, and
$5,433,000 in 1994, 1993, and 1992, respectively to collectively bargained,
multiemployer defined benefit pension plans in accordance with the provisions of
negotiated labor contracts. Information from the plans' administrators is not
available to permit the Company to determine its proportionate share of
termination liability, if any.
The Company has an Employees' Sheltered Savings Plan ("SSP"), which is a
defined contribution plan, adopted pursuant to Section 401(k) of the Internal
Revenue Code for its nonunion employees. The Company matches each dollar
deferred up to 4% of compensation and, at its discretion, matches 40% of amounts
deferred between 4% and 8%. At the end of each fiscal year, the Company also
contributes an amount equal to 2% of the compensation of those participants
employed at that date. The Company contributed approximately $2,200,000,
$2,200,000, and $2,300,000 in 1994, 1993, and 1992 respectively.
Also, the Company has an Employee Savings Plan ("ESP"), which is a defined
contribution plan, subject to the provisions of the Employee Retirement Income
Security Act of 1974, for all union and
40
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
nonunion employees hired prior to March 1, 1983. The Company's contribution to
the ESP in any fiscal year is based on net earnings as a percentage of total
sales. In the event net earnings are less than 1.5% of total sales, no
contribution is required. All corporate (nonunion) employees who had a previous
balance in the ESP Plan had their balances transferred to the SSP Plan effective
first quarter of fiscal 1992. No expense was incurred in fiscal years 1994, 1993
and 1992.
11. POSTRETIREMENT BENEFIT PLAN OTHER THAN PENSIONS:
The Company sponsors four postretirement benefit plans that cover both
nonunion and union employees. Nonunion employees are eligible for a plan
providing medical benefits and a plan providing life insurance benefits. Both
nonunion and union employees have separate plans providing a lump sum payout for
unused days in the sick leave bank. The postretirement health care plan is
contributory for nonunion employees retiring after January 1, 1990, with the
retiree contributions adjusted annually; the life insurance plan and the sick
leave payout plans are noncontributory.
The plans are unfunded. The amounts recognized in the balance sheet are:
<TABLE>
<CAPTION>
1994
--------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................... $ 11,496,106
Fully eligible active plan participants..................................... 4,621,853
Other active plan participants.............................................. 9,116,878
--------------
Accumulated postretirement benefit obligation................................. 25,234,837
Unrecognized transition obligation............................................ (21,347,603)
Unrecognized prior service cost...............................................
Unrecognized net loss......................................................... (2,013,501)
--------------
Accrued postretirement benefit cost at June 1................................. 1,873,733
Fourth quarter contributions.................................................. (293,640)
Fourth quarter net periodic postretirement benefit cost....................... 928,508
--------------
Accrued postretirement benefit cost........................................... $ 2,508,601
--------------
--------------
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1994
------------
<S> <C>
Service cost -- benefits attributed to service during the period................ $ 653,927
Interest cost on accumulated postretirement benefit obligation.................. 1,915,446
Amortization of transition obligation over 20 years............................. 1,123,558
Net amortization and deferral................................................... 21,097
------------
Net periodic postretirement benefit cost........................................ $ 3,714,028
------------
------------
</TABLE>
For measurement purposes, a 10 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for fiscal year 1995;
the rate was assumed to decrease gradually to 6 percent in fiscal 2003 and
remain at the level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of September 3,
1994 by $3,522,273 and the aggregate benefit for the year then ended by
$464,431.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8 percent.
The Company's union employees participate in a multiemployer plan that
provides health care benefits. Amounts charged to postretirement benefit cost
and contributed to the plan totaled $1.3 million in fiscal year 1994.
41
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to the adoption of SFAS No. 106, the Company recognized the cost of
providing those benefits under the insurance agreement by expensing the claims
and administrative fees when paid, which for active and retired employees
totalled $5,890,000 in 1993, and $6,660,000 in 1992. The portion of the cost of
providing those benefits for 164 retirees in fiscal 1993 and 166 retirees in
fiscal 1992 was approximately $1.2 million and $0.9 million in fiscal years 1993
and 1992, respectively.
12. CONTINGENCIES:
ENVIRONMENTAL MATTERS. The Company, together with others, was notified by
the Environmental Protection Agency ("EPA") that it was a potentially
responsible party ("PRP") for the disposal of hazardous substances during the
1970s and early 1980s at Operating Industries, Inc. Superfund Site in Monterey
Park, California ("OII Site"). The Company has not disposed of any materials at
the site since and believes its current disposal policies to be in accordance
with federal, state and local governmental laws and regulations. Clean up of
this site will occur in five phases and could entail estimated total clean up
costs of $650 million to $800 million.
The Company appealed the initial findings of the EPA on August 16, 1993
concerning the quantity of disposed waste allocated to the Company. Management
recorded an initial liability of $400,000 for fiscal 1993. The initial liability
was based on estimated cleanup costs of $2 per gallon on approximately 200,000
gallons disposed at the site. In July 1994, the EPA reassessed the Company's
allocation as approximately $380,000, pertaining to its portion of the cost of
cleanup of the first three phases of the five-phase cleanup process.
The EPA also informed the Company of phases 4 and 5, which include final
remedy and ground water treatment, and a 30 year post-cleanup site control and
monitoring. These two phases, with estimated cost to the Company of
approximately $1.1 million, are fully reserved in the financial statements. As
of September 3, 1994, the total reserve established in respect to environmental
liabilities is $1.5 million. The Company is pursuing recovery of a portion of
this amount from its insurance carriers. However, due to the uncertainty of
success, no recovery amount has been recognized.
Because of the uncertainties associated with environmental assessment and
remediation activities, future expenses to remediate the currently identified
site could be higher than the accrued liability. Although it is difficult to
estimate the liability of the Company related to these environmental matters,
management believes that these matters will not have a materially adverse effect
on the Company's financial position or consolidated statement of earnings.
13. RELATED PARTY TRANSACTIONS:
A number of companies with which directors are associated have received
loans from the Company through its regular member loan program and/or obtained
lease guarantees or subleases for certain store locations. In consideration of
lease guarantees and subleases, the Company receives a monthly fee equal to 5%
of the monthly rent under the leases and subleases. Obligations of
member-patrons to the Company, including lease guarantees, are generally
supported by the Company's right of offset, upon default, against the
member-patrons' cash deposits, shareholdings and Patronage Certificates, as well
as personal guarantees and reimbursement and indemnification agreements.
Management believes all such related party transactions are on terms no more
favorable than those which would be available to other similarly sized member-
patrons.
During fiscal year 1993, the Company leased certain market premises located
in Sacramento, California, and in turn subleased the premises to SavMax Foods,
Inc. ("SavMax"), of which director Michael A. Webb is the President and a
Shareholder. The sublease to SavMax provides for a term of twenty years, without
options to extend, although SavMax has the option to acquire the Company's
interest under its lease on the condition that the Company is released from all
further liability thereunder. The premises consist of approximately 50,000
square feet and annual base rent under the sublease is at the following per
square foot
42
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rates: $8.00 during years 1 and 2; $8.40 during years 3 through 5; $8.82 during
years 6 through 10; $9.26 during years 11 through 15; and, $9.72 during years 16
through 20. In addition, the Company receives monthly an additional amount equal
to 5% of the base monthly rent. Upon default by SavMax, the Company has the
right to retake possession of the premises under the sublease. In the event of a
default by SavMax under the sublease, the Company's remaining liability under
its lease would approximate $10.0 million, assuming the leased premises and
other support provided to the Company by way of offset rights proved to be of no
value to the Company.
The Company guarantees certain obligations of SavMax under three leases of
market premises located in Sacramento, San Jose and San Leandro, California.
Each of these guarantees relates to the obligation of SavMax to pay base rent,
common area maintenance charges, real estate taxes and insurance during the
initial 20 year terms of these leases. However, the guarantees are such that the
Company's obligation under each of them is limited to an amount equal to sixty
monthly payments (which need not be consecutive) of the obligations guaranteed.
Base rent is $40,482 per month under the Sacramento lease and $56,756 per month
under the San Jose lease, in each case subject to a 7 1/2% increase at the end
of each five years. Base rent is $42,454 per month under the San Leandro lease,
subject to a 10% increase at the end of each five years. In consideration of
these guarantees, the Company receives a monthly fee from SavMax equal to 5% of
the base monthly rent under these leases. If SavMax were to default under the
leases, the Company's remaining liability under its guarantees would range from
$10.0 million to $11.9 million, assuming other support provided to the Company
by way of offset rights and the reimbursement and indemnification agreements
proved to be of no value to the Company.
The Company guarantees certain obligations of SavMax under two leases of
market premises located in Ceres and Vacaville, California. The leases have
initial terms expiring in January 2005 and April 2007, respectively. Base
monthly rent under the Ceres lease is presently $32,175, increasing to $34,425
in January of 2000. Base monthly rent under the Vacaville lease is presently
$29,167, increasing by $25,000 per year in April of 1997 and 2002. In
consideration of these guarantees, the Company will receive a monthly fee from
SavMax equal to 5% of the base monthly rent under these leases. If SavMax were
to default under the leases, the Company's contingent liability under its
guarantees would approximate $11.4 million, assuming other support provided to
the Company by way of offset rights and the reimbursement and indemnification
agreements proved to be of no value to the Company.
The Company has guaranteed the payment by Cala Co. of certain promissory
notes related to an acquisition of Bell Markets, Inc. The promissory notes
mature in June 1996 and total $8 million; however, the Company's guaranty
obligation is limited to $4 million. In addition, and in connection with the
acquisition, the Company has guaranteed certain lease obligations of Bell
Markets, Inc. during a 20-year period under a lease relating to two retail
grocery stores. Annual rent under the lease is $327,019. In the event the
Company is called upon to perform on this guaranty, the Company has the right to
receive an assignment of the lease relating to the locations. Accordingly,
assuming the leased premises and other support provided to the Company by way of
offset rights and the reimbursement and indemnification agreement proved to be
of no value to the Company, the Company would be contingently liable under its
lease guarantee for approximately $4.7 million. Concurrently, a 5-year agreement
to purchase a substantial portion of merchandise requirements from the Company
was obtained from Bell Markets, Inc.
The Company has guaranteed a lease for Mar-Val Food Stores, Inc. (whose
President, Mark Kidd, is a director of the Company) on store premises in Valley
Springs, California. The guarantee is for a period of fifteen years and is
limited to the lessee's obligation to pay base rent of $10,080 per month, common
area costs, real estate taxes and insurance. The Company's total obligation
under the guarantee is limited to $736,800. In consideration of the guarantee,
the Company receives a monthly fee from Mar-Val Food Store, Inc. equal to 5% of
the base monthly rent under the lease.
43
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has guarantees remaining on various member-patron leases during
the period of fiscal 1995 through fiscal 1998. In the event the support provided
to the Company by way of offset rights and the reimbursement and indemnification
agreements proved to be of no value, the Company would be contingently liable
under its guarantees for approximately $1.9 million.
In July 1993, the Company entered into an agreement to lease the produce
warehouse to Joe Notrica, Inc., of which director Morrie Notrica is the
President and a shareholder. The lease period is for five years, July 21, 1993
through July 31, 1998, at a monthly rent of $24,000. The lease has one five year
option and makes provision for inflation adjustments to monthly rent during the
option term.
During fiscal year 1992, Grocers Capital Company ("GCC"), a subsidiary,
acquired 40,000 shares of preferred stock of SavMax. The purchase price was $100
per share. In fiscal 1994, GCC, acquired an additional 25,000 shares of
preferred stock of SavMax, at a price of $100 per share. As part of the new
purchase of preferred stock, the annual cumulative dividend on the 65,000 shares
of preferred stock owned by GCC was increased from $8.25 per share to $8.50 per
share, payable quarterly. Mandatory partial redemption of this stock at a price
of $100 per share began in 1994 and will continue annually thereafter for eight
years, at which time the stock is to be completely retired. GCC also purchased
from Mr. Webb and another member of his immediate family, 10% of the common
stock of SavMax for a price of $2.3 million. In connection with this purchase,
Mr. Webb, SavMax and GCC agreed that GCC will have certain preemptive rights to
acquire additional common shares, rights to have its common shares included
proportionately in any transfer of common shares by Mr. Webb, and rights to have
its common shares included in certain registered public offerings of common
stock which may be made by SavMax. In addition, GCC has certain rights, at its
option, to require that SavMax repurchase GCC's shares, and SavMax has certain
rights, at its option, to repurchase GCC's shares. In connection with these
transactions, SavMax entered into a seven year supply agreement with the Company
(to replace an existing supply agreement) whereunder SavMax is required to
purchase a substantial portion of its merchandise requirements from the Company.
The supply agreement is subject to earlier termination in certain situations.
Grocers General Merchandise Company, ("GM"), a subsidiary of the Company,
and Food 4 Less GM, Inc. ("F4LGM"), a subsidiary of Food 4 Less Supermarkets,
Inc., are partners to a joint venture partnership agreement. Under the
agreement, GM and F4LGM are partners operating as Golden Alliance Distribution
("GAD"). The partnership was formed for the purpose of providing for the shared
use of the Company's general merchandise warehouse located in Fresno, California
and each of the partners has entered into a supply agreement with GAD providing
for the purchase of general merchandise products from GAD.
One of the Company's largest customers, Alpha Beta (which is wholly-owned by
Food 4 Less Supermarkets, Inc.) together with its affiliated companies,
accounted for a combined total of approximately 9.7% of fiscal 1994 sales.
Another customer, Hughes Markets, Inc. (of which director Roger K. Hughes is
Chairman of the Board) accounted for approximately 3.8% of fiscal 1994 sales.
14. SUBSEQUENT EVENT
The Company, subsequent to its year-end, completed a sale leaseback
transaction with Trinet Corporate Realty Trust, Inc. ("Trinet"), an unaffiliated
third party, wherein it sold approximately 5.5 acres of real property in the
City of Commerce, together with all buildings, structures and improvements
located on such real property, including an office building containing
approximately 100,000 square feet and a cafeteria building containing
approximately 8,000 square feet. The total sales price for the property was
$11,500,000. Concurrent with the sale of the real property, the Company and
Trinet entered into a twenty year lease of the property, with two ten year
extension options. The monthly rental is approximately $108,000 and is subject
to CPI adjustment commencing on the first day of the sixth, eleventh and
sixteenth years. However, such CPI adjustments shall not exceed four percent per
annum on a cumulative basis during each five year period. Any gain or loss
recognized on the transaction is not expected to be material to the financial
statements and will be amortized over the life of the lease.
44
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(THOUSANDS OMITTED)
<TABLE>
<CAPTION>
JUNE 3, SEPTEMBER 3,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents............................................................. $ 8,352 $ 7,702
Accounts and notes receivable......................................................... 101,822 96,545
Inventories........................................................................... 140,005 146,869
Prepaid expenses...................................................................... 4,892 3,810
---------- ------------
Total current assets................................................................ 255,071 254,926
Properties, at cost..................................................................... 149,046 158,324
Less, accumulated depreciation........................................................ (75,499) (71,641)
---------- ------------
73,547 86,683
Investments............................................................................. 22,592 20,274
Notes receivable........................................................................ 25,071 23,335
Other assets............................................................................ 14,545 15,878
---------- ------------
TOTAL ASSETS........................................................................ $ 390,826 $ 401,096
---------- ------------
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current:
Accounts payable...................................................................... $ 81,109 $ 82,137
Accrued liabilities................................................................... 61,821 61,428
Notes payable......................................................................... 3,065 2,978
Patrons' excess deposits and estimated patronage dividends............................ 12,397 11,541
---------- ------------
Total current liabilities........................................................... 158,392 158,084
Notes payable, due after one year....................................................... 140,045 149,673
Commitments and contingencies
Patrons' required deposits.............................................................. 19,178 17,589
Subordinated patronage dividend certificates............................................ 4,444 4,444
Shareholders' equity:
Class A Shares........................................................................ 5,056 4,704
Class B Shares........................................................................ 53,629 56,593
Retained earnings..................................................................... 10,349 10,313
Net unrealized loss on investments.................................................... (267) (304)
---------- ------------
Total shareholders' equity........................................................ 68,767 71,306
---------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................... $ 390,826 $ 401,096
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
45
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
(THOUSANDS OMITTED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
--------------------------
JUNE 3, 1995 MAY 28, 1994
------------ ------------
<S> <C> <C>
Net sales............................................................................. $ 1,341,118 $1,389,609
------------ ------------
Costs and expenses:
Cost of sales....................................................................... 1,224,254 1,266,906
Distribution, selling and administrative............................................ 98,302 102,519
------------ ------------
Operating income...................................................................... 18,562 20,184
Interest expense...................................................................... (11,421) (11,333)
Other income (expense), net........................................................... 509 (1,500)
------------ ------------
Earnings before estimated patronage dividends, provision (benefit) for income taxes
and cumulative effect of accounting change........................................... 7,650 7,351
Estimated patronage dividends......................................................... (6,477) (9,664)
------------ ------------
Earnings (loss) before income tax provision (benefit) and cumulative effect of
accounting change.................................................................... 1,173 (2,313)
Provision (benefit) for income taxes.................................................. 649 (897)
------------ ------------
Earnings (loss) before cumulative effect of accounting change......................... 524 (1,416)
------------ ------------
Cumulative effect of accounting change................................................ 2,500
------------ ------------
Net earnings (loss)................................................................... $ 524 $ 1,084
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
46
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(THOUSANDS OMITTED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
----------------------------
JUNE 3, 1995 MAY 28, 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................................... $ 524 $ 1,084
------------- -------------
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain on sale of investment in affiliate........................................... (511)
Cumulative effect of accounting change............................................ (2,500)
Depreciation and amortization..................................................... 7,588 7,996
Loss (gain) on disposal of properties............................................. 237 (265)
Accrued postretirement benefit costs.............................................. 2,239 1,737
Accrued postemployment benefit costs.............................................. 1,119
Accrued environmental liabilities................................................. 110
Facility relocation............................................................... 845
Decrease (increase) in assets:
Accounts and notes receivable................................................... (5,330) (10,881)
Inventories..................................................................... 5,451 (5,728)
Prepaid expenses................................................................ (1,144) (504)
Notes receivable................................................................ 844 4,086
Increase (decrease) in liabilities:
Accounts payable................................................................ (225) 2,329
Accrued liabilities............................................................. (1,687) 4,291
Patrons' excess deposits and estimated patronage dividends...................... 856 1,016
------------- -------------
Total adjustments................................................................... 9,547 2,422
------------- -------------
Net cash provided by operating activities............................................. 10,071 3,506
------------- -------------
Cash flows from investing activities:
Purchase of properties.............................................................. (7,485) (5,385)
Proceeds from sales of properties................................................... 11,363 1,034
Increase in other assets............................................................ (729) (735)
Investment in long-term bonds, net.................................................. (1,882) (2,432)
Investment in preferred stocks, net................................................. (177) (2,500)
Investment in common stocks, net.................................................... (180) (2,320)
Sale of investment in affiliate, net of cash disposed*.............................. (479)
------------- -------------
Net cash provided (utilized) by investing activities.................................. 431 (12,338)
------------- -------------
Cash flows from financing activities:
Additions to long-term notes payable................................................ 10,978
Reduction of long-term notes payable................................................ (6,973) (2,000)
Reduction of short-term notes payable............................................... (1,368) (1,668)
Increase in members' required deposits.............................................. 1,589 2,620
Decrease in subordinated patronage dividend certificates............................ (5)
Repurchase of shares from members................................................... (3,899) (3,992)
Issuance of shares to members....................................................... 799 638
------------- -------------
Net cash (utilized) provided by financing activities.................................. (9,852) 6,571
------------- -------------
Net increase (decrease) in cash and cash equivalents.................................. 650 (2,261)
Cash and cash equivalents at beginning of year........................................ 7,702 11,411
------------- -------------
Cash and cash equivalents at end of period............................................ $ 8,352 $ 9,150
------------- -------------
------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................................ $ 12,321 $ 12,343
Income taxes........................................................................ 1,958 70
------------- -------------
$ 14,279 $ 12,413
------------- -------------
------------- -------------
* Sale of investment in affiliate, net of cash disposed:
Working capital, other than cash.................................................... $ (980)
Property, plant and equipment....................................................... 1,596
Note receivable..................................................................... (2,580)
Other assets........................................................................ 1,857
Proceeds in excess of net assets of affiliate sold, net............................. 511
Long-term debt...................................................................... (883)
-------------
Net cash effect from sale of investment in affiliate.............................. $ (479)
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these statements.
47
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD., AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying consolidated condensed financial statements reflect all
adjustments which are, in the opinion of management, both of a normal recurring
nature and necessary to a fair statement of the results of the interim periods
presented. Certain reclassifications have been made to prior period's financial
statements to present them on a basis comparable with the current period's
presentation.
2. The consolidated condensed financial statements include the accounts of
Certified Grocers of California, Ltd. and all of its subsidiaries (the
"Company"). Intercompany transactions and accounts with subsidiaries have been
eliminated.
3. The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"), in the
first quarter of fiscal year 1995. The new accounting standard requires an
accrual rather than a pay-as-you-go basis of recognizing expenses for
postemployment benefits provided by an employer to former or inactive employees
after termination of employment but before retirement. The effect on the
Company's 1995 Consolidated Condensed Statement of Earnings for the thirty-nine
weeks ended June 3, 1995 was $1,119,000. This amount is reflected in the
Company's 1995 Consolidated Condensed Statement of Cash Flows as a non-cash
expense. Management estimates the effect on its results of operations in fiscal
1995 will approximate $1.5 million.
4. The Company reclassified $1,772,000 from long-term to short-term debt (a
noncash financing activity) for the thirty-nine weeks ended June 3, 1995, in its
Consolidated Condensed Statements of Cash Flows.
5. In second quarter 1995, the Company sold a majority investment of Major
Market Inc. ("MMI"). MMI was previously consolidated in the Company's financial
statements. The Company now has a minority interest in MMI and accounts for the
investment using the cost method. The net cash effect of this transaction is
disclosed in the Company's Consolidated Condensed Statements of Cash Flows for
the thirty-nine weeks ended June 3, 1995.
48
<PAGE>
- -------------------------------------------
- -------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Additional Information......................... 2
Incorporation By Reference..................... 2
Risk Factors................................... 3
Ratio of Earnings to Fixed Charges............. 4
Business....................................... 4
Tax Matters.................................... 6
Description of the Certificates................ 6
Method of Offering............................. 12
Use of Proceeds................................ 12
Selected Financial Data........................ 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Fiscal Years Ended September 3,
1994.......................................... 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations
as of June 3, 1995 and for the Thirty-Nine
Weeks Then Ended and the Comparable
Thirty-Nine Weeks of 1994..................... 18
Legal Matters.................................. 21
Experts........................................ 21
Index to Financial Statements.................. 22
Report of Independent Accountants.............. 23
Financial Statements........................... 24
</TABLE>
- -------------------------------------------
- -------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration Fee Under Securities Act of 1933............ $ 1,035.00
Printing, Engraving and Reproduction..................... 10,000.00
Expenses of Qualification Under State Blue Sky Laws...... 3,500.00
Legal Fees and Expenses.................................. 10,000.00
Accounting Fees and Expenses............................. 8,000.00
Miscellaneous............................................ 2,000.00
----------
Total.................................................... $ 34,535.00
----------
----------
</TABLE>
All of the expenses listed above will be borne by the Registrant and, except
for the Registration Fee Under Securities Act of 1933, are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of the Registrant's Bylaws provides that the Registrant shall, to
the maximum extent permitted by law, have the power to indemnify its directors,
officers, employees and other agents. Section 317 of the California Corporations
Code provides that a corporation has the power to indemnify agents of the
corporation against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was an agent of the corporation.
In addition, the Registrant and its subsidiaries maintain a policy of directors'
and officers' liability and company reimbursement insurance.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16. EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 4 Instruments defining the rights of security holders, including indentures.
4.1 Article I, Section 5, and Article VII of the Registrant's Bylaws
(incorporated by reference to Exhibit 4.1 to Form S-2 Registration Statement
of the Registrant filed on September 2, 1993, File No. 33-68288).
4.2 Form of Subordinated Patronage Dividend Certificate Due December 15, 2002 --
Set forth in Exhibit A of Indenture (See Exhibit 4.3).
4.3 Indenture to be entered into between the Registrant and First Interstate Bank
of California, as Trustee, relating to $3,000,000 Subordinated Patronage
Dividend Certificates Due December 15, 2002.
Exhibit 5 Opinion re legality.
5.1 Opinion of Counsel dated October 12, 1995.
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C> <C>
Exhibit 10 Material Contracts.
10.1 Comprehensive Amendment to Retirement Plan for Employees of Certified Grocers
of California, Ltd. (incorporated by reference to Exhibit 10.1 to the Form
S-2 Registration Statement of the Registrant filed on October 12, 1994, File
No. 33-56005).
10.2 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the
Form S-2 Registration Statement of the Registrant filed on December 28, 1987,
File No. 33-19284).
10.3 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Sheltered Savings Plan (incorporated by reference to Exhibit 10.3 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File No.
33-68288).
10.4 Comprehensive Amendment to Certified Grocers of California, Ltd. Employee
Savings Plan (incorporated by reference to Exhibit 10.4 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File No.
33-68288).
10.4.1 First Amendment to Certified Grocers of California, Ltd. Employee Savings
Plan (incorporated by reference to Exhibit 10.4.1 to the Form S-2
Registration Statement of the Registrant filed on October 12, 1994, File No.
33-56005).
10.5 Executive Salary Protection Plan Life Insurance Agreement between the
Registrant and John Andikian, William O. Christy, H. Edward Collins, Donald
W. Dill, Everett W. Dingwell II, David Fitton III, Gerald F. Friedler, Donald
G. Grose, Herman Hensley, Rodney J. Love, Robert H. Mason, Lawrence J. Picano
and Robert P. Walz (incorporated by reference to Exhibit 10.7 to
Post-Effective Amendment No. 2 to Form S-2 Registration Statement of the
Registrant filed on March 1, 1988, File No. 33-19284).
10.5.1 Executive Salary Protection Plan Life Insurance Agreement between the
Registrant and Jerald L. Lauer, Alfred A. Plamann, Paul D. Rohde and David A.
Woodward (incorporated by reference to Exhibit 10.7.1 to Post-Effective
Amendment No. 8 to Form S-2 Registration Statement of the Registrant filed on
December 10, 1990, File No. 33-19284).
10.6 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Excess Benefit and Supplemental Deferred Compensation Plan (incorporated by
reference to Exhibit 10.8 to Post-Effective Amendment No. 15 to Form S-1
Registration Statement of the Registrant filed on December 20, 1988, File No.
2-70069).
10.6.1 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Excess Benefit Plan (incorporated by reference to Exhibit 10.6.1 to the Form
S-2 Registration Statement of the Registrant filed on October 12, 1994, File
No. 33-56005).
10.6.2 Comprehensive Amendment to Certified Grocers of California, Ltd. Employees'
Supplemental Deferred Compensation Plan (incorporated by reference to Exhibit
10.8.2 to Post-Effective Amendment No. 8 to Form S-2 Registration Statement
of the Registrant filed on December 10, 1990, File No. 33-19284).
10.7 Joint Venture Agreement of Golden Alliance Distribution, dated as of April 8,
1992, between Food 4 Less GM, Inc. and Grocers General Merchandise Company
(incorporated by reference to Exhibit 10.7 to Form S-2 Registration Statement
of the Registrant filed on September 2, 1993, File No. 33-68288).
10.8 Lease, dated as of December 23, 1986, between Cercor Associates and Grocers
Specialty Company (incorporated by reference to Exhibit 10.8 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File No.
33-68288).
10.9 Expansion Agreement, dated as of May 1, 1991, and Industrial Lease, dated as
of May 1, 1991, between Dermody Properties and the Registrant (incorporated
by reference to Exhibit 10.9 to Form S-2 Registration Statement of the
Registrant filed on September 2, 1993, File No. 33-68288).
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C> <C>
10.9.1 Lease Amendment, dated June 20, 1991, between Dermody Properties and the
Registrant (incorporated by reference to Exhibit 10.9.1 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File No.
33-68288).
10.9.2 Lease Amendment, dated October 18, 1991, between Dermody Properties and the
Registrant (incorporated by reference to Exhibit 10.9.2 to Form S-2
Registration Statement of the Registrant filed on September 2, 1993, File No.
33-68288).
10.10 Preferred Stock Purchase Agreement by and between Food-4-Less of Modesto,
Inc. and Grocers Capital Company, dated as of July 1, 1992 (incorporated by
reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended August 28, 1993, filed on November 26, 1993, File No.
0-10815).
10.11 Preferred Stock Purchase Agreement by and between SavMax Foods, Inc. and
Grocers Capital Company, dated as of December 17, 1993 (incorporated by
reference to Exhibit 10.11 to Form S-2 Registration Statement of the
Registrant filed on December 15, 1994, File No. 33-38152).
10.12 Common Stock Purchase Agreement by and between Michael A. Webb and Grocers
Capital Company, dated as of December 17, 1993 (incorporated by reference to
Exhibit 10.12 to Form S-2 Registration Statement of the Registrant filed on
December 15, 1994, File No. 33-38152).
10.13 Agreement Regarding Common Stock by and between Michael A. Webb, SavMax
Foods, Inc. and Grocers Capital Company, dated December 17, 1993
(incorporated by reference to Exhibit 10.13 to Form S-2 Registration
Statement of the Registrant filed on December 15, 1994, File No. 33-38152).
Exhibit 12 Statement re Computation of ratios.
12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 23 Consents of experts and counsel.
23.1 Consent of Company Counsel -- see Page F-1.
23.2 Consent of Independent Accountants -- see Page F-2.
Exhibit 25 Statement of Eligibility of Trustee.
25.1 Form T-1 Statement of Eligibility Under the Trust Indenture Act of 1939 of
First Interstate Bank of California, as Trustee.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (a) to include
any prospectus required by section 10(a)(3) of the Securities Act of 1933,
(b) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement, (c) to include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Commerce, State of California, on October 12, 1995.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
By /s/ ALFRED A. PLAMANN
-------------------------------------
Alfred A. Plamann
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------------- ---------------------------------- -------------------
<C> <S> <C>
/s/ ALFRED A. PLAMANN President and Chief October 12, 1995
--------------------------------------------- Executive Officer
Alfred A. Plamann
/s/ DANIEL T. BANE Senior Vice President October 12, 1995
--------------------------------------------- and Chief Financial
Daniel T. Bane Officer
/s/ RANDALL G. SCOVILLE Corporate Controller October 12, 1995
---------------------------------------------
Randall G. Scoville
/s/ WILLARD R. MACALONEY Director October 12, 1995
---------------------------------------------
Willard R. MacAloney
(Chairman of the Board)
/s/ LOUIS A. AMEN Director October 12, 1995
---------------------------------------------
Louis A. Amen
/s/ JOHN BERBERIAN Director October 12, 1995
---------------------------------------------
John Berberian
/s/ GENE A. FULTON Director October 12, 1995
---------------------------------------------
Gene A. Fulton
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------------- ---------------------------------- -------------------
<C> <S> <C>
/s/ LYLE A. HUGHES Director October 12, 1995
---------------------------------------------
Lyle A. Hughes
Director October , 1995
---------------------------------------------
Roger K. Hughes
/s/ DARIOUSH KHALEDI Director October 12, 1995
---------------------------------------------
Darioush Khaledi
/s/ MARK KIDD Director October 12, 1995
---------------------------------------------
Mark Kidd
/s/ JAY MCCORMACK Director October 12, 1995
---------------------------------------------
Jay McCormack
/s/ MORRIE NOTRICA Director October 12, 1995
---------------------------------------------
Morrie Notrica
/s/ MICHAEL A. PROVENZANO Director October 12, 1995
---------------------------------------------
Michael A. Provenzano
/s/ ALLAN SCHARN Director October 12, 1995
---------------------------------------------
Allan Scharn
/s/ JAMES R. STUMP Director October 12, 1995
---------------------------------------------
James R. Stump
/s/ MICHAEL A. WEBB Director October 12, 1995
---------------------------------------------
Michael A. Webb
/s/ KENNETH YOUNG Director October 12, 1995
---------------------------------------------
Kenneth Young
</TABLE>
S-5
<PAGE>
CONSENT OF COMPANY COUNSEL
We hereby consent to the reference made to us, and to the use of our name,
in this Registration Statement on Form S-2, including the Prospectus filed as a
part thereof.
BURKE, WILLIAMS & SORENSEN
Los Angeles, California
October 12, 1995
F-1
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-2 of
our report dated November 30, 1994, and the incorporation by reference of said
report appearing on page 19 of the Annual Report on Form 10-K and Amendment No.
1 thereto on Form 10-K/A, on our audits of the consolidated balance sheets of
Certified Grocers of California, Ltd. and subsidiaries as of September 3, 1994
and August 28, 1993, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended September 3, 1994. We also consent to the reference to our Firm
under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Los Angeles, California
October 12, 1995
F-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- --------------- ------------------------------------------------------------ ------
<S> <C> <C> <C>
Exhibit 4 Instruments defining the rights of security holders,
including indentures.
4.1 Article I, Section 5, and Article VII of the Registrant's
Bylaws (incorporated by reference to Exhibit 4.1 to Form S-2
Registration Statement of the Registrant filed on September
2, 1993, File No. 33-68288).
4.2 Form of Subordinated Patronage Dividend Certificate Due
December 15, 2002 -- Set forth in Exhibit A of Indenture
(See Exhibit 4.3).
4.3 Indenture to be entered into between the Registrant and
First Interstate Bank of California, as Trustee, relating to
$3,000,000 Subordinated Patronage Dividend Certificates Due
December 15, 2002.
Exhibit 5 Opinion re legality.
5.1 Opinion of Counsel dated October 12, 1995.
Exhibit 10 Material Contracts.
10.1 Comprehensive Amendment to Retirement Plan for Employees of
Certified Grocers of California, Ltd. (incorporated by
reference to Exhibit 10.1 to the Form S-2 Registration
Statement of the Registrant filed on October 12, 1994, File
No. 33-56005).
10.2 Incentive Compensation Plan (incorporated by reference to
Exhibit 10.2 to the Form S-2 Registration Statement of the
Registrant filed on December 28, 1987, File No. 33-19284).
10.3 Comprehensive Amendment to Certified Grocers of California,
Ltd. Employees' Sheltered Savings Plan (incorporated by
reference to Exhibit 10.3 to Form S-2 Registration Statement
of the Registrant filed on September 2, 1993, File No.
33-68288).
10.4 Comprehensive Amendment to Certified Grocers of California,
Ltd. Employee Savings Plan (incorporated by reference to
Exhibit 10.4 to Form S-2 Registration Statement of the
Registrant filed on September 2, 1993, File No. 33-68288).
10.4.1 First Amendment to Certified Grocers of California, Ltd.
Employee Savings Plan (incorporated by reference to Exhibit
10.4.1 to the Form S-2 Registration Statement of the
Registrant filed on October 12, 1994, File No. 33-56005).
10.5 Executive Salary Protection Plan Life Insurance Agreement
between the Registrant and John Andikian, William O.
Christy, H. Edward Collins, Donald W. Dill, Everett W.
Dingwell II, David Fitton III, Gerald F. Friedler, Donald G.
Grose, Herman Hensley, Rodney J. Love, Robert H. Mason,
Lawrence J. Picano and Robert P. Walz (incorporated by
reference to Exhibit 10.7 to Post-Effective Amendment No. 2
to Form S-2 Registration Statement of the Registrant filed
on March 1, 1988, File No. 33-19284).
10.5.1 Executive Salary Protection Plan Life Insurance Agreement
between the Registrant and Jerald L. Lauer, Alfred A.
Plamann, Paul D. Rohde and David A. Woodward (incorporated
by reference to Exhibit 10.7.1 to Post-Effective Amendment
No. 8 to Form S-2 Registration Statement of the Registrant
filed on December 10, 1990, File No. 33-19284).
10.6 Comprehensive Amendment to Certified Grocers of California,
Ltd. Employees' Excess Benefit and Supplemental Deferred
Compensation Plan (incorporated by reference to Exhibit 10.8
to Post-Effective Amendment No. 15 to Form S-1 Registration
Statement of the Registrant filed on December 20, 1988, File
No. 2-70069).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- --------------- ------------------------------------------------------------ ------
<S> <C> <C> <C>
10.6.1 Comprehensive Amendment to Certified Grocers of California,
Ltd. Employees' Excess Benefit Plan (incorporated by
reference to Exhibit 10.6.1 to the Form S-2 Registration
Statement of the Registrant filed on October 12, 1994, File
No. 33-56005).
10.6.2 Comprehensive Amendment to Certified Grocers of California,
Ltd. Employees' Supplemental Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8.2 to
Post-Effective Amendment No. 8 to Form S-2 Registration
Statement of the Registrant filed on December 10, 1990, File
No. 33-19284).
10.7 Joint Venture Agreement of Golden Alliance Distribution,
dated as of April 8, 1992, between Food 4 Less GM, Inc. and
Grocers General Merchandise Company (incorporated by
reference to Exhibit 10.7 to Form S-2 Registration Statement
of the Registrant filed on September 2, 1993, File No.
33-68288).
10.8 Lease, dated as of December 23, 1986, between Cercor
Associates and Grocers Specialty Company (incorporated by
reference to Exhibit 10.8 to Form S-2 Registration Statement
of the Registrant filed on September 2, 1993, File No.
33-68288).
10.9 Expansion Agreement, dated as of May 1, 1991, and Industrial
Lease, dated as of May 1, 1991, between Dermody Properties
and the Registrant (incorporated by reference to Exhibit
10.9 to Form S-2 Registration Statement of the Registrant
filed on September 2, 1993, File No. 33-68288).
10.9.1 Lease Amendment, dated June 20, 1991, between Dermody
Properties and the Registrant (incorporated by reference to
Exhibit 10.9.1 to Form S-2 Registration Statement of the
Registrant filed on September 2, 1993, File No. 33-68288).
10.9.2 Lease Amendment, dated October 18, 1991, between Dermody
Properties and the Registrant (incorporated by reference to
Exhibit 10.9.2 to Form S-2 Registration Statement of the
Registrant filed on September 2, 1993, File No. 33-68288).
10.10 Preferred Stock Purchase Agreement by and between
Food-4-Less of Modesto, Inc. and Grocers Capital Company,
dated as of July 1, 1992 (incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 28, 1993, filed on November
26, 1993, File No. 0-10815).
10.11 Preferred Stock Purchase Agreement by and between SavMax
Foods, Inc. and Grocers Capital Company, dated as of
December 17, 1993 (incorporated by reference to Exhibit
10.11 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
10.12 Common Stock Purchase Agreement by and between Michael A.
Webb and Grocers Capital Company, dated as of December 17,
1993 (incorporated by reference to Exhibit 10.12 to Form S-2
Registration Statement of the Registrant filed on December
15, 1994, File No. 33-38152).
10.13 Agreement Regarding Common Stock by and between Michael A.
Webb, SavMax Foods, Inc. and Grocers Capital Company, dated
December 17, 1993 (incorporated by reference to Exhibit
10.13 to Form S-2 Registration Statement of the Registrant
filed on December 15, 1994, File No. 33-38152).
Exhibit 12 Statement re Computation of ratios.
12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 23 Consents of experts and counsel.
23.1 Consent of Company Counsel -- see Page F-1.
23.2 Consent of Independent Accountants -- see Page F-2.
Exhibit 25 Statement of Eligibility of Trustee.
25.1 Form T-1 Statement of Eligibility Under the Trust Indenture
Act of 1939 of First Interstate Bank of California, as
Trustee.
</TABLE>
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD.
AND
FIRST INTERSTATE BANK OF CALIFORNIA, TRUSTEE
I N D E N T U R E
Dated as of October 1, 1995
$3,000,000
Subordinated Patronage Dividend Certificates
Due December 15, 2002
EXHIBIT 4.3
<PAGE>
CROSS-REFERENCE SHEET
Cross-reference between sections of Trust Indenture Act of 1939 (TIA) and
Indenture dated as of October 1, 1995, between Certified Grocers of California,
Ltd. and First Interstate Bank of California, as Trustee.
TIA Section
Section 310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . .5.8; 5.10(d)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
Section 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . .Not applicable
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
6.2(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.2(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.2(c)
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.3(a)
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.3(b)
(c) . . . . . . . . . . . . . . . . . . . . . . . . . .6.3(a); 6.3(b)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.3(c)
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.4; 9.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . .Not applicable
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . . . .Not applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4
Section 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.1(a)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.1(b)
(d)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.1(a)
(d)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1(c)(2)
(d)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1(c)(3)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.14
Section 316(a)(last paragraph) . . . . . . . . . . . . . . . . . . . . . . . 1.1
(definition of "Outstanding")
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . 4.2; 4.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.13(a)
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8
<PAGE>
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.13(b)
Section 317(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.6(b)
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7
________________
NOTE: This cross-reference sheet shall not, for any purpose, be
deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION. . . . . . . 1
Section 1.1 Definitions and Rules of Construction. . . . . . . . . . . 1
"Act". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Board of Directors" . . . . . . . . . . . . . . . . . . . . . . . . 1
"Board Resolution" . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Capitalized Lease Obligations". . . . . . . . . . . . . . . . . . . 2
"Certificate Register" and "Certificate Registrar" . . . . . . . . . 2
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Company". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Company Request", "Company Order" and "Company Consent" . . . . . . 2
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . 2
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Holder" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Indenture". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Interest Payment Date". . . . . . . . . . . . . . . . . . . . . . . 2
"Maturity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Officer". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Officers' Certificate". . . . . . . . . . . . . . . . . . . . . . . 2
"Opinion of Counsel" . . . . . . . . . . . . . . . . . . . . . . . . 3
"Outstanding". . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Patronage Dividend Certificates". . . . . . . . . . . . . . . . . . 3
"Patrons' Deposits". . . . . . . . . . . . . . . . . . . . . . . . . 4
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Predecessor Certificate". . . . . . . . . . . . . . . . . . . . . . 4
"Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Redemption Date". . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Redemption Price" . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Regular Record Date". . . . . . . . . . . . . . . . . . . . . . . . 4
"Responsible Officer". . . . . . . . . . . . . . . . . . . . . . . . 4
"Senior Indebtedness". . . . . . . . . . . . . . . . . . . . . . . . 4
"Set Off Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Special Record Date". . . . . . . . . . . . . . . . . . . . . . . . 5
"Stated Maturity". . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Trustee". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Trust Indenture Act" or "TIA" . . . . . . . . . . . . . . . . . . . 5
"U.S. Government Obligations". . . . . . . . . . . . . . . . . . . . 5
Section 1.2 Compliance Certificates and Opinions . . . . . . . . . . . 6
Section 1.3 Form of Documents Delivered to Trustee.. . . . . . . . . . 6
Section 1.4 Acts of Holders. . . . . . . . . . . . . . . . . . . . . . 7
i
<PAGE>
Section 1.5 Notices to Trustee and Company . . . . . . . . . . . . . . 8
Section 1.6 Notices to Holders; Waiver . . . . . . . . . . . . . . . . 8
Section 1.7 Conflict with Trust Indenture Act. . . . . . . . . . . . . 9
Section 1.8 Effect of Headings and Table of Contents . . . . . . . . . 9
Section 1.9 Successors and Assigns . . . . . . . . . . . . . . . . . . 9
Section 1.10 Separability Clause. . . . . . . . . . . . . . . . . . . . 9
Section 1.11 No Recourse Against Others . . . . . . . . . . . . . . . . 9
Section 1.12 No Adverse Interpretation of Other Agreements. . . . . . . 9
Section 1.13 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II THE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.1 Forms Generally. . . . . . . . . . . . . . . . . . . . . . 9
Section 2.2 Terms. . . . . . . . . . . . . . . . . . . . . . . . . . .10
Section 2.3 Denominations. . . . . . . . . . . . . . . . . . . . . . .10
Section 2.4 Execution, Authentication, Delivery and Dating . . . . . .10
Section 2.5 Temporary Certificates . . . . . . . . . . . . . . . . . .11
Section 2.6 Certificate Registrar and Paying Agent;
Unclaimed Money. . . . . . . . . . . . . . . . . . . . . .11
Section 2.7 Transfer and Exchange. . . . . . . . . . . . . . . . . . .13
Section 2.8 Mutilated, Destroyed, Lost and Stolen Certificates . . . .13
Section 2.9 Payment of Interest; Interest Rights Preserved . . . . . .14
Section 2.10 Persons Deemed Owners. . . . . . . . . . . . . . . . . . .15
Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . .15
Section 2.12 No Lien Created. . . . . . . . . . . . . . . . . . . . . .16
ARTICLE III SATISFACTION AND DISCHARGE. . . . . . . . . . . . . . . . . . .16
Section 3.1 Satisfaction and Discharge of Indenture. . . . . . . . . .16
Section 3.2 Application of Trust Money . . . . . . . . . . . . . . . .17
ii
<PAGE>
Section 3.3 Repayment to Company . . . . . . . . . . . . . . . . . . .17
ARTICLE IV REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 4.1 Events of Default. . . . . . . . . . . . . . . . . . . . .17
Section 4.2 Acceleration of Maturity; Rescission and
Annulment. . . . . . . . . . . . . . . . . . . . . . . . .18
Section 4.3. Collection of Indebtedness and Suits for
Enforcement by Trustee . . . . . . . . . . . . . . . . . .19
Section 4.4 Trustee May File Proofs of Claim . . . . . . . . . . . . .20
Section 4.5 Trustee May Enforce Claims Without Possession of
Certificates . . . . . . . . . . . . . . . . . . . . . . .20
Section 4.6 Application of Money Collected . . . . . . . . . . . . . .21
Section 4.7 Limitation on Suits. . . . . . . . . . . . . . . . . . . .21
Section 4.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest . . . . . . . . . . . . . . . . . . .22
Section 4.9 Restoration of Rights and Remedies . . . . . . . . . . . .22
Section 4.10 Rights and Remedies Cumulative . . . . . . . . . . . . . .22
Section 4.11 Delay or Omission Not Waiver . . . . . . . . . . . . . . .22
Section 4.12 Control by Holders . . . . . . . . . . . . . . . . . . . .23
Section 4.13 Waiver of Past Defaults. . . . . . . . . . . . . . . . . .23
Section 4.14 Undertaking for Costs. . . . . . . . . . . . . . . . . . .24
ARTICLE V THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Section 5.1 Certain Duties and Responsibilities. . . . . . . . . . . .24
Section 5.2 Notice of Defaults . . . . . . . . . . . . . . . . . . . .25
Section 5.3 Certain Rights of Trustee. . . . . . . . . . . . . . . . .26
Section 5.4 Not Responsible for Recitals or Issuance
of Certificates. . . . . . . . . . . . . . . . . . . . . .27
Section 5.5 May Not Hold Certificates. . . . . . . . . . . . . . . . .27
Section 5.6 Money Held in Trust. . . . . . . . . . . . . . . . . . . .27
iii
<PAGE>
Section 5.7 Compensation and Reimbursement . . . . . . . . . . . . . .27
Section 5.8 Disqualification; Conflicting Interests. . . . . . . . . .28
Section 5.9 Corporate Trustee Required; Eligibility. . . . . . . . . .34
Section 5.10 Resignation and Removal; Appointment of Successor. . . . .34
Section 5.11 Acceptance of Appointment by Successor . . . . . . . . . .36
Section 5.12 Merger, Conversion, Consolidation or Succession
to Business. . . . . . . . . . . . . . . . . . . . . . . .36
Section 5.13 Preferential Collection of Claims against Company. . . . .36
ARTICLE VI HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . .41
Section 6.1 Company to Furnish Trustee Names and
Addresses of Holders . . . . . . . . . . . . . . . . . . .41
Section 6.2 Preservation of Information;
Communications to Holders. . . . . . . . . . . . . . . . .41
Section 6.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . .42
Section 6.4 Reports by Company . . . . . . . . . . . . . . . . . . . .44
ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER . . . . . . . . .45
Section 7.1 Company may Consolidate, etc., only on Certain Terms . . .45
Section 7.2 Successor Corporation Substituted. . . . . . . . . . . . .45
ARTICLE VIII AMENDMENTS AND SUPPLEMENTS. . . . . . . . . . . . . . . . . . .46
Section 8.1 Without Consent of Holders . . . . . . . . . . . . . . . .46
Section 8.2 With Consent of Holders. . . . . . . . . . . . . . . . . .46
Section 8.3 Execution of Amendments and Supplemental Indentures. . . .47
Section 8.4 Effect of Amendments and Supplemental Indentures . . . . .47
Section 8.5 Conformity with Trust Indenture Act. . . . . . . . . . . .47
Section 8.6 Reference in Certificates to Amendments and
Supplemental Indentures. . . . . . . . . . . . . . . . . .48
iv
<PAGE>
ARTICLE IX COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Section 9.1 Payment of Principal and Interest. . . . . . . . . . . . .48
Section 9.2 Payment of Taxes and Other Claims. . . . . . . . . . . . .48
Section 9.3 Maintenance of Properties. . . . . . . . . . . . . . . . .48
Section 9.4 Certificate as to Compliance . . . . . . . . . . . . . . .49
Section 9.5 Corporate Existence. . . . . . . . . . . . . . . . . . . .49
ARTICLE X REDEMPTION OF CERTIFICATES . . . . . . . . . . . . . . . . . . . . .49
Section 10.1 Right of Redemption. . . . . . . . . . . . . . . . . . . .49
Section 10.2 Notice to Trustee. . . . . . . . . . . . . . . . . . . . .49
Section 10.3 Selection by Trustee of Certificates to
be Redeemed. . . . . . . . . . . . . . . . . . . . . . . .50
Section 10.4 Notice of Redemption . . . . . . . . . . . . . . . . . . .50
Section 10.5 Deposit of Redemption Price. . . . . . . . . . . . . . . .51
Section 10.6 Payable on Redemption Date . . . . . . . . . . . . . . . .51
Section 10.7 Certificates Redeemed in Part. . . . . . . . . . . . . . .51
ARTICLE XI CERTIFICATES SUBJECT TO SET OFF . . . . . . . . . . . . . . . .52
Section 11.1 Right of Set Off . . . . . . . . . . . . . . . . . . . . .52
Section 11.2 Effect of Set Off. . . . . . . . . . . . . . . . . . . . .52
Section 11.3 Set Off Notice . . . . . . . . . . . . . . . . . . . . . .53
Section 11.4 Certificates Set Off In Part . . . . . . . . . . . . . . .54
Section 11.5 Holder Has No Right of Set Off . . . . . . . . . . . . . .54
ARTICLE XII SUBORDINATION OF CERTIFICATES . . . . . . . . . . . . . . . . .54
Section 12.1 Subordination to Senior Indebtedness . . . . . . . . . . .54
Section 12.2 Authorization of Holders to Trustee to Effect
Subordination. . . . . . . . . . . . . . . . . . . . . . .57
Section 12.3 Responsibility of Trustee. . . . . . . . . . . . . . . . .57
v
<PAGE>
INDENTURE dated as of October 1, 1995, between Certified Grocers of
California, Ltd., a California corporation ("Company"), and First Interstate
Bank of California, a California banking corporation ("Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's Subordinated Patronage
Dividend Certificates Due December 15, 2002 ("Certificates"):
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1 DEFINITIONS AND RULES OF CONSTRUCTION.
(a) For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein; and
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
(b) Certain terms, used principally in Article V, are defined in that
Article.
(c) Except as otherwise expressly provided or unless the context otherwise
requires:
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person.
"Board of Directors" means either the Board of Directors of the Company or
any duly authorized committee of that Board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.
-1-
<PAGE>
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations of any Person under any lease of any property which, in
accordance with generally accepted accounting principles, has been recorded on
the balance sheet of such Person as a capitalized lease.
"Certificate Register" and "Certificate Registrar" have the respective
meanings specified in Section 2.6.
"Certificates" means the Company's Subordinated Patronage Dividend
Certificates Due December 15, 2002 as amended or supplemented from time to time.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to the applicable provisions of
this Indenture, and thereafter "Company" shall mean such successor.
"Company Request", "Company Order" and "Company Consent" mean,
respectively, a written request, order or consent signed in the name of the
Company by two Officers or by an Officer and an Assistant Secretary of the
Company.
"Defaulted Interest" has the meaning specified in Section 2.9.
"Event of Default" has the meaning specified in Article IV.
"Holder" means a Person in whose name a Certificate is registered in the
Certificate Register.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Certificates.
"Maturity" when used with respect to any Certificate means the date on
which the principal of such Certificate becomes due and payable as therein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Secretary of the Company.
-2-
<PAGE>
"Opinion of Counsel" means a written opinion of counsel, who may (except as
otherwise expressly provided in this Indenture) be counsel for the Company, and
who shall be reasonably acceptable to the Trustee.
"Outstanding" when used with respect to Certificates means, as of the date
of determination, all Certificates theretofore authenticated and delivered under
this Indenture, except:
(i) Certificates theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Certificates for whose payment or redemption in whole money in
the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent in trust for the Holders of such Certificates, provided that,
if such Certificates are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made;
(iii) Certificates as to which a Set Off Notice has been given as
provided in Section 11.3 and where the set off as specified in such Set Off
Notice has the effect specified in Section 11.2(b); and
(iv) Certificates in exchange for or in lieu of which other
Certificates have been authenticated and delivered pursuant to this
Indenture;
provided, however, that in determining whether the Holders of the requisite
principal amount of Certificates Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Certificates
owned by the Company or any other obligor upon the Certificates or any Affiliate
of the Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Certificates which the Trustee knows to be so owned
shall be so disregarded. Certificates so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Certificates, that the pledge has been consented to by the Company and that the
pledgee is not the Company or any other obligor upon the Certificates or any
Affiliate of the Company or such other obligor.
"Patronage Dividend Certificates" means any notes, revolving fund
certificates, retain certificates, certificates of indebtedness, patronage
dividend certificates or any other written evidences of indebtedness of the
Company at any time outstanding which evidence the indebtedness of the Company
respecting the distribution by the Company of patronage dividends.
-3-
<PAGE>
"Patrons' Deposits" means the deposits from time to time required to be
made or maintained with the Company by its patrons or customers in accordance
with the bylaws of the Company in effect from time to time or in accordance with
the policies for the servicing of accounts of patrons or customers established
from time to time by the Company, and any deposits from time to time made or
maintained with the Company by its patrons or customers in excess of such
required deposits.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Certificates on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Certificate" of any particular Certificate means every
previous Certificate evidencing all or a portion of the same debt as that
evidenced by such particular Certificate; and, for the purposes of this
definition, any Certificate authenticated and delivered under Section 2.8 in
lieu of a lost, destroyed or stolen Certificate shall be deemed to evidence the
same debt as the lost, destroyed or stolen Certificate.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Redemption Date" when used with respect to any Certificate to be redeemed
means a date fixed for such redemption by the Company pursuant to Section 10.2.
"Redemption Price" has the meaning specified in Section 10.1.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the fifteenth (15th) day (whether or not a business day) next preceding
such Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee means the
Chairman or Vice-Chairman of the Board of Directors, the Chairman or
Vice-Chairman of the Executive Committee of the Board of Directors, the
President, any Vice President, or any other officer or assistant officer of the
Trustee assigned by the Trustee and having authority to administer its corporate
trust matters.
"Senior Indebtedness" means all indebtedness, liabilities or obligations of
the Company, contingent or otherwise, whether existing on the date of the
Indenture or thereafter incurred, (A) in respect of borrowed money; (B)
evidenced by bonds, notes, debentures or other instruments of indebtedness; (C)
evidenced by
-4-
<PAGE>
letters of credit, bankers' acceptances or similar credit instruments; (D) in
respect of Capitalized Lease Obligations; (E) in respect of the deferred
purchase price of property or assets (whether real, personal, tangible or
intangible) or in respect of any mortgage, security agreement, title retention
agreement or conditional sale contract; (F) in respect of any interest rate swap
agreement, interest rate collar agreement or other similar agreement or
arrangement designed to provide interest rate protection; (G) in respect of all
indebtedness, liabilities or obligations of other Persons of any of the types
referred to in clauses (A) through (F) for which the Company is responsible or
liable as obligor, guarantor or otherwise or in respect of which recourse may be
had against any of the property or assets (whether real, personal, tangible or
intangible) of the Company; and (H) in respect of all modifications, renewals,
extensions, replacements and refundings of any indebtedness, liabilities or
obligations of any of the types described in clauses (A) through (G); provided,
however, that the term "Senior Indebtedness" shall not mean any indebtedness,
liabilities or obligations of the Company, contingent or otherwise, whether
existing on the date of the Indenture or thereafter incurred, (i) to trade
creditors arising or incurred in the ordinary course of the Company's business,
(ii) in respect of any redemption, repurchase or other payments on capital
stock, (iii) in respect of Patrons' Deposits, (iv) in respect of Patronage
Dividend Certificates, or (v) in respect of the Certificates.
"Set Off Notice" has the meaning specified in Section 11.1.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.9.
"Stated Maturity" when used with respect to any Certificate or any
instalment of interest thereon means the date specified in such Certificate as
the fixed date on which the principal of such Certificate or such instalment of
interest is due and payable.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean such successor.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended from time to time.
"U.S. Government Obligations" means direct obligations of the United States
for the payment of which its full faith and credit is pledged; or obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States the payment of which is unconditionally guaranteed as a
full faith and credit obligation by the United States.
-5-
<PAGE>
SECTION 1.2 COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
Counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
(b) Every certificate (except certificates under Section 9.4) or opinion
with respect to compliance with a condition or covenant provided for in this
Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3 FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
(a) In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
(b) Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care
-6-
<PAGE>
should know that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such certificate or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
(c) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.4 ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee, and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 5.1) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by an officer of a corporation or a member of a partnership,
on behalf of such corporation or partnership, such certificate or affidavit
shall also constitute sufficient proof of his authority. The fact and date of
the execution of any such instrument or writing, or the authority of the person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c) The ownership of Certificates shall be proved by the Certificate
Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any
-7-
<PAGE>
Certificate shall bind the Holder of every Certificate issued upon the transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Certificate.
SECTION 1.5 NOTICES TO TRUSTEE AND COMPANY.
(a) Unless otherwise expressly provided in this Indenture, any request,
notice or other communication provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with, the Company or the Trustee shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail, postage prepaid, addressed as follows:
(1) If to the Company:
CERTIFIED GROCERS OF CALIFORNIA, LTD.
2601 S. Eastern Avenue
Los Angeles, California 90040
Attention: Chief Financial Officer
(2) If to the Trustee:
FIRST INTERSTATE BANK OF CALIFORNIA
707 Wilshire Boulevard, W11-1
Los Angeles, California 90017
Attention: Corporate Trust Dept.
(b) The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent requests, notices or other
communications.
SECTION 1.6 NOTICES TO HOLDERS; WAIVER.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Certificate Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder nor the failure of a Holder to receive such
notice shall affect the sufficiency of such notice with respect to other
Holders. Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of the action taken in
reliance upon such waiver.
-8-
<PAGE>
SECTION 1.7 CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Indenture limits, qualifies or conflicts with
another provision of this Indenture which is required to be included in this
Indenture by any of the provisions of TIA, such required provision shall
control.
SECTION 1.8 EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings of this Indenture and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 1.9 SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company and the
Trustee shall bind their respective successors and assigns, whether so expressed
or not.
SECTION 1.10 SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Certificates shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11 NO RECOURSE AGAINST OTHERS.
As described in paragraph 16 of the Certificates, all liability of any
director, officer, employee or stockholder of the Company is waived and
released.
SECTION 1.12 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any of its subsidiaries. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 1.13 GOVERNING LAW.
This Indenture and the Certificates shall be governed by the substantive
and procedural laws of the State of California without regard to principles of
conflicts of law.
ARTICLE II
THE CERTIFICATES
SECTION 2.1 FORMS GENERALLY.
(a) The Certificates and the Trustee's certificate of authentication
thereon shall be in substantially the form set
-9-
<PAGE>
forth in Exhibit A attached to this Indenture, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon, as may be
required to comply with the securities laws of any jurisdiction or the rules of
any securities exchange, or as may, consistently herewith, be determined by the
officers executing such Certificates, as evidenced by their execution of the
Certificates. Any portion of the text of any Certificate may be set forth on
the reverse thereof, with an appropriate reference thereto on the face of the
Certificate.
(b) The definitive Certificates shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange, all as determined by the officers executing such Certificates, as
evidenced by their execution of such Certificates.
SECTION 2.2 TERMS.
(a) The aggregate principal amount of Certificates which may be
Outstanding is limited to and shall not exceed $3,000,000.00.
(b) Each Certificate shall bear interest at a rate per annum as specified
in the Certificate, from the date specified therein for the commencement of
interest, payable on December 15 in each year, commencing December 15, 1996, and
continuing until the principal thereof is paid or duly made available for
payment.
(c) The Certificates shall be redeemable as provided in Article X, shall
be subject to set off as provided in Article XI, and shall be subordinated in
right of payment to Senior Indebtedness as provided in Article XII.
SECTION 2.3 DENOMINATIONS.
The Certificates shall be issuable only in registered form without coupons
in minimum denominations of $500.00 and in any greater denominations which are
integral multiples of $1.00.
SECTION 2.4 EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
(a) The Certificates shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents under its
corporate seal reproduced thereon and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the
Certificates may be manual or facsimile. Certificates bearing the manual or
facsimile signatures of individuals who were at any time the proper officers of
the Company shall bind the Company,
-10-
<PAGE>
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates.
(b) At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Certificates executed by the Company to
the Trustee for authentication, and the Trustee shall authenticate and deliver
such Certificates as in this Indenture provided and not otherwise. All
Certificates shall be dated the date of their authentication.
(c) No Certificate shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose, unless the certificate of
authentication on such Certificate has been executed by the Trustee by manual
signature, and such certificate upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder.
SECTION 2.5 TEMPORARY CERTIFICATES.
(a) Pending the preparation of definitive Certificates, the Company may
execute, and the Trustee shall authenticate and deliver, temporary Certificates
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any denomination, substantially of the tenor of the definitive
Certificates in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Certificates may determine, as evidenced by their execution of
such Certificates.
(b) If temporary Certificates are issued, the Company will cause
definitive Certificates to be prepared without unreasonable delay. After the
preparation of definitive Certificates, the temporary Certificates shall be
exchangeable for definitive Certificates without charge to the Holder. Promptly
following surrender for cancellation of any one or more temporary Certificates,
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Certificates of
authorized denominations. Until so exchanged the temporary Certificates shall
in all respects be entitled to the same benefits under this Indenture as
definitive Certificates.
SECTION 2.6 CERTIFICATE REGISTRAR AND PAYING AGENT; UNCLAIMED MONEY.
(a) The Company will maintain an office or agency where Certificates may
be presented or surrendered for payment ("Paying Agent"), and where Certificates
may be surrendered for registration of transfer or for exchange ("Certificate
Registrar"). The Certificate Registrar shall keep a register ("Certificate
Register") of the Certificates and of their
-11-
<PAGE>
transfer and exchange. The term "Paying Agent" includes any additional paying
agent. The Company shall enter into an appropriate agency agreement with any
Certificate Registrar or Paying Agent not a party to this Indenture. The
agreement shall implement the provisions of this Indenture that relate to such
agent. The Company will give prompt written notice to the Trustee of the
location, and of any change in the location, of any Certificate Registrar or
Paying Agent. If the Company fails to maintain a Certificate Registrar or
Paying Agent, the Trustee shall act as such. The Company hereby initially
appoints the Trustee as Certificate Registrar and Paying Agent.
(b) Each Paying Agent will:
(1) hold all sums held by it for the payment of the principal of or
any interest on Certificates in trust for the benefit of the Holders or the
Trustee until such sums shall be paid to such Holders or otherwise disposed
of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Certificates) known by the Paying Agent in the
making of any such payment of principal or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
(c) The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
(d) If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the
Certificates, segregate and hold in trust for the benefit of the Holders
entitled thereto a sum sufficient to pay the principal or interest so becoming
due until such sums shall be paid to such Holders or otherwise disposed of as
herein provided, and will promptly notify the Trustee in writing of its action
or failure so to act.
(e) Any money held by the Trustee or any Paying Agent, or held by the
Company, in trust for the payment of the principal of or interest on any
Certificate, and remaining unclaimed for two years after such principal or
interest has become due and payable, shall be paid to the Company upon its
written request,
-12-
<PAGE>
or, if then held by the Company, shall be discharged from such trust; and the
Holder of such Certificate shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
and any such Paying Agent with respect to such trust money, and all liability of
the Company as trustee thereof, shall thereupon cease.
SECTION 2.7 TRANSFER AND EXCHANGE.
(a) Where Certificates are presented to the Certificate Registrar with a
request to register transfer or to exchange them for an equal principal amount
of Certificates of other authorized denominations, the Certificate Registrar
shall register the transfer or make the exchange if, but only if, it has
received a Company Consent consenting to the transfer or exchange as requested
(which consent the Company is under no obligation to give), and, if so required
by the Company or the Trustee, such Certificates have been duly endorsed or
accompanied by a written instrument of transfer, in form satisfactory to the
Company and the Certificate Registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing. The Company may charge a reasonable
fee for any transfer or exchange, but not for any exchange pursuant to Sections
2.5 or 8.6 not involving any transfer.
(b) Without limiting the Company's right to otherwise withhold its
consent, the Company shall not be required to consent to (i) the issue, transfer
or exchange of any Certificate during a period beginning 15 days before the day
of the mailing of a notice of redemption of Certificates selected for redemption
under Section 10.4 and ending on the day of such mailing, or (ii) the transfer
or exchange of any Certificate so selected for redemption in whole or in part.
SECTION 2.8 MUTILATED, DESTROYED, LOST AND STOLEN CERTIFICATES.
(a) If (i) any mutilated Certificate is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Certificate, and (ii) there is delivered to
the Company and the Trustee such security or indemnity as may be required by
them to save each of them harmless, then, in the absence of notice to the
Company or the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Company shall execute and, upon the Company's written request,
the Trustee shall authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and principal amount, bearing a number not contemporaneously Outstanding.
In case any such mutilated, destroyed, lost or stolen Certificate has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Certificate, pay such Certificate.
-13-
<PAGE>
(b) Upon the issuance of any new Certificate under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
(c) Every new Certificate issued pursuant to this Section in lieu of any
destroyed, lost or stolen Certificate shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Certificate shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Certificates duly issued hereunder.
(d) The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Certificates.
SECTION 2.9 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
(a) Interest on any Certificate which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Certificate (or one or more Predecessor Certificates) is
registered on the Regular Record Date for such interest.
(b) Any interest on any Certificates which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder; and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Clause (1) or Clause (2) below:
(1) the Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Certificates (or their respective
Predecessor Certificates) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner: the Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Certificate and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment
-14-
<PAGE>
of such Defaulted Interest which shall be not more than 15 nor less than 10
days prior to the date of the proposed payment and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder entitled
to Defaulted Interest at his address as it appears in the Certificate
Register not less than 15 days prior to such Special Record Date. Notice
of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the Persons in whose names the Certificates (or their
respective Predecessor Certificates) are registered on such Special Record
Date and shall no longer be payable pursuant to the following Clause (2).
(2) the Company may make payment of any Defaulted Interest in any
other lawful manner, if, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this Clause, such payment shall
be deemed practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section, each Certificate
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Certificate shall carry the rights to interest accrued and unpaid, and
to accrue, which were carried by such other Certificate.
SECTION 2.10 PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Certificate is registered as the absolute
owner of such Certificate for the purpose of receiving payment of principal of
and (subject to Section 2.9) interest on, such Certificate and for all other
purposes whatsoever, whether or not such Certificate is overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 2.11 CANCELLATION.
All Certificates surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and, if not already cancelled, shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any Certificates
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Certificates so delivered shall be
promptly cancelled by the Trustee. No Certificates shall be authenticated in
lieu of or in exchange for any Certificates cancelled as provided in this
-15-
<PAGE>
Section, except as expressly permitted by this Indenture. All cancelled
Certificates held by the Trustee shall be disposed of as directed by a Company
Order.
SECTION 2.12 NO LIEN CREATED.
This Indenture and the Certificates do not create any mortgage, pledge,
security interest, lien, charge or encumbrance of any kind on any property or
assets of the Company or any of its subsidiaries.
ARTICLE III
SATISFACTION AND DISCHARGE
SECTION 3.1 SATISFACTION AND DISCHARGE OF INDENTURE.
(a) This Indenture shall cease to be of further effect, and the Trustee,
promptly following the written demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when either:
(1) all Certificates theretofore authenticated and delivered (other
than (i) Certificates which have been replaced or paid as provided in
Section 2.8, and (ii) Certificates for whose payment money has theretofore
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
in Section 2.6) have been delivered to the Trustee cancelled or for
cancellation; or
(2) as to all such Certificates not theretofore delivered to the
Trustee cancelled or for cancellation, the Company has deposited with the
Trustee as trust funds money in an amount, or U.S. Government Obligations
having maturities as to principal and interest sufficient to provide moneys
in an amount, necessary to pay and discharge the entire indebtedness on
such Certificates, for principal and interest to the date of such deposit
(in the case of Certificates which have become due and payable), or to the
Stated Maturity or Redemption Date, as the case may be.
(b) Notwithstanding any deposit by the Company pursuant to Subsection
(a)(2) of this Section, the Company's obligations in Sections 2.6, 2.7, 2.8,
5.7, 6.2(a) and 9.3 of this Indenture shall survive until the Certificates are
no longer Outstanding. Thereafter, the Company's obligations in Sections 2.6(e)
and 5.7 of this Indenture shall survive.
(c) U.S. Government Obligations deposited by the Company pursuant to
Subsection (a)(2) of this Section shall not be callable at the issuer's option.
-16-
<PAGE>
SECTION 3.2 APPLICATION OF TRUST MONEY.
All money or U.S. Government Obligations deposited with the Trustee
pursuant to Section 3.1 shall be held in trust and applied by it, in accordance
with the provisions of the Certificates and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal and interest for whose payment such money or U.S. Government
Obligations have been deposited with the Trustee; but any such money need not be
segregated from other funds except to the extent required by law.
SECTION 3.3 REPAYMENT TO COMPANY.
The Trustee and any Paying Agent shall promptly pay to the Company upon its
written request any excess moneys or U.S. Government Obligations held by them at
any time and which are not needed to pay, or to provide for the payment of, the
principal of or interest on the Certificates.
ARTICLE IV
REMEDIES
SECTION 4.1 EVENTS OF DEFAULT.
"EVENT OF DEFAULT" wherever used herein means any one of the following
events:
(1) default in the payment of any interest upon any Certificate when
it becomes due and payable, and continuance of such default for a period of
30 days; or
(2) default in the payment of the principal of any Certificate at its
Maturity; or
(3) default in the performance of any covenant or agreement of the
Company in this Indenture (other than a covenant or agreement a default in
whose performance is elsewhere in this Section specifically dealt with),
and continuance of such default for a period of 60 days after there has
been given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Certificates, a written notice
specifying such default and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(4) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company a bankrupt or insolvent or approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company under the
-17-
<PAGE>
Federal Bankruptcy Code or any other applicable Federal or State law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period
of 90 consecutive days; or
(5) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Federal Bankruptcy Code or any other applicable Federal or State law, or
the consent by it to the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of action by the Board of
Directors of the Company in furtherance of any such action.
SECTION 4.2 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
(a) If an Event of Default occurs and is continuing, then and in every
such case the Trustee or the Holders of not less than 25% in principal amount of
the Certificates Outstanding may declare the principal of all the Certificates
to be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders) and upon any such declaration such principal
shall become immediately due and payable.
(b) At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Certificates Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) The Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) All overdue installments of interest on all Certificates,
(B) the principal of any Certificates which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Certificates, and
-18-
<PAGE>
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of the
principal of Certificates which have become due solely by such
acceleration, have been cured or waived as provided in Section 4.13.
(c) No rescission as provided in subsection (b) of this Section shall
affect any subsequent default or impair any right consequent thereon.
SECTION 4.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
(a) The Company covenants that if:
(1) default is made in the payment of any installment of interest on
any Certificate when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of any
Certificate at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Certificates, the whole amount then due and payable on such
Certificates for principal and interest; and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel. If the Company fails to pay such amount
forthwith upon such demand, the Trustee, in its own name and as trustee of an
express trust, may institute a judicial proceeding for the collection of the
sums so due and unpaid, and may prosecute such proceeding to judgment or final
decree, and may enforce the same against the Company or any other obligor upon
the Certificates and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Certificates, wherever situated.
(b) If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
-19-
<PAGE>
SECTION 4.4 TRUSTEE MAY FILE PROOFS OF CLAIM.
(a) In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Certificates or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the
Certificates shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(1) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Certificates and to file such
other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and of the Holders allowed in such judicial proceeding,
and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 5.7.
(b) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the
Certificates or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 4.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
CERTIFICATES.
Rights of action and claims under this Indenture or the Certificates may be
prosecuted and enforced by the Trustee without the possession of any of the
Certificates or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of any judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the
-20-
<PAGE>
Trustee, its agents and counsel, be for the ratable benefit of the Holders of
the Certificates in respect of which such judgment has been recovered.
SECTION 4.6 APPLICATION OF MONEY COLLECTED.
Subject to the provisions of Article XII, any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal or interest, upon presentation of the Certificates
and the notation thereof of the payment if only partially paid and upon
surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section
5.7;
Second: To the payment of the amounts then due and unpaid upon the
Certificates for principal and interest, in respect of which or for the
benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Certificates for principal and interest, respectively; and
Third: To the Company.
SECTION 4.7 LIMITATION ON SUITS.
No Holder of any Certificate shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Certificates shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60 day
-21-
<PAGE>
period by the Holders of a majority in principal amount of the Outstanding
Certificates;
it being understood and intended that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Certificates, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all Holders of Certificates.
SECTION 4.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST.
Subject to the provisions of Articles XI and XII, notwithstanding any other
provision in this Indenture, the Holder of any Certificate shall have the right,
which is absolute and unconditional, to receive payment of the principal of and
(subject to Section 2.9) interest on such Certificate on or after the respective
Stated Maturities expressed in such Certificate (or, in the case of redemption,
on the Redemption Date) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder.
SECTION 4.9 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Company, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 4.10 RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy hereunder conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 4.11 DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Certificate to
exercise any right or remedy accruing upon any
-22-
<PAGE>
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or any acquiescence therein. Every right and remedy
given by this Article or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
SECTION 4.12 CONTROL BY HOLDERS.
The Holders of a majority in principal amount of the Outstanding
Certificates shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that:
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 4.13 WAIVER OF PAST DEFAULTS.
(a) The Holders of not less than a majority in principal amount of the
Outstanding Certificates may on behalf of the Holders of all the Certificates
consent to the waiver of any past default hereunder and its consequences, except
a default:
(1) in the payment of the principal of or interest on any
Certificate, or
(2) in respect of a covenant or provision hereof which under Article
VIII cannot be modified or amended without the consent of the Holder of any
Outstanding Certificate affected.
(b) If a waiver pursuant to Subsection (a) of this Section is solicited,
the Holders entitled to consent thereto shall be the Holders of the Outstanding
Certificates, as listed in the Certificate Register, on the date which is the
later of (i) 30 days prior to the first solicitation of such consent or (ii) the
date of the most recent list of Holders furnished to the Trustee pursuant to
Section 6.1 of this Indenture.
(c) Upon any waiver pursuant to Subsection (a) of this Section, such
default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
-23-
<PAGE>
SECTION 4.14 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Certificate by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit and that such court may in its
discretion assess reasonable costs including reasonable attorneys' fees, against
any party litigant in such suit, having due regard to the merits and good faith
of the claims or defenses made by such party litigant; but the provisions of
this Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in principal amount of the Outstanding Certificates, or to any suit
instituted by any Holder for the enforcement of the payment of the principal of
or interest on any Certificate on or after the respective Stated Maturities
expressed in such Certificate (or, in the case of redemption, on or after the
Redemption Date).
ARTICLE V
THE TRUSTEE
SECTION 5.1 CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default:
(1) The Trustee undertakes to perform only such duties as are
specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture but need not verify the
accuracy of the contents thereof.
(b) If an Event of Default has occurred of which the Trustee shall be
deemed to have knowledge pursuant to Section 5.2 and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
-24-
<PAGE>
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with a direction
received by it pursuant to Section 4.12; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 5.2 NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any default hereunder known to the
Trustee, the Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Certificate Register, notice of such default, unless
such default shall have been cured or waived; provided, however, that, except in
the case of a default in the payment of the principal of or interest on any
Certificate, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interests of the Holders; and
provided, further, that in the case of any default of the character specified in
clause (3) of Section 4.1 no such notice to Holders shall be given until at
least 60 days after the occurrence thereof. The Trustee shall not be charged
with knowledge of any default or Event of Default unless written notice thereof
shall have been given to the Trustee by the Company or by the Holders of at
least 25 % in principal amount of the Outstanding Certificates. For the purpose
of this Section, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default.
-25-
<PAGE>
SECTION 5.3 CERTAIN RIGHTS OF TRUSTEE.
(1) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture or other paper or document believed by it in good faith to
be genuine and to have been signed or presented by the proper party or
parties.
(2) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution.
(3) Whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the exercise of
good faith on its part, rely upon any Officers' Certificate.
(4) The Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(5) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction.
(6) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture or other paper or document, and the Trustee need not
investigate any such facts or matters.
(7) Without in any way limiting the liabilities or obligations of the
Trustee under this Indenture, a director, officer, employee or Affiliate
of the Trustee shall be protected by the provisions hereof, including,
without limitation, the immunities and indemnities afforded herein, to the
same extent as the Trustee and shall not have any liability hereunder.
-26-
<PAGE>
SECTION 5.4 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF CERTIFICATES.
Any recitals contained herein and in the Certificates, except the
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for and is not liable for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Certificates. The Trustee shall not be
accountable for the use or application by the Company or any Paying Agent (other
than the Trustee) of Certificates or the proceeds thereof.
SECTION 5.5 MAY NOT HOLD CERTIFICATES.
The Trustee, any Paying Agent, Certificate Registrar or any other agent of
the Company, in its individual or any other capacity, may not become the owner
or pledgee of Certificates unless it has first received a Company Consent
consenting thereto, but may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Paying Agent, Certificate Registrar or
such other agent. In all events, the Trustee must comply with Sections 5.8 and
5.13 of this Indenture.
SECTION 5.6 MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 5.7 COMPENSATION AND REIMBURSEMENT.
(a) The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the reasonable
expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be incurred or made by it through
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
and to pay the Trustee upon its written request, the amount of any loss,
liability or expense incurred without negligence, willful misconduct or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this trust, including the
-27-
<PAGE>
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder.
(b) As security for the performance of the obligations of the Company
under this Section, the Trustee shall have a lien prior to the Certificates upon
all property and funds held or collected by the Trustee as such, except funds
held in trust for the payment of principal of or interest on Certificates.
SECTION 5.8 DISQUALIFICATION; CONFLICTING INTERESTS.
(a) If the Trustee has or shall acquire any conflicting interest, as
defined in this Section, then, within 90 days after ascertaining that is has
such conflicting interest, and if the Event of Default (as defined in Subsection
(c) of this Section) to which such conflicting interest relates has not been
cured or duly waived or otherwise eliminated before the end of such 90-day
period, the Trustee shall either eliminate such conflicting interest or, except
as otherwise provided in Subsection (f) of this Section, resign in the manner
and with the effect hereinafter specified in this Article.
(b) In the event that the Trustee shall fail to comply with the provisions
of Subsection (a) of this Section the Trustee shall, within 10 days after the
expiration of such 90-day period, transmit by mail to all Holders, as their
names and addresses appear in the Certificate Register, notice of such failure.
(c) For the purposes of this Section, the Trustee shall be deemed to have
a conflicting interest if any Event of Default (exclusive of any period of grace
or requirement of notice specified in Section 4.1) has occurred and:
(1) the Trustee is trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the Company are outstanding or is trustee for more than one
outstanding series of securities, as hereinafter defined in this Subsection
(c), under a single indenture of the Company, unless such other indenture
is a collateral trust indenture under which the only collateral consists of
Certificates issued under this Indenture, provided that there shall be
excluded from the operation of this paragraph other series under such
indenture, and any other indenture or indentures under which other
securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if:
(A) this Indenture and such other indenture or indentures (and
all series of securities issuable thereunder) are wholly unsecured and
rank equally, and such other indenture or indentures (and such series)
are hereafter qualified under TIA, unless the
-28-
<PAGE>
Commission shall have found and declared by order pursuant to Section
305(b) or Section 307(c) of TIA that differences exist between the
provisions of this Indenture and the provisions of such other
indenture or indentures (or such series) which are so likely to
involve a material conflict of interest as to make it necessary in the
public interest or for the protection of investors to disqualify the
Trustee from acting as such under this Indenture and such other
indenture or indentures, or
(B) the Company shall have sustained the burden of proving, on
application to the Commission and after opportunity for hearing
thereon, that trusteeship under this Indenture and such other
indenture or under more than one outstanding series under a single
indenture is not so likely to involve a material conflict of interest
as to make it necessary in the public interest or for the protection
of investors to disqualify the Trustee from acting as such under one
of such indentures or with respect to such series;
(2) the Trustee or any of its directors or executive officers is an
underwriter for the Company;
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control with
an underwriter for the Company upon the Certificates;
(4) the Trustee or any of its directors or executive officers is a
director, officer, partner, employee, appointee or representative of the
Company, or of an underwriter (other than the Trustee itself) for the
Company who is currently engaged in the business of underwriting, except
that (i) one individual may be a director or an executive officer, or both,
of the Trustee and a director or an executive officer, or both, of the
Company but may not be at the same time an executive officer of both the
Trustee and the Company; (ii) if and so long as the number of directors of
the Trustee in office is more than nine, one additional individual may be a
director or an executive officer, or both, of the Trustee and a director of
the Company; and (iii) the Trustee may be designated by the Company or by
any underwriter for the Company to act in the capacity of transfer agent,
registrar, custodian, paying agent, fiscal agent, escrow agent, or
depositary, or in any other similar capacity, or subject to the provisions
of paragraph (1) of this Subsection, to act as trustee, whether under an
indenture or otherwise;
(5) 10% or more of the voting securities of the Trustee is
beneficially owned either by the Company or by any director, partner, or
executive officer thereof, or 20%
-29-
<PAGE>
or more of such voting securities is beneficially owned, collectively, by
any two or more of such persons; or 10% or more of the voting securities of
the Trustee is beneficially owned either by an underwriter for the Company
or by any director, partner or executive officer thereof, or executive
officer thereof, or is beneficially owned, collectively, by any two or more
such persons;
(6) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), (i) 5% or more of the voting securities, or 10% or
more of any other class of security, of the Company not including the
Certificates issued under this Indenture and securities issued under any
other indenture under which the Trustee is also trustee, or (ii) 10% or
more of any class of security of any underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 5% or more of the voting securities of any person who,
to the knowledge of the Trustee, owns 10% or more of voting securities of,
or controls directly or indirectly or is under direct or indirect common
control with, the Company;
(8) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default (as hereinafter in this
Subsection defined), 10% or more of any class of security of any person
who, to the knowledge of the Trustee, owns 50% or more of the voting
securities of the Company;
(9) the Trustee owns, on May 15 in any calendar year, in the capacity
of executor, administrator, testamentary or inter vivos trustee, guardian,
committee or conservator, or in any other similar capacity, an aggregate of
25% or more of the voting securities, or of any class of security, of any
person, the beneficial ownership of a specified percentage of which would
have constituted a conflicting interest under paragraphs (6), (7) or (8) of
this Subsection. As to any such securities of which the Trustee acquired
ownership through becoming executor, administrator, or testamentary trustee
of an estate which included them, the provision of the preceding sentence
shall not apply, for a period of two years from the date of such
acquisition, to the extent that such securities included in such estate do
not exceed 25% of such voting securities or 25% of any such class of
security. Promptly after May 15 in each calendar year, the Trustee shall
make a check of its holdings of such securities in any of the
above-mentioned capacities as of such May 15. If the Company fails to make
payment in full of the principal of or interest on any of the Certificates
when and as the same becomes due and payable, and such
-30-
<PAGE>
failure continues for 30 days thereafter, the Trustee shall make a prompt
check of its holdings of such securities in any of the above-mentioned
capacities as of the date of the expiration of such 30 day period, and
after such date, notwithstanding the foregoing provisions of this
paragraph, all such securities so held by the Trustee, with sole or joint
control over such securities vested in it, shall, but only so long as such
failure shall continue, be considered as though beneficially owned by the
Trustee for the purposes of paragraphs (6), (7) and (8) of this Subsection;
or
(10) except under the circumstances described in paragraphs (1), (3),
(4), (5) or (6) of Subsection 5.13(b), the Trustee shall be or shall become
a creditor of the Company.
For purposes of paragraph (1) of this Subsection, the term "series of
securities" or "series" means a series, class or group of securities issuable
under an indenture pursuant to whose terms holders of one such series may vote
to direct the Trustee, or otherwise take action pursuant to a vote of such
holders, separately from holders of another such series; PROVIDED, that "series
of securities" or "series" shall not include any series of securities issuable
under an indenture if all such series rank equally and are wholly unsecured.
The specification of percentages in paragraphs (5) to (9) inclusive, of
this Subsection shall not be construed as indicating that the ownership of such
percentages of the securities of a person is or is not necessary or sufficient
to constitute direct or indirect control for the purposes of paragraph (3) or
(7) of this Subsection.
For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection
only, (i) the terms "security" and "securities" shall include only such
securities as are generally known as corporate securities, but shall not include
any note or other evidence of indebtedness issued to evidence an obligation to
repay moneys lent to a person by one or more banks, trust companies or banking
firms, or any certificate or interest or participation in any such note or
evidence of indebtedness; (ii) an obligation shall be deemed to be in default
when a default in payment of principal shall have continued for 30 days or more
and shall not have been cured; and (iii) the Trustee shall not be deemed to be
the owner or holder of (A) any security which it holds as collateral security,
as trustee or otherwise, for an obligation which is not in default as defined in
clause (ii) above, or (B) any security which it holds as collateral security
under this Indenture, irrespective of any default hereunder, or (C) any security
which it holds as agent for collection, or as custodian, escrow agent, or
depositary, or in any similar representative capacity.
-31-
<PAGE>
(d) For the purposes of this Section:
(1) the term "underwriter" when used with reference to the Company
means every person who, within one year prior to the time as of which the
determination is made, was an underwriter of any security of the Company
outstanding at the time of determination.
(2) the term "director" means any director of a corporation, or any
individual performing similar functions with respect to any organization
whether incorporated or unincorporated.
(3) the term "person" means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization, or a government or political subdivision
thereof. As used in this paragraph, the term "trust" shall include only a
trust where the interest or interests of the beneficiary or beneficiaries
are evidenced by a security.
(4) the term "voting security" means any security presently entitling
the owner or holder thereof to vote in the direction or management of the
affairs of a person, or any security issued under or pursuant to any trust,
agreement or arrangement whereby a trustee or trustees or agent or agents
for the owner or holder of such security are presently entitled to vote in
the direction or management of the affairs of a person.
(5) the term "Company" means any obligor upon the Certificates.
(6) the term "executive officer" means the president, every vice
president, every trust officer, the cashier, the secretary, and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization whether incorporated or
unincorporated, but shall not include the chairman of the board of
directors.
(e) The percentages of voting securities and other securities specified in
this Section shall be calculated in accordance with the following provisions:
(1) a specified percentage of the voting securities of the Trustee,
the Company or any other person referred to in this Section (each of whom
is referred to as a "person" in this paragraph) means such amount of the
outstanding voting securities of such person as entitles the holder or
holders thereof to cast such specified percentage of the aggregate votes
which the holders of all the outstanding voting securities of such person
are entitled to cast in the direction or management of the affairs of such
person.
-32-
<PAGE>
(2) a specified percentage of a class of securities of a person means
such percentage of the aggregate amount of securities of the class
outstanding.
(3) the term "amount", when used in regard to securities, means the
principal amount if relating to evidences of indebtedness, the number of
shares if relating to capital shares, and the number of units if relating
to any other kind of security.
(4) the term "outstanding" means issued and not held by or for the
account of the issuer. The following securities shall not be deemed
outstanding within the meaning of this definition:
(i) securities of an issuer held in a sinking fund relating to
securities of the issuer of the same class;
(ii) securities of an issuer held in a sinking fund relating to
another class of securities of the issuer, if the obligation evidenced
by such other class of securities is not in default as to principal or
interest or otherwise;
(iii) securities pledged by the issuer thereof as security for an
obligation of the issuer not in default as to principal or interest or
otherwise; and
(iv) securities held in escrow if placed in escrow by the issuer
thereof: PROVIDED, HOWEVER, that any voting securities of an issuer
shall be deemed outstanding if any person other than the issuer is
entitled to exercise the voting rights thereof.
(5) a security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges; PROVIDED, HOWEVER, that, in
the case of secured evidences of indebtedness, all of which are issued
under a single indenture, differences in the interest rates or maturity
dates of various series thereof shall not be deemed sufficient to
constitute such series different classes; and PROVIDED, FURTHER, that, in
the case of unsecured evidences of indebtedness, differences in the
interest rates or maturity dates thereof shall not be deemed sufficient to
constitute them securities of different classes, whether or not they are
issued under a single indenture.
(f) Except in the case of an Event of Default specified in Paragraphs (1)
and (2) of Section 4.1, the Trustee shall not be required to resign as provided
by this Section if the Trustee
-33-
<PAGE>
shall have sustained the burden of proving, on application to the Commission and
after opportunity for hearing thereon, that:
(1) The Event of Default may be cured or waived during a reasonable
period and under the procedures described in such application; and
(2) A stay of the Trustee's duty to resign will not be inconsistent
with the interests of Holders of the Certificates. The filing of such an
application shall automatically stay the performance of the duty to resign
until the Commission orders otherwise.
SECTION 5.9 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or any State thereof, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $5,000,000, and
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 5.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 5.11.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 60 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Certificates, delivered to the
Trustee and to the Company.
-34-
<PAGE>
(d) If at any time:
(1) the Trustee shall fail to comply with Section 5.8(a) after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Certificate for at least 6 months, or
(2) the Trustee shall cease to be eligible under Section 5.9 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 4.14, and unless the Trustee's duty to
resign is stayed as provided in Subsection (f) of Section 5.8, any Holder who
has been a bona fide Holder of a Certificate for at least 6 months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee. If, within 1
year after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Certificates delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Certificate for at least 6 months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Certificates as their names and addresses appear in the Certificate Register.
Each notice shall include the name of the successor Trustee and the address of
its principal corporate trust office.
-35-
<PAGE>
SECTION 5.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on written request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 5.7. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts. No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article, to the extent operative.
SECTION 5.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, to the extent operative, without the execution or filing of any paper
or any further act on the part of any of the parties hereto. In case any
Certificates shall have been authenticated, but not delivered, by the Trustee
then in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the
Certificates so authenticated with the same effect as if such successor Trustee
had itself authenticated such Certificates.
SECTION 5.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
(a) Subject to the provisions of Subsection (b) of this Section, if the
Trustee shall be or shall become a creditor, directly or indirectly, secured or
unsecured, of the Company within 3 months prior to a default, as defined in
Subsection (c) of this Section, or subsequent to such a default, then, unless
and until such default shall be cured, the Trustee shall set apart and hold in a
special account for the benefit of the
-36-
<PAGE>
Trustee individually, the Holders of the Certificates and the holders of other
indenture securities (as defined in Subsection (c) of this Section):
(1) an amount equal to any and all reductions in the amount due and
owing upon any claim as such creditor in respect of principal or interest,
effected after the beginning of such 3 months' period and valid as against
the Company and its other creditors, except any such reduction resulting
from the receipt or disposition of any property described in paragraph (2)
of this Subsection, or from the exercise of any right of set-off which the
Trustee could have exercised if a petition in bankruptcy had been filed by
or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claim as
such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such 3 months'
period, or an amount equal to the proceeds of any such property, if
disposed of, subject, however, to the rights, if any, of the Company and
its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee
(A) to retain for its own account (i) payments made on account of any
such claim by any Person (other than the Company) who is liable thereon,
and (ii) the proceeds of the bona fide sale of any such claim by the
Trustee to a third person, and (iii) distributions made in cash, securities
or other property in respect of claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to
the Federal Bankruptcy Code or applicable State law;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the
beginning of such 3 months' period;
(C) to realize, for its own account, but only to the extent of the
claim hereinafter mentioned, upon any property held by it as security for
any such claim, if such claim was created after the beginning of such 3
months' period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so received the
Trustee had no reasonable cause to believe that a default as defined in
Subsection (c) of this Section would occur within 3 months; or
(D) to receive payments on any claim referred to in paragraph (B) or
(C), against the release of any property
-37-
<PAGE>
held as security for such claim as provided in paragraph (B) or (C), as the
case may be, to the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after
the beginning of such 3 months' period for property held as security at the time
of such substitution shall, to the extent of the fair value of the property
released, have the same status as the property released, and, to the extent that
any claim referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any preexisting
claim of the Trustee as such creditor, such claim shall have the same status as
such preexisting claim.
If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds thereof shall be apportioned between the
Trustee, the Holders and the holders of other indenture securities in such
manner that the Trustee, the Holders and the holders of such other indenture
securities realize, as a result of payments from such special account and
payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
Bankruptcy Code or applicable State law, the same percentage of their respective
claims, figured before crediting to the claim of the Trustee anything on account
of the receipt by it from the Company of the funds and property in such special
account and before crediting to the respective claims of the Trustee and the
Holders and the holders of other indenture securities dividends on claims filed
against the Company in bankruptcy or receivership or in proceedings for
reorganization pursuant to the Federal Bankruptcy Code or applicable State law,
but after crediting thereon receipts on account of the indebtedness represented
by their respective claims from all sources other than from such dividends and
from the funds and property so held in such special account. As used in this
paragraph, with respect to any claim, the term "dividends" shall include any
distribution with respect to such claim, in bankruptcy or receivership or
proceedings for reorganization pursuant to the Federal Bankruptcy Code or
applicable State law, whether such distribution is made in cash, securities, or
other property, but shall not include any such distribution with respect to the
secured portion, if any, of such claim. The court in which such bankruptcy,
receivership or proceedings for reorganization is pending shall have
jurisdiction (i) to apportion between the Trustee and the Holders and the
holders of other indenture securities, in accordance with the provisions of this
paragraph, the funds and property held in such special account and proceeds
thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to
the provisions of this paragraph due consideration in determining the fairness
of the distributions to be made to the Trustee and the Holders and the holders
of other indenture securities with respect to their respective claims, in which
event it shall not be necessary to liquidate or to appraise
-38-
<PAGE>
the value of any securities or other property held in such special account or as
security for any such claim, or to make a specific allocation of such
distributions as between the secured and unsecured portions of such claims, or
otherwise to apply the provisions of this paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the beginning of such 3
month period shall be subject to the provisions of this Subsection as though
such resignation or removal had not occurred. Any Trustee who has resigned or
been removed prior to the beginning of such 3 month period shall be subject to
the provisions of this Subsection if and only if the following conditions exist:
(i) the receipt of property or reduction of claims, which would
have given rise to the obligation to account, if such Trustee had
continued as Trustee, occurred after the beginning of such 3 months'
period; and
(ii) such receipt of property or reduction of claim occurred
within 3 months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of this
Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of preserving
any property which shall at any time be subject to the lien of this
Indenture or of discharging tax liens or other prior liens or encumbrances
thereon, if notice of such advances and of the circumstances surrounding
the making thereof is given to the Holders at the time and in the manner
provided in this Indenture;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depositary, or other similar
capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transactions as defined in Subsection (c) of this
Section;
(5) the ownership of stock or of other securities of a corporation
organized under the provisions of Section
-39-
<PAGE>
25(a) of the Federal Reserve Act, as amended, which is directly or
indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within the
classification of self-liquidating paper as defined in Subsection (c) of
this Section.
(c) For the purposes of this Section only:
(1) the term "default" means any failure to make payment in full of
the principal of or interest on any of the Certificates or upon the other
indenture securities when and as such principal or interest becomes due and
payable.
(2) the term "other indenture securities" means securities upon which
the Company is an obligor outstanding under any other indenture (i) under
which the Trustee is also trustee, (ii) which contains provisions
substantially similar to the provisions of this Section, and (iii) under
which a default exists at the time of the apportionment of the funds and
properly held in such special account.
(3) the term "cash transaction" means any transaction in which full
payment for goods or securities sold is made within 7 days after delivery
of the goods or securities in currency or in checks or other orders drawn
upon banks or bankers and payable upon demand.
(4) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the good, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the security is
received by the Trustee simultaneously with the creation of the creditor
relationship with the Company arising from the making, drawing, negotiating
or incurring of the draft, bill of exchange, acceptance or obligation.
(5) the term "Company" means any obligor upon the Certificates.
-40-
<PAGE>
ARTICLE VI
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 6.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
If the Trustee is not the Certificate Registrar, the Company will furnish
or cause to be furnished to the Trustee:
(1) semi-annually, not more than 15 days after each May 1 and
November 1, all information in the possession or control of the Company, or
of any Paying Agent (other than the Trustee), in such form as the Trustee
may reasonably require, as to the names and addresses of the Holders of
Certificates as of such May 1 or November 1, as the case may be, and
(2) at such other times as the Trustee may request in writing, within
15 days after the receipt by the Company of any such request, information
of similar form and content as of a date not more than 15 days prior to the
time such information is furnished.
SECTION 6.2 PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all such information furnished to the Trustee as provided in
Section 6.1 and all such information received by the Trustee in its capacity as
Paying Agent.
(b) If 3 or more Holders of Certificates (hereinafter referred to as
"applicants") apply in writing to the Trustee, and furnish to the Trustee
reasonable proof that each such applicant has owned a Certificate for a period
of at least 6 months preceding the date of such application, and such
application states that the applicants desire to communicate with other Holders
of Certificates with respect to their rights under this Indenture or under the
Certificates and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall,
within 5 business days after the receipt of such application, at its election,
either:
(i) afford such applicants access to the information preserved at the
time by the Trustee in accordance with Subsection (a) of this Section or
(ii) inform such applicants as to the approximate number of Holders of
Certificates whose names and addresses appear in the information preserved
at the time by the Trustee in accordance with Subsection (a) of this
Section and as to the approximate cost of mailing to such Holders the form
of proxy or other communication, if any, specified in such application.
-41-
<PAGE>
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Subsection (a) of this Section, a
copy of the form of proxy or other communication which is specified in such
request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless within 5 days after such tender, the
Trustee shall mail to such applicants and file with the Commission, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders of Certificates or would be in violation of applicable
law. Such written statement shall specify the basis of such opinion. If the
Commission, after opportunity for a hearing upon the objections specified in the
written statement so filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for hearing,
that all the objections so sustained have been met and shall enter an order so
declaring, the Trustee shall mail copies of such material to all such Holders
with reasonable promptness after the entry of such order and the renewal of such
tender; otherwise the Trustee shall be relieved of any obligation or duty to
such applicants respecting their application.
(c) Every Holder of Certificates, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Holders of Certificates in accordance with
Subsection (b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Subsection (b) of this Section.
SECTION 6.3 REPORTS BY TRUSTEE.
(a) Within 60 days after May 15 of each year commencing with the year
1996, the Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Certificate Register, a brief report dated as of such
May 15 with respect to any of the following events which may have occurred
within the previous 12 months (but if no such event has occurred within such
period, no report need be transmitted):
(1) any change to its eligibility under Section 5.9 and its
qualifications under Section 5.8;
(2) the creation of or any material change to a relationship
specified in paragraphs (1) through (10) of Section 5.8(c);
-42-
<PAGE>
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made
by the Trustee (as such) which remain unpaid on the date of such report,
and for the reimbursement of which it claims or may claim a lien or charge,
prior to that of the Certificates, on property or funds held or collected
by it as Trustee, except that the Trustee shall not be required (but may
elect) to report such advances so remaining unpaid which aggregate not more
than 1/2 of 1% of the principal amount of the Certificates Outstanding on
the date of such report;
(4) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Certificates) to the Trustee in its individual capacity, on the date of
such report, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in Section 5.13(b)(2), (3),
(4) or (6);
(5) any change to the property and funds, if any, physically in the
possession of the Trustee as such on the date of such report;
(6) any additional issue of Certificates which the Trustee has not
previously reported; and
(7) any action taken by the Trustee in the performance of its duties
hereunder which it has not previously reported and which in its opinion
materially affects the Certificates, except action in respect of a default,
notice of which has been or is to be withheld by the Trustee in accordance
with Section 5.2.
(b) The Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Certificate Register, a brief report with respect to the
character and amount of any advances (and if the Trustee elects so to state, the
circumstances surrounding the making thereof) made by the Trustee (as such)
since the date of the last report transmitted pursuant to Subsection (a) of this
Section (or if no such report has yet been so transmitted, since the date of
execution of this Indenture) for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Certificates, on property or funds
held or collected by it as Trustee, and which it has not previously reported
pursuant to this Subsection, such report to be transmitted within 90 days after
such time, except that the Trustee shall not be required (but may elect) to
(1) report such advances if such advances remaining unpaid at any
time aggregate 10% or less of the principal amount of the Certificates
Outstanding at such time.
-43-
<PAGE>
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Certificates are listed, and also with the Commission. The Company will notify
the Trustee when the Certificates are listed on any stock exchange.
SECTION 6.4 REPORTS BY COMPANY.
The Company will:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company is required to file with
the Commission pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then
it will file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed by the Commission, such additional
information, documents and reports with respect to compliance by the
Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, as their names and addresses
appear in the Certificate Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
-44-
<PAGE>
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
SECTION 7.1 COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other corporation
or convey or transfer its properties and assets substantially as an entirety to
any Person, unless:
(1) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Company substantially as an entirety shall
be a corporation organized and existing under the laws of the United States
of America or any State or the District of Columbia, and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the principal of and interest on all the Certificates and the
performance of every covenant and agreement in this Indenture on the part
of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that such consolidation, merger,
conveyance or transfer and such supplemental indenture comply with this
Article and that all conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 7.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any conveyance or transfer of the
properties and assets of the Company substantially as an entirety in accordance
with Section 7.1, the successor corporation formed by such consolidation or into
which the Company is merged or the Person to which such conveyance or transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor corporation or Person had been named as the Company herein, and
thereafter all obligations of the Company under this Indenture and the
Certificates shall terminate.
-45-
<PAGE>
ARTICLE VIII
AMENDMENTS AND SUPPLEMENTS
SECTION 8.1 WITHOUT CONSENT OF HOLDERS.
Without the consent of the Holders of any Certificates, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more amendments or indentures supplemental hereto,
in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation or Person to
the Company, and the assumption by any such successor of the covenants of
the Company herein and in the Certificates contained; or
(2) to add to the covenants of the Company, for the benefit of the
Holders of the Certificates, or to surrender any right or power herein
conferred upon the Company; or
(3) to cure any ambiguity, omission, defect or inconsistency, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions of
this Indenture, provided such action shall not adversely affect the
interests of the Holders of the Certificates; or
(4) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under TIA, or under any similar federal statute hereafter
enacted, and to add to this Indenture such other provisions as may be
expressly permitted by TIA.
SECTION 8.2 WITH CONSENT OF HOLDERS.
(a) With consent of the Holders of not less than a majority in principal
amount of the Outstanding Certificates, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into one or more amendments or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders of the Certificates under this Indenture;
PROVIDED, HOWEVER, that no such amendment or supplemental indenture shall,
without the consent of the Holder of each Outstanding Certificate affected
thereby:
(1) change the Stated Maturity of the principal of, or any instalment
of interest on, any Certificate, or reduce the principal amount thereof or
the interest thereon payable upon the redemption thereof, or change the
coin or currency in which, any Certificate or the interest thereon is
-46-
<PAGE>
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Certificates, the consent of whose Holders is required for any such
amendment or supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences) provided
for in this Indenture, or
(3) modify any of the provisions of this Section or Section 4.13,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Certificate affected thereby.
(b) It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed amendment or supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 8.3 EXECUTION OF AMENDMENTS AND SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any amendment
or supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 5.1) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such amendment or
supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such amendment or
supplemental indenture which, in the reasonable opinion of the Trustee, affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 8.4 EFFECT OF AMENDMENTS AND SUPPLEMENTAL INDENTURES.
Upon the execution of any amendment or supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
amendment or supplemental indenture shall form a part of this Indenture for all
purposes; and every Holder of Certificates theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
SECTION 8.5 CONFORMITY WITH TRUST INDENTURE ACT.
Every amendment or supplemental indenture executed pursuant to this Article
shall conform to the requirements of TIA as then in effect if this Indenture
shall then be qualified under TIA.
-47-
<PAGE>
SECTION 8.6 REFERENCE IN CERTIFICATES TO AMENDMENTS AND SUPPLEMENTAL
INDENTURES.
Certificates authenticated and delivered after the execution of any
amendment or supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such amendment or supplemental indenture. If the
Company shall so determine, new Certificates so modified as to conform, in the
opinion of the Trustee and the Board of Directors, to any such amendment or
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Certificates.
ARTICLE IX
COVENANTS
SECTION 9.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of and interest on
the Certificates in accordance with the terms of the Certificates and this
Indenture.
SECTION 9.2 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income, profits or property, and
(2) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon its property; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 9.3 MAINTENANCE OF PROPERTIES.
The Company will cause all its properties used or useful in the conduct of
its business to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business and not disadvantageous in any material respect
to the Holders.
-48-
<PAGE>
SECTION 9.4 CERTIFICATE AS TO COMPLIANCE.
The Company will deliver to the Trustee, within 120 days after the end of
each of its fiscal years, a certificate (which need not comply with Section 1.2)
signed by the President, the Chief Financial Officer or the Principal Accounting
Officer of the Company, stating that:
(1) a review of the activities of the Company during such year and of
performance under this Indenture has been made under the signer's
supervision; and
(2) to the signer's knowledge, based on such review, the Company is
in compliance (without regard to any period of grace or requirement of
notice provided under the Indenture) with all conditions and covenants
under the Indenture.
SECTION 9.5 CORPORATE EXISTENCE.
Subject to Article VII, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any right or franchise if the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
ARTICLE X
REDEMPTION OF CERTIFICATES
SECTION 10.1 RIGHT OF REDEMPTION.
The Certificates are redeemable at the option of the Company, at any time
in whole or from time to time in part, upon notice from the Company to the
Trustee as set forth in Section 10.2, at their principal amount, without
premium, together with accrued interest (as such principal amount and accrued
interest may have been reduced pursuant to Article XI) to the Redemption Date
fixed by the Company ("Redemption Price").
SECTION 10.2 NOTICE TO TRUSTEE.
The election of the Company to redeem Certificates shall be exercised by
written notice to the Trustee given at least 45 days prior to the Redemption
Date fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee). Such notice shall state the Redemption Date fixed by the Company and
the principal amount of Certificates to be redeemed.
-49-
<PAGE>
SECTION 10.3 SELECTION BY TRUSTEE OF CERTIFICATES TO BE REDEEMED.
(a) If less than all the Certificates are to be redeemed, the particular
Certificates or portions thereof to be redeemed shall be selected not more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Certificates not previously called for redemption, pro rata, by lot or by such
other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of
Certificates of a denomination larger than $500.00. The portions of the
principal of Certificates so selected for partial redemption shall be equal to
$1.00 or a multiple thereof; however, no Certificate may be selected for partial
redemption if the principal balance of such Certificate remaining after
redemption would be less than $500.00.
(b) The Trustee shall promptly notify the Company in writing of the
Certificates selected for redemption and, in the case of any Certificate
selected for partial redemption, the principal amount thereof to be redeemed.
(c) For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Certificates shall
relate, in the case of any Certificate redeemed or to be redeemed only in part,
to the portion of the principal of such Certificate which has been or is to be
redeemed.
SECTION 10.4 NOTICE OF REDEMPTION.
(a) Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 15 nor more than 60 days prior to the Redemption
Date, to each Holder of Certificates to be redeemed, at his address appearing in
the Certificate Register.
(b) All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all Outstanding Certificates are to be redeemed, the
identification (and, in the case of partial redemption, the respective
principal amounts) of the Certificates to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Certificate, and that interest thereon shall
cease to accrue on and after said date, and
-50-
<PAGE>
(5) the name and address of the Paying Agent where such Certificates
must be surrendered for payment of the Redemption Price.
(c) Notice of redemption of Certificates to be redeemed at the election of
the Company shall be given by the Company, or, at the Company's written request,
by the Trustee in the name and at the expense of the Company.
SECTION 10.5 DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.6) an amount of money sufficient to pay the
Redemption Price of all the Certificates which are to be redeemed on that date.
SECTION 10.6 PAYABLE ON REDEMPTION DATE.
(a) Notice of redemption having been given as provided in Section 10.4,
the Certificates so to be redeemed shall become due and payable on the
Redemption Date at the Redemption Price specified in such notice, and on and
after such date (unless the Company shall default in the payment of the
Redemption Price) such Certificates shall cease to bear interest. Upon
surrender of such Certificates for redemption in accordance with said notice,
such Certificates shall be paid by the Company at the Redemption Price.
Installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Certificates registered as such on
the relevant Regular Record Date according to their terms and the provisions of
Section 2.9.
(b) If any Certificate called for redemption shall not be so paid upon
surrender thereof for redemption, the principal thereof shall, until paid, bear
interest from the Redemption Date at the rate then borne by such Certificate.
SECTION 10.7 CERTIFICATES REDEEMED IN PART.
Except as provided in Section 11.4, upon surrender of any Certificate which
is redeemed only in part, the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Certificate, without service
charge, a new Certificate in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Certificate so surrendered.
-51-
<PAGE>
ARTICLE XI
CERTIFICATES SUBJECT TO SET OFF
SECTION 11.1 RIGHT OF SET OFF.
The Company shall have the right at any time, at its option, to set off
against the principal of and interest accrued on any Certificate all or any
portion of the amounts owing to the Company or any of its subsidiaries by the
Holder of such Certificate, such set off to be made first against interest
accrued to the date of such set off and then in increments of $1.00 against the
principal amount of such Certificate. If the Company exercises its right of set
off with respect to a Certificate, it shall give notice thereof ("Set Off
Notice"), as provided in Section 11.3, to the Holder of such Certificate and to
the Trustee and any Paying Agent, but the giving of such notice is not a
condition to the Company's exercise of its right of set off.
SECTION 11.2 EFFECT OF SET OFF.
(a) From and after the date of any set off as specified in a Set Off
Notice, unpaid interest accrued on, and, if applicable, the principal amount of,
the Certificate identified in the Set Off Notice shall, for all purposes of this
Indenture and such Certificate, be reduced and be deemed to have been paid by
the Company to the extent specified in the Set Off Notice, and interest shall
cease to accrue on the portion, if any, of the principal amount of such
Certificate so reduced and deemed to have been paid.
(b) If the principal amount of a Certificate identified in a Set Off
Notice has been reduced and been deemed to have been paid by the Company to an
extent such that the remaining unpaid portion of the principal of such
Certificate is less than $500.00, then such Certificate shall become due and
payable on the date of the set off as specified in the Set Off Notice, and, on
and after the earlier of (i) the date on which such Certificate is surrendered
for payment and (ii) seven days following the date of such Set Off Notice,
(unless the Company shall default in the payment of the remaining unpaid portion
of the principal of such Certificate), such Certificate shall cease to bear
interest. Concurrently with the giving of a Set Off Notice having the effect
specified in this Subsection (b), the Company shall deposit with the Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.6) monies sufficient in amount to pay the
remaining unpaid portion of the principal of the Certificate which is the
subject of the Set Off Notice.
(c) If prior to the date of the set off as specified in a Set Off Notice,
a notice of redemption has been given pursuant to Section 10.4 with respect to
the Certificate identified in the Set Off Notice, and if the Redemption Price of
such Certificate has not yet been paid, then, notwithstanding such redemption
-52-
<PAGE>
notice, such Redemption Price shall, for all purposes of this Indenture and such
Certificate, be reduced and be deemed to have been paid by the Company to the
extent specified in the Set Off Notice, and on the Redemption Date, the Holder
of such Certificate shall only be entitled to receive the remaining balance, if
any, of the Redemption Price.
SECTION 11.3 SET OFF NOTICE.
(a) All Set Off Notices shall state:
(1) the identity of the Certificate as to which the Company exercised
its right of set off;
(2) the date of the set off;
(3) the total amount of the set off;
(4) the extent to which unpaid interest accrued on such Certificate
to the date of the set off has been reduced and deemed paid by the Company;
(5) the extent, if any, to which the principal amount of such
Certificate has been reduced and deemed paid by the Company, and that
interest thereon ceased to accrue from and after the date of the set off;
(6) if the principal amount of such Certificate has been reduced and
deemed paid by the Company to an extent such that the remaining unpaid
portion of the principal of such Certificate is less than $500.00, that the
Certificate became due and payable on the date of the set off, that
interest thereon will cease to accrue on and after the earlier of (i) the
date on which such Certificate is surrendered for payment and (ii) seven
days following the date of such Set Off Notice, and the name and address of
the Paying Agent where such Certificate must be surrendered for payment of
the remaining unpaid portion of the principal of such Certificate; and
(7) if a prior notice of redemption has been given with respect such
Certificate, the extent to which the Redemption Price stated therein has
been reduced and deemed to have been paid by the Company, and the remaining
balance, if any, of the Redemption Price payable on the Redemption Date
stated therein.
(b) All Set Off Notices shall be given on or promptly following the date
of the set off to which they relate. However, no delay by the Company in giving
a Set Off Notice shall impair its validity or effect once given. Prior to its
actual receipt of a Set Off Notice, neither the Trustee nor any Paying Agent
shall have any liability for, or as a result of, any payments made or actions
taken by it pursuant to this Indenture with
-53-
<PAGE>
respect to a Certificate which is the subject of a Set Off Notice.
SECTION 11.4 CERTIFICATES SET OFF IN PART.
If, as provided in this Article, the principal amount of a Certificate has
been reduced and deemed to have been paid in part only, upon surrender of such
Certificate, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Certificate, without service charge, a new
Certificate in aggregate principal amount equal to and in exchange for the
remaining unpaid portion of the principal of the Certificate so surrendered, and
Section 10.7 shall not apply in such case; provided, in the case of any
Certificate as to which the provisions of Subsection (b) of Section 11.2 are
applicable, the Company shall have no obligation to execute, and the Trustee
shall not authenticate and deliver, a new Certificate, and the Holder of the
Certificate so surrendered shall only be entitled to receive payment of the
remaining unpaid portion of the principal thereof as provided in Subsection (b)
of Section 11.2.
SECTION 11.5 HOLDER HAS NO RIGHT OF SET OFF.
No Holder of any Certificate shall have any right to set off any amounts
which such Holder owes to the Company or any of its subsidiaries against the
principal of or interest accrued on such Certificate, and each Holder by
acceptance of a Certificate waives and relinquishes any such right.
ARTICLE XII
SUBORDINATION OF CERTIFICATES
SECTION 12.1 SUBORDINATION TO SENIOR INDEBTEDNESS.
(a) The Company for itself, its successors and assigns, covenants and
agrees, and each Holder of Certificates, by his acceptance thereof, likewise
covenants and agrees, that, anything in the Certificates or this Indenture to
the contrary notwithstanding, the indebtedness evidenced by each and all of the
Certificates, and the payment of the principal thereof and the interest thereon,
shall be subordinate and junior in right of payment, to the extent and in the
manner hereinafter set forth, to all Senior Indebtedness.
(b) The Certificates shall be subordinate and junior in right of payment
to all Senior Indebtedness in the following respects:
(1) In the event of any insolvency or bankruptcy proceedings, and any
receivership, liquidation, reorganization, arrangement or other similar
proceedings in connection therewith relative to the Company or to its
creditors, as such, or to its Property, or in the event of any proceedings
-54-
<PAGE>
for voluntary liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy, then the holders of
Senior Indebtedness shall be entitled to receive payment in full of all
Senior Indebtedness (whether accrued prior or subsequent to the
commencement of such case or proceedings) before the Holders of the
Certificates are entitled to receive any payment with respect to the
Certificates, and to that end (but subject to the power of a court of
competent jurisdiction to make other equitable provision reflecting the
rights conferred herein upon the Senior Indebtedness and the holders
thereof with respect to the subordinated indebtedness represented by the
Certificates and the Holders thereof by a lawful plan of reorganization
under applicable bankruptcy law) the holders of Senior Indebtedness shall
be entitled to receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or Property or
securities, or by set off or otherwise, which may be payable or deliverable
in any such proceedings in respect of the Certificates (other than
securities which are subordinate and junior in right of payment, at least
to the extent provided herein with respect to the Certificates, to the
payment of all Senior Indebtedness then outstanding) and each Holder of the
Certificates irrevocably authorizes and empowers such holders of Senior
Indebtedness to demand, sue for, collect and receive any such payment or
distribution and to receipt therefor, and to file all such claims and take
all such action, in the name of such Holders of the Certificates or
otherwise, as such holders of Senior Indebtedness may determine to be
necessary or appropriate for the enforcement of these subordination
provisions, and each Holder of the Certificates will also execute and
deliver such instruments confirming such authorizations and such powers of
attorney, proofs of claim, assignments of claim and other instruments as
may be requested by such holders of Senior Indebtedness in order to enable
such holders to enforce any and all claims upon or in respect of the
Certificates; and upon any such insolvency or bankruptcy proceedings,
receivership, liquidation, reorganization, arrangement or other similar
proceedings, or voluntary liquidation, dissolution or other winding up, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, Property or securities or by set off or otherwise (other
than securities which are subordinate and junior in right of payment, at
least to the extent provided herein with respect to the Certificates to the
payment of all Senior Indebtedness then outstanding) to which the Holders
of the Certificates would be entitled, except for the provisions hereof,
shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or
distribution directly to the holders of Senior Indebtedness (pro rata to
each such holder on the basis of the respective amounts of Senior
Indebtedness held by such holder) or their
-55-
<PAGE>
representatives, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Indebtedness;
(2) In the event that the principal of any Certificate shall become
due and payable before its Stated Maturity as a result of a declaration of
acceleration following an Event of Default (under circumstances when the
provisions of the foregoing Clause (1) and the following Clauses (3) and
(4) shall not or shall no longer be applicable), the holders of the Senior
Indebtedness outstanding at the time such Certificate so becomes due and
payable because of such reason shall be entitled to receive payment in full
of all Senior Indebtedness before the Holders of the Certificates are
entitled to receive any payment with respect to the Certificates (including
any payment in connection with the acquisition by the Company of any of the
Certificates for cash or Property other than capital stock of the Company);
(3) In the event that any default shall occur and be continuing with
respect to the payment of Senior Indebtedness, unless payment in full shall
have first been made on all Senior Indebtedness or such default with
respect to such Senior Indebtedness shall have been cured or waived in
accordance with the terms of such Senior Indebtedness, no payment shall be
made with respect to the Certificates (including any such payment which
would cause such default and including any payment in connection with the
acquisition by the Company of any of the Certificates for cash or Property
other than capital stock of the Company); and
(4) In the event that any default (other than those referred to in
Clause (3) above) shall occur and be continuing with respect to any Senior
Indebtedness permitting the holders of such Senior Indebtedness to
accelerate the maturity thereof, unless payment in full shall have first
been made on all Senior Indebtedness or such default with respect to such
Senior Indebtedness shall have been cured or waived in accordance with the
terms of such Senior Indebtedness, all payments with respect to the
Certificates (including any such payment which would cause such default and
including any payment in connection with the acquisition by the Company of
any of the Certificates for cash or Property other than capital stock of
the Company) shall be suspended during any period:
(A) of 180 days after the earlier of (x) the giving of written
notice of such default by the holders of Senior Indebtedness to the
Company and the Trustee or (y) the giving of written notice of such
default by the Company to the Holders of the Certificates; provided,
that only one such notice
-56-
<PAGE>
shall be given pursuant to this Clause (4)(A) in any 12 consecutive
months; or
(B) in which judicial proceedings shall be pending in respect of
such default, a notice of acceleration of the maturity of such Senior
Indebtedness shall have been transmitted to the Company and the
Trustee in respect of such default and such judicial proceedings shall
be diligently pursued in good faith.
(c) In the event that any payment or other distribution is made to or
received by any Holder of the Certificates in contravention of the provisions of
Subsection (b) of this Section, then such payment or other distribution shall be
held by the Holder of such Certificate for the benefit of, and shall be paid
over and delivered to, the holders of Senior Indebtedness (pro rata as their
interests shall appear) or to their representative or the trustee under the
indenture or other agreement (if any) pursuant to which Senior Indebtedness may
have been issued, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness then due
and payable in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Indebtedness.
SECTION 12.2 AUTHORIZATION OF HOLDERS TO TRUSTEE TO EFFECT SUBORDINATION.
Each Holder of Certificates by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate, as between the holders of Senior Indebtedness and
such Holder, the subordination provided in this Article XII and appoints the
Trustee his attorney-in-fact for such purpose.
SECTION 12.3 RESPONSIBILITY OF TRUSTEE.
(a) Upon any payment or distribution of assets of the Company referred to
in this Article XII, the Trustee, subject to the provisions of Section 4.1, and
the Holders of the Certificates shall be entitled to rely upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee or agent or other
person making any payment or distribution to the Trustee or to the Holders of
the Certificates for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XII. The Trustee, however, shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders of Senior Indebtedness if it shall mistakenly pay
over or distribute to Holders of the Certificates, the Company or any other
person
-57-
<PAGE>
moneys or assets to which any holders of Senior Indebtedness shall be entitled
by virtue of this Article XII or otherwise, unless the Trustee shall be charged
with knowledge under this Section 12.3 of the facts which would prohibit the
making of such payment or distribution. Nothing contained in this Article XII
shall prevent the application by the Trustee of any moneys which were deposited
with it hereunder, for the purpose of the payment of or on account of the
principal of, or interest on, the Certificates, unless, prior to the date on
which such application is made by the Trustee, the Trustee shall be charged with
knowledge under this Section 12.3 of the facts which would prohibit the making
of such application.
(b) The Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment of moneys to the
Trustee, or the application of such moneys by the Trustee in accordance with the
terms hereof (other than an acceleration of the principal amount due on the
Certificates because of an Event of Default and other than the existence of any
proceeding initiated by the Trustee), unless and until one business day after
the Trustee shall have received written notice thereof from or on behalf of a
holder of Senior Indebtedness or the Company or any court or any party to any
proceeding referred to in Section 12.1.
(c) The provisions of this Section 12.3 applicable to the Trustee shall
also apply to and be for the benefit of any Paying Agent.
* * * * *
This Indenture may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original, but all of which such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
CERTIFIED GROCERS OF CALIFORNIA, LTD.
By
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-58-
<PAGE>
Attest:
- --------------------------------------
Name:
---------------------------------
Title:
--------------------------------
FIRST INTERSTATE BANK OF CALIFORNIA
By -------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
And
------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
- ---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-59-
<PAGE>
No. $
-------------
CERTIFIED GROCERS OF CALIFORNIA, LTD.
SUBORDINATED PATRONAGE DIVIDEND CERTIFICATE
DUE DECEMBER 15, 2002
Certified Grocers of California, Ltd., a California corporation (herein
called the "Company"), hereby certifies that, as of the date hereof, there has
been allocated on the books of the Company to the required patronage dividend
deposit account of ______________________________ (herein called the "Holder")
the principal amount of _______________________________________ Dollars, for
which amount the Company hereby acknowledges itself to be indebted and which
amount the Company promises to pay to the Holder, or registered assigns, all on
and subject to the terms, conditions and provisions set forth herein and on the
reverse side hereof. By acceptance of this Certificate, the Holder agrees to and
shall be bound by such terms, conditions and provisions.
THE TRANSFERABILITY OF THIS CERTIFICATE IS RESTRICTED -- SEE PARAGRAPH 9 ON
THE REVERSE SIDE HEREOF.
TRUSTEE'S CERTIFICATE OF DATED:
AUTHENTICATION
This is one of the CERTIFIED GROCERS OF
Certificates referred to in CALIFORNIA, LTD.
the within-mentioned
Indenture.
FIRST INTERSTATE BANK OF By
CALIFORNIA, ----------------------------
as Trustee President
Attest:
By
----------------------------
Authorized Signatory
------------------------------
Secretary
EXHIBIT A
<PAGE>
[REVERSE SIDE OF CERTIFICATE]
1. PAYMENT OF INTEREST
The Company will pay interest on the principal amount of this Certificate
from the date hereof at the rate of 7% per annum. Interest will be paid on
December 15 in each year, commencing December 15, 1996 and continuing until the
principal amount hereof is paid or duly made available for payment. Interest
will be computed on the basis of a 365-day or 366-day year, as the case may be,
and the actual number of days elapsed.
2. PAYMENT OF FACE AMOUNT
The Company will pay the principal amount of this Certificate on
December 15, 2002.
3. METHOD OF PAYMENT
The Company will pay interest on the Certificates (except defaulted
interest) to the persons who are registered holders of Certificates on the 15th
day (whether or not a business day) next preceding the interest payment date.
Defaulted interest shall be paid by the Company to the persons who are
registered holders on a subsequent special record date fixed by the Trustee,
notice of which special record date shall be given to holders of Certificates
not less than 15 days prior to such special record date, or may be paid in any
lawful manner. Holders must surrender Certificates to a Paying Agent to receive
payment of the principal amount of Certificates. Payment of the principal amount
of Certificates and payment of interest will be made in such coin or currency of
the United States as at the time of payment is legal tender for payment of
public and private debts, or by check payable in such coin or currency. Interest
may be paid by check to a holder's registered address.
4. PAYING AGENT AND REGISTRAR
Initially, FIRST INTERSTATE BANK OF CALIFORNIA (herein called the
"Trustee"), will act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice. The Company or any of its subsidiaries
may act as Paying Agent or Registrar.
5. INDENTURE
This Certificate is one of a duly authorized issue of Certificates of the
Company, limited in aggregate principal amount to $3,000,000.00, issued under an
Indenture dated as of October 1, 1995 (herein called the "Indenture") between
the Company and the Trustee. The terms of the Certificates include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Section Section 77aaa, et seq.) as amended from
time to time. The
A-2
<PAGE>
Certificates are subject to all such terms, and holders of Certificates are
referred to the Indenture and the Trust Indenture Act of 1939 for a statement of
them.
6. OPTIONAL REDEMPTION
The Certificates are redeemable at the option of the Company, at any time
in whole or from time to time in part, without premium, upon not less than 15
nor more than 60 days prior notice to each holder of Certificates to be redeemed
at its registered address, at their principal amount together with accrued
interest (as such principal amount and accrued interest may have been reduced by
the Company's exercise of its right of set off referred to in paragraph 7 below)
to the redemption date. The portion of the principal amount of Certificates to
be partially redeemed shall be equal to $1.00 or an integral multiple thereof.
In the event of the redemption of a Certificate in part only, a new Certificate
for the unredeemed portion will be issued in the name of the holder upon
cancellation of the Certificate called for partial redemption. On or after the
redemption date interest ceases to accrue on the Certificates or portions of
them called for redemption.
7. SET OFF
The Company shall have the right at any time, at its option, to set off
against the principal of and interest accrued on this Certificate all or any
portion of the amounts owing to the Company or any of its subsidiaries by the
Holder of this Certificate, such set off to be made first against interest
accrued to the date of such set off and then in increments of $1.00 against the
principal amount of this Certificate. As specified in the Indenture, the Company
will give notice of such set off to the Trustee and the Holder of this
Certificate, but the giving of such notice is not a condition to the Company's
exercise of its right of set off. From and after the date of any such set off as
specified in such notice, unpaid interest accrued on, and, if applicable, the
principal amount of, this Certificate shall, for all purposes of the Indenture
and this Certificate, be reduced and be deemed to have been paid by the Company
to the extent specified in such notice, and interest shall cease to accrue on
the portion, if any, of the principal amount of this Certificate so reduced and
deemed to have been paid. If the principal amount of a Certificate identified in
the Company's notice has been reduced and been deemed to have been paid by the
Company to an extent such that the remaining unpaid portion of the principal of
such Certificate is less than $500.00, then such Certificate shall become due
and payable on the date of the set off as specified in the Company's notice,
and, on and after the earlier of the date on which such Certificate is
surrendered for payment and 7 days following the date of the Company's notice,
such Certificate shall cease to bear interest. If prior to the date of the set
off as specified in the Company's notice, a notice of redemption has been given
with respect to this Certificate, and
A-3
<PAGE>
if the redemption price of this Certificate has not yet been paid, then,
notwithstanding such redemption notice, such redemption price shall, for all
purposes of the Indenture and this Certificate, be reduced and be deemed to have
been paid by the Company to the extent specified in the Company's notice, and on
the redemption date, the Holder of this Certificate shall only be entitled to
receive the remaining balance, if any, of the redemption price. No delay by the
Company in giving a notice of set off shall impair its validity or effect once
given. If as a result of the Company's exercise of its right of set off, the
principal amount of this Certificate has been reduced and deemed to have been
paid in part only, a new Certificate for the remaining unpaid portion of the
principal of this Certificate will be issued in the name of the Holder upon
surrender for cancellation of this Certificate; however, if the remaining unpaid
portion of the principal of this Certificate is less than $500.00, a new
Certificate will not be issued and the Holder shall only be entitled to receive
payment of the remaining unpaid portion of the principal of this Certificate
upon surrender of this Certificate.
The Holder of this Certificate shall have no right to set off any amounts
which the Holder owes to the Company or any of its subsidiaries against the
principal of or interest accrued on this Certificate, and by acceptance of this
Certificate the Holder waives and relinquishes any such right.
8. SUBORDINATION
The indebtedness of the Company evidenced by the Certificates is, to the
extent provided in the Indenture, subordinate and junior in right of payment to
the prior payment in full of Senior Indebtedness, as defined in the Indenture,
and this Certificate is issued subject to the provisions of the Indenture with
respect thereto. Each holder of this Certificate, by accepting the same, agrees
to and shall be bound by such provisions and authorizes the Trustee on its
behalf to take such action as may be necessary or appropriate to effectuate the
subordination so provided and appoints the Trustee its attorney-in-fact for such
purpose.
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Certificates are in registered form without coupons in minimum
denominations of $500.00 and in any greater denominations which are integral
multiples of $1.00. HOLDERS OF CERTIFICATES MAY NOT TRANSFER (WHICH INCLUDES ANY
ASSIGNMENT, PLEDGE OR HYPOTHECATION) OR EXCHANGE THEM WITHOUT THE CONSENT OF THE
COMPANY, WHICH CONSENT THE COMPANY IS UNDER NO OBLIGATION TO GIVE. The Company
or the Trustee may require a holder, among other things, to furnish appropriate
endorsements and transfer documents (including evidence of the Company's
consent) and to pay any taxes and fees required by law or permitted by the
Indenture. THE CERTIFICATE REGISTRAR SHALL NOT TRANSFER OR EXCHANGE
A-4
<PAGE>
ANY CERTIFICATE IN THE ABSENCE OF THE COMPANY'S CONSENT THERETO. Without
limiting the Company's right to otherwise withhold its consent, the Company need
not consent to transfer or exchange any Certificate selected for redemption and
the Company need not consent to transfer or exchange any Certificates during a
period of 15 days before the mailing of a notice of redemption of Certificates
selected to be redeemed.
10. PERSONS DEEMED OWNERS
The person in whose name this Certificate is registered may be treated as
the absolute owner of it for all purposes, notwithstanding any contrary notice.
11. UNCLAIMED MONEY
If money for the payment of the principal amount of Certificates or payment
of interest remains unclaimed for two years after such principal or interest has
become due and payable, the Trustee or Paying Agent will pay the money back to
the Company upon its written request. After that, holders entitled to the money
must look to the Company, as unsecured general creditors, for payment unless an
abandoned property law designates another person.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY
If the Company at any time deposits with the Trustee money or U. S.
Government Obligations sufficient to pay the principal amount and interest on
the Certificates to redemption or maturity, the Company will be discharged from
the Indenture as therein provided, and holders of Certificates must look only to
the deposited money and securities for payment. U. S. Government Obligations are
securities backed by the full faith and credit of the United States.
13. AMENDMENT; SUPPLEMENT; WAIVER
Subject to certain exceptions, the Indenture may be amended or
supplemented, and any past default and its consequences may be waived, with the
consent of the holders of not less than a majority in principal amount of the
outstanding Certificates. Without the consent of any holder of Certificates, the
Indenture may be amended or supplemented to evidence the succession of another
corporation to the Company; to add to the covenants of the Company or to
surrender any right or power conferred upon the Company; to cure any ambiguity,
omission, defect or inconsistency or to make any other provisions with respect
to matters or questions arising under the Indenture, provided such action shall
not adversely affect the interests of the holders of the Certificates; or to
modify, eliminate or add to the provisions of the Indenture to such extent as
shall be necessary to effect its qualification under the Trust Indenture Act of
1939 or to add to
A-5
<PAGE>
the Indenture such other provisions as may be expressly permitted by the Trust
Indenture Act of 1939.
14. SUCCESSOR CORPORATION
When a successor corporation assumes all the obligations of its predecessor
under the Certificates and the Indenture, the predecessor corporation will be
released from those obligations.
15. DEFAULTS AND REMEDIES
An Event of Default is a default for 30 days in payment of any interest on
the Certificates; default in payment of the principal amount of any Certificate;
default, for 60 days after notice to the Company by the Trustee or to the
Company and the Trustee by holders of at least 25% in principal amount of the
outstanding Certificates, in performance of any other covenant or agreement in
the Indenture; and certain events of bankruptcy, insolvency or reorganization.
If an Event of Default occurs and is continuing, the Trustee or the holders of
not less than 25% in principal amount of the outstanding Certificates may
declare the principal amount of all the Certificates to be due and payable
immediately. Holders of Certificates may not enforce the Indenture or the
Certificates except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Certificates unless it receives indemnity
satisfactory to it. Subject to certain limitations, holders of a majority in
principal amount of the outstanding Certificates may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of
Certificates notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interests. The Trustee is only deemed to have knowledge of a default or an Event
of Default under certain circumstances set forth in the Indenture.
16. NO RECOURSE AGAINST OTHERS
No director, officer, employee or stockholder of the Company shall have any
liability for any obligations of the Company under the Certificates or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder of Certificates by accepting a
Certificate waives and releases all such liability.
17. AUTHENTICATION
This Certificate shall not be entitled to any benefit under the Indenture
or be valid or obligatory for any purpose, unless the Trustee has executed the
certificate of authentication on the other side of this Certificate by manual
signature.
A-6
<PAGE>
18. DUTIES OF TRUSTEE
Nothing contained in this Certificate shall in any way be construed to
impose any duties upon the Trustee beyond those contained in the Indenture or
the Trust Indenture Act of 1939, as amended from time to time.
19. ABBREVIATIONS
Customary abbreviations may be used in the name of a holder of Certificates
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), and JT TEN (= joint tenants with right of survivorship and not
as tenants in common).
A-7
<PAGE>
ASSIGNMENT
(THE TRANSFERABILITY OF THIS CERTIFICATE
IS RESTRICTED -- SEE PARAGRAPH 9 ABOVE)
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto ______________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________________
| |
|__________________________________________|____________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
the within Certificate and all rights thereunder, hereby irrevocably consti-
tuting and appointing
________________________________________________________________________________
attorney to transfer said Certificate on the books of the Company, with full
power of substitution in the premises.
Dated __________________________________________________________________________
________________________________________________________________________________
Signature
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular, without
alteration or enlargement or any change whatever.
A-8
<PAGE>
[BURKE, WILLIAMS & SORENSEN LETTERHEAD]
October 12, 1995
Certified Grocers of California, Ltd.
2601 South Eastern Avenue
Los Angeles, California 90040
Re: Form S-2 Registration Statement of Certified
Grocers of California, Ltd.
Ladies and Gentlemen:
At your request, we have examined the form of Registration Statement on
Form S-2 being filed by you with the Securities and Exchange Commission on
October 13, 1995 in connection with the registration under the Securities Act of
1933, as amended, of the $3,000,000 Partially Subordinated Patrons' Deposit
Accounts Due December 15, 2002 (the "Deposit Accounts") of Certified Grocers of
California, Ltd. (the "Company").
It is our opinion that the Deposit Accounts will, upon the offering and
sale thereof in the manner referred to in the Registration Statement and in
accordance with the applicable state securities laws, be binding obligations of
the Company.
This opinion letter is solely for your benefit in connection with the
subject transaction, and it may not be relied upon by, nor, except as stated in
the immediately following paragraph, may copies of it be delivered to or used
by, any other person for any purpose whatsoever without our prior written
consent in each instance.
We hereby consent to the use of this opinion as an exhibit to said
Registration Statement and the use of our name in said Registration Statement.
Respectfully submitted,
/s/ Burke, Williams & Sorensen
<PAGE>
CERTIFIED GROCERS OF CALIFORNIA, LTD. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THIRTY-NINE FISCAL YEAR
WEEKS ENDED -----------------------------------------------------
JUNE 3, 1995 1994 1993 1992 1991 1990
------------ --------- --------- --------- --------- ---------
(THOUSANDS OMITTED EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C>
Adjusted net earnings:
Net earnings (loss)....................... $ 524 $ 94 $ 473 $ (3,648) $ (4,682) $ 2,332
Income tax provision (benefit)............ 649 203 530 (794) (2,842) 1,185
Interest expense.......................... 11,421 15,405 15,784 17,253 19,005 17,437
Estimated interest component of rental
expense(c)............................... 1,573 2,214 2,099 1,987 2,784 2,466
Patronage Dividends....................... 6,477 10,837 12,880 12,977 19,979 30,641
------------ --------- --------- --------- --------- ---------
Adjusted net earnings(a)................ $ 20,644 $ 28,753 $ 31,766 $ 27,775 $ 34,244 $ 54,061
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
Fixed Charges:
Gross rental expense...................... $ 14,300 $ 22,707 $ 23,326 $ 22,082 $ 23,198 $ 20,551
Less, estimated rent component............ 12,727 20,493 21,227 20,095 20,414 18,085
------------ --------- --------- --------- --------- ---------
Estimated interest component of rental
expense(c)............................... 1,573 2,214 2,099 1,987 2,784 2,466
Interest incurred......................... 11,421 15,405 15,784 17,253 19,005 17,437
------------ --------- --------- --------- --------- ---------
Fixed charges(b)........................ $ 12,994 $ 17,619 $ 17,883 $ 19,240 $ 21,789 $ 19,903
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
Ratio of Earnings to Fixed
Charges(a)/(b)............................. 1.59x 1.63x 1.78x 1.44x 1.57x 2.72x
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
<FN>
- ------------------------
(a)(b)(c) -- Cross-reference on page.
</TABLE>
EXHIBIT 12.1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2)
FIRST INTERSTATE BANK OF CALIFORNIA
(Exact name of trustee as specified in its charter)
California 95-0593085
(Jurisdiction of Incorporation (I.R.S. Employer
or organization Identification No.)
if not a U.S. national bank)
707 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90017
(Address of principal executive offices) (Zip Code)
William Souza, First Interstate Bancorp General Counsel
633 West Fifth Street, Los Angeles, California 90071 (213) 614-3337
(Name address and telephone number of agent for service)
CERTIFIED GROCERS OF CALIFORNIA, LTD.
(Exact name of obligor as specified in its charter)
CALIFORNIA 95-0615250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2601 S. EASTERN AVENUE, LOS ANGELES, CA 90040
(Address of principal executive offices) (Zip Code)
$3,000,000 SUBORDINATED PATRONAGE CERTIFICATES
DUE DECEMBER 15, 2002
(Title of the indenture securities)
EXHIBIT 25.1
<PAGE>
FORM T-1
ITEM 1. GENERAL INFORMATION. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
STATE BANKING DEPARTMENT
235 Montgomery Street, San Francisco, California 94104
FEDERAL RESERVE BANK OF SAN FRANCISCO
101 Market Street, San Francisco, California 94105
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
(b) Whether it is authorized to exercise corporate trust
powers.
Trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the
trustee, describe each such affiliation.
No such affiliation.
ITEM 3 THROUGH ITEM 15. Not applicable.
ITEM 16. LIST OF EXHIBITS.
*EXHIBIT 1. A copy of the Restated Articles of Incorporation of
the Trustee as presently in effect (incorporated by reference to Exhibit
T-1A on Form T-1, Securities and Exchange Commission File No. 2-91947).
*EXHIBIT 2. A copy of the certificate of the Superintendent of
Banks, State of California, authorizing First Interstate bank of
California to commence business of banking (incorporated by reference to
Exhibit T-1a(b) on Form T-1, Securities and Exchange Commission File No.
2-41187).
*EXHIBIT 3. A copy of the certificate of the Superintendent of
Banks, State of California, authorizing First Interstate Bank of
California to transact trust banking business (incorporated by reference
to Exhibit T-1A(b) on Form T-1, Securities and Exchange Commission File
No. 2-41187).
-1-
<PAGE>
A copy of the Certificate as to Merger of First Western Bank and Trust
Company, San Francisco, California, into California Bank, Los Angeles,
California (United California Bank after said Merger), and as to Purchase by
First Western Bank and Trust Company, Los Angeles, California (New Bank) from
said United California Bank of the Business of Certain Branches of the Former
First Western Bank and Trust Company, San Francisco, California (incorporated
by reference to Exhibit T-1A(c) on Form T-1, Securities and Exchange
Commission File No. 2-41187).
EXHIBIT 4. The By-Laws of the Trustee as presently in effect.
*EXHIBIT 6. The consent of the Trustee required by Section 321(b)
of the Trust Indenture Act of 1939 (incorporated by reference to Exhibit 6 on
Form T-1, Securities and Exchange Commission File No. 2-41187).
EXHIBIT 7. A copy of the latest report of condition of the
Trustee published pursuant to law or the requirements of its supervising or
examining authority.
* Exhibits thus designated are incorporated herein by
reference. These exhibits were previously filed by the Trustee with the
Securities and Exchange Commission and are incorporated with the same
respective designations in this statement by specific reference thereto.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
First Interstate Bank of California, a corporation organized and existing under
the laws of the state of California, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Los Angeles, State of California, on October 12,
1995.
FIRST INTERSTATE BANK OF CALIFORNIA
By: /s/ Carl Boyd
Carl Boyd
Assistant Vice President
-3-
<PAGE>
EXHIBIT 4
B Y - L A W S
OF
FIRST INTERSTATE BANK OF CALIFORNIA
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. SHAREHOLDERS' ANNUAL MEETING: Annual meetings of Shareholders shall
be held at the First Interstate World Center, 633 West Fifth Street, Los
Angeles, California, or at such other California location as the shareholders or
this Board shall direct. Annual meetings shall take place at one-fifteen on the
third Monday in April of each year, if not a legal holiday, and if a legal
holiday, then on the next succeeding day not a legal holiday.
SECTION 2. NOTICE OF SHAREHOLDERS' ANNUAL MEETING: The notice of the annual
meeting of the Shareholders shall be given by the Secretary, or in the event of
his absence, refusal or failure to act, by an Assistant Secretary, or a
Secretary Pro Tem appointed for that purpose by the Chairman of the Board, the
President, or by any Vice President, or by the Executive Committee. Said notice
shall be given in the manner and for the time required by law.
SECTION 3. SPECIAL SHAREHOLDERS' MEETINGS: Special meetings of the shareholders
shall be held at the principal executive office of the Corporation and may be
called by order of the Chairman of the Board, the President, or by the Board of
Directors, or at the request of the holders at the meeting which represent not
less than one-tenth in amount of the shares of the capital stock of the
Corporation issued and outstanding. Notice of special meetings of the
shareholders shall be given by the Secretary, or in the case of his absence,
refusal, or failure to act, by an Assistant Secretary, or Secretary Pro Tem
appointed for that purpose by the Chairman of the Board, the President, or by
any Vice President, or by the Executive Committee; such notice shall be given by
mailing through the United States mails, postage prepaid, a written or printed
notice thereof stating the time, place and general nature of the business to be
transacted at the meeting, addressed to each shareholder of record entitled to
vote at such meeting at the address of such shareholder appearing on the books
of the Corporation, or given by the shareholder to the Corporation for the
purpose of notice, or if no such address appears or is given, at the place where
the principal executive office of the Corporation is located. Said notice shall
be mailed by placing the same in any regular place of deposit for United States
mail not less than ten (10) nor more than sixty (60) days before the day on
which the meeting is to be held.
SECTION 4. ADJOURNMENT OF SHAREHOLDERS' MEETINGS: Any meeting of the
shareholders may be adjourned from time to time by the vote of a majority of the
shares, the Sholders of which are either present in person or represented by
proxy.
1
<PAGE>
ARTICLE II
MEETINGS OF DIRECTORS
SECTION 1. ANNUAL MEETING: The Board of Directors shall meet for the purpose
of organization, the election of officers, and the transaction of other
business, immediately after each annual election of directors on the same day on
which the shareholders' meeting at which they have been elected has been held.
Notice of such meeting need not be given.
SECTION 2. REGULAR MEETINGS OF DIRECTORS: The regular meetings of the Board
shall be held at least once each calendar quarter at such hour and on such day
during such month as shall from time to time be fixed by standing resolution of
the Board, except during the month of April when the annual meeting shall
constitute the regular meeting and shall be held immediately after the annual
election of directors. In the event that the day fixed for a regular meeting of
directors shall fall on a legal holiday, then such regular meeting shall be held
at the same hour upon such day as the Board of Directors may previously
designate by resolution, and if no such day be designated, the said meeting
shall be held on the next succeeding day not a holiday. No notice of regular
meetings of directors is required.
SECTION 3. SPECIAL MEETINGS OF THE DIRECTORS: Special meetings of the Board may
be called by the Chairman of the Board, the President, the Secretary or any two
(2) directors. Notice of special meetings of the Board shall state the time and
place of the meeting but need not state the purpose thereof. Such notice may be
in writing and shall be sufficient if given by United States mail, telegraph,
personal service or by telephone; if by mail then the notice shall be deposited,
postage prepaid, in any regular place of deposit for United States mail in the
City of Los Angeles at least four (4) days before the time of the meeting,
addressed to the director at his last post office address as known to the
officer giving the notice; if by telegraph then the telegram containing the
notice shall be delivered to a telegraph office in the City of Los Angeles,
transmission charges prepaid, at least twenty-four (24) hours before the time of
the meeting, addressed to the director at his last post office address as known
to the officer giving the notice; if by personal service or by telephonic means
at least twenty-four (24) hours before the time of the meeting. A record of
such notice, by whom given and the manner in which given shall be entered upon
the minutes of any special meeting of the Board, and the said minutes on being
read and approved at any subsequent meeting of the Board shall be presumptive
upon the question of service. The attendance of any director at any meeting of
the Board, without protest of lack of notice to him, either prior to or at the
commencement of the meeting shall constitute a waiver of any such notice. A
director may execute a waiver of notice of any meeting of the Board either
before or after such meeting.
SECTION 4. PLACE AND TIME OF MEETINGS OF DIRECTORS: Regular meetings of the
Board shall be held without call or notice at such time and place as shall from
time to time be fixed by standing resolution of the Board. Special meetings of
the Board shall be held at the time and place stated in the notice of such
meeting.
2
<PAGE>
SECTION 5. ACTION WITHOUT MEETING: Any action by the Board may be taken
without a meeting if all members of the Board shall individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board.
SECTION 6. TELEPHONIC MEETINGS: A meeting of the Board of Directors or of any
Committee thereof may be held through the use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Participation in such a meeting shall constitute presence
at such meeting.
ARTICLE III
DIRECTORS
SECTION 1. Wherever in these By-Laws the term "BOARD" is used, the same is
intended to designate the Board of Directors of the Corporation. Subject to
limitations of the Articles of Incorporation, of these By-Laws, of the
California General Corporation Law, and of the California Financial Code as to
action to be authorized or approved by the shareholders, and subject to the
duties of Directors as prescribed by these By-Laws, all corporate powers shall
be exercised by or subject to the direction of, and business and affairs of the
Corporation shall be managed by or under the direction of, the Board. Without
prejudice to such general powers, but subject to the same limitations, it is
hereby expressly declared that the Board shall have the following powers:
a. To control the election, the appointment, the authority,
responsibility and the qualifications of all persons in charge of
the business and the affairs of the Corporation.
b. To cause to be kept a record of all their meetings and proceedings and
of all the meetings of the shareholders, and to cause to be
presented at the annual meeting of the shareholders a statement
showing the assets and liabilities of the Corporation.
c. To require from the officers and from other persons in charge of the
business and affairs of the Corporation respectively, such bond or
security as it may see fit for the faithful performance of their
duties.
d. To appoint such committees and members thereof as it may deem proper
and to define the powers and duties of such committees, and to
determine their compensation.
e. Make any distribution to its shareholders at a rate or in a periodic
amount or within a price range as it may deem proper and in a
manner provided by law.
f. To cause to be issued to the shareholders, in proportion to their
several interests, certificates of stock not to exceed in the
aggregate the authorized capital.
3
<PAGE>
g. To fix by general and uniform resolution or resolutions the
compensation of each director for serving as director and to make
such changes therein from time to time as it may deem proper.
SECTION 2. The authorized number of Directors of this Corporation shall not be
less than eight (8) nor more than fifteen (15). The exact number of Directors
shall be fixed, within these limits, by approval of the Board of Directors or
the Shareholders, within the limits and in the manner prescribed by law.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND TITLES: The Corporation shall have (a) a Chairman of the
Board, (b) a President, and (c) a Secretary. The Corporation may also have one
or more Vice Chairmen, one or more Executive Vice Presidents, one or more Senior
Vice Presidents, one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Cashiers, one or more Assistant Secretaries, a
General Counsel, one or more Assistant General Counsel, one or more Managing
Counsel, one or more Senior Counsel, one or more Counsel, one of more Assistant
Counsel, two or more Trust Officers of whom one or more may be designated Senior
Trust Officer, a General Auditor, one or more Audit Officers, a Chief Financial
Officer, a Comptroller, one or more Financial Analysis Officers, one or more
Accounting Officers, one or more Managers, one or more Assistant Managers, one
or more Operations Officers, one or more Corporate Banking Officers, one or more
Banking Officers, and one or more International Banking Officers.
There may also be such other officers as may from time to time be designated by
resolution of the Board of Directors.
SECTION 2. APPOINTMENT AND TERM OF OFFICE: The Chairman of the Board, the
President, the Vice Chairmen, the Executive Vice Presidents, the Senior Vice
Presidents, the Secretary, the General Counsel, the Assistant General Counsel,
the Senior Trust Officers, the General Auditor, the Chief Financial Officer and
the Comptroller shall be chosen by the Board at the first meeting after the
election of the Board and shall hold office at the pleasure of the Board. The
Board may also appoint such officers from time to time at any regular or special
meeting of the Board. All other officers designated by resolution of the Board
as provided in Section 1, may be appointed by the Chairman of the Board or the
President. All persons authorized to sign on behalf of the Corporation, other
than officers, may be appointed by the Chairman of the Board, or the President.
SECTION 3. CHAIRMAN OF THE BOARD: The Chairman of the Board shall preside at
all meetings of the shareholders and all meetings of the Board and of the
Executive Committee. He shall be the chief executive officer of the Corporation
with general executive supervision of its business and affairs. He shall act as
Chairman of all committees of which he is a member, except as may be provided in
the resolution or order appointing such committee or committees.
In the absence or disability of the Chairman of the Board, the following
officers in the following order shall act in his stead: the President, an
officer
4
<PAGE>
designated by the Chairman of the Board, an officer designated by the Board of
Directors or Executive Committee. In the absence or disability of the Chairman
of the Board, the President, and all officers so designated, if any, the Board
of Directors shall elect a temporary Chairman of the Board to act during such
absence or disability of said officers. The Chairman of the Board shall at all
times have on file with the Secretary his written designation of the officer
from time to time so designated by him to act as the chief executive officer in
his absence or disability and in the absence or disability of the President.
SECTION 4. PRESIDENT: The President shall have such powers and duties as may
be prescribed by these By-Laws, the Board, the Executive Committee or the
Chairman of the Board. Subject to the authority of the Chairman of the Board,
the President shall have general executive supervision of the business and
affairs of the Corporation and shall be senior in authority to all officers
other than the Chairman of the Board. In the absence or disability of the
Chairman of the Board, the President shall exercise the powers and perform the
duties of the Chairman of the Board.
SECTION 5. VICE CHAIRMEN: The Vice Chairmen shall perform the duties imposed
upon them by the By-Laws, the Board of Directors, the Executive Committee, the
Chairman of the Board or the President.
SECTION 6. EXECUTIVE VICE PRESIDENTS: The Executive Vice Presidents shall
perform the duties imposed upon them by the By-Laws, the Board, the Executive
Committee, the Chairman of the Board or the President.
SECTION 7. SENIOR VICE PRESIDENTS: The Senior Vice Presidents shall perform
the duties imposed upon them by the By-Laws, the Board, the Executive Committee,
the Chairman of the Board or the President.
SECTION 8. SECRETARY: The Secretary shall keep full and complete minutes of
each meeting of the Board, of the Executive Committee and of the shareholders
and give notice, as required, of all such meetings. He shall maintain custody
of and keep such other records of the Corporation as are required by the Board
and, generally, perform all duties which pertain to his office and which are
required by the Board.
SECTION 9. GENERAL AUDITOR: The General Auditor shall be responsible to the
Board, through the Audit Committee, for the systems of internal audit and for
testing and evaluating the systems of protective controls. The office of the
General Auditor shall make such examinations and reports as the General Auditor
deems advisable or as may be required by the Audit Committee. The General
Auditor shall have the duty to report to the Chairman of the Board on all
matters concerning which the General Auditor deems advisable or which the
Chairman of the Board may request and shall perform such other duties as the
Chairman of the Board may prescribe. Additionally, the General Auditor shall
have the duty of reporting independently of all officers of the Corporation to
the Audit Committee at least quarterly on all matters concerning which the
General Auditor deems advisable or which the Audit Committee may request.
5
<PAGE>
SECTION 10. CHIEF FINANCIAL OFFICER: The Chief Financial Officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct accounts
of the properties and business transactions of the Corporation, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, surplus and shares. He shall be responsible for all the money, funds
and valuables belonging to the Corporation. He shall deposit all money and
other valuables in the name of and to the credit of the Corporation with such
depositories as are authorized by law. He shall render to the Chairman of the
Board, the President and Board, whenever they request it, an account of all of
his transactions as Chief Financial Officer and of the financial condition of
the Corporation, and shall have such other powers and perform such other duties
as are prescribed by the Board, the Executive Committee, the By-Laws, the
Chairman of the Board or the President.
SECTION 11. OTHER OFFICERS: Each other officer shall have such authority and
perform such duties as are prescribed by the By-Laws, the Board, the Executive
Committee, the Chairman of the Board or the President.
ARTICLE V
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. EXECUTIVE COMMITTEE: There shall be an Executive Committee
consisting of the Chairman of the Board, the President and at least three
non-officer directors to be appointed for respective terms to be fixed by the
Board. A majority of the members of the Committee shall constitute a quorum for
the transaction of business. The Board may from time to time appoint an
additional director or directors as an alternate member or members of the
Committee to serve only at a meeting if there otherwise may not be a quorum
present at such meeting. The alternate member or members so appointed shall act
in the place and stead of any regular member or members who may be absent from
such meeting. The Executive Committee shall have all of the powers and authority
of the Board in the management of the business and affairs of the Corporation
during the intervals between meetings of the Board, except the power to declare
dividends and to adopt, amend or repeal By-Laws or as otherwise prohibited by
law. The Executive Committee may establish and appoint such other committees
not otherwise provided for by these By-Laws or the Board of Directors as it may
deem advisable and may prescribe the powers and duties of such committees.
The Chairman of the Board or a member of the Committee designated by the
Chairman of the Board, shall preside over meetings of the Committee. Meetings
of the Committee may be held at the call of the Chairman of the Board or the
President or any two other members of the Committee at the time and place stated
in the notice of such meeting.
The transactions of any meetings of the Executive Committee however called or
noticed or wherever held shall be as valid as though had at a meeting duly held
after the regular call and notice, if a quorum
6
<PAGE>
be present and if, either before or after the meeting each of the members of the
Committee not present sign a written waiver of notice or a consent to the
holding of such meeting or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the records of the Committee
or made a part of the minutes of the meeting.
SECTION 2. OTHER COMMITTEES: The Board of Directors may designate one or more
committees from time to time, each consisting of two or more directors to serve
at the pleasure of the Board. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the Board of Directors shall have all the
authority of the Board, except with respect to:
a. The approval of any action for which shareholder approval is also
required.
b. The filling of vacancies on the Board or in any Committee.
c. The fixing of compensation of the directors for serving on the Board
or on any committee.
d. The amendment or repeal of By-Laws or the adoption of new By-Laws.
e. The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable.
f. A distribution to the shareholders of the corporation as defined in
Section 166 of the California Corporations Code, except at a rate
or in a periodic amount or within a price range determined by the
Board.
g. The appointment of other committees of the Board or the members
thereof.
h. The approval of any action for which the entire Board is required.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
(a) INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. Each person who was
or is a party or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer or employee of the Corporation, or of any
predecessor corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or other agent of another corporation or of a
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer or employee or in
any other capacity while serving as a director, officer or employee, shall be
indemnified and held harmless by the Corporation to the fullest extent
permissible
7
<PAGE>
under California law and the Corporation's Articles of Incorporation, against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) actually and
reasonably incurred or suffered by such person in connection therewith. Such
indemnification shall continue as to a person who has ceased to be a director,
officer or employee and shall inure to the benefit of his or her heirs,
executors and administrators. Notwithstanding the foregoing, the Corporation
shall indemnify any such person in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall include the right to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
final disposition to the fullest extent permitted by law; provided, however,
that the payment under this Article of such expenses in advance of the final
disposition of a proceeding may be conditioned upon the delivery to the
Corporation of such undertakings by or on behalf of such director, officer or
employee to repay all amounts so advanced as may be required or permitted by
law.
(b) EXCLUSIONS. Notwithstanding the foregoing or any other provisions under
this Article, the Corporation shall not be liable under this Article to
indemnify a director, officer or employee against, or make any advances or other
payments in connection with, any proceeding against a director, officer or
employee based upon, arising out of, resulting from, relating to or in
consequence of (1) transactions or activities in which such person gained or
sought to gain, any improper personal profit or advantage, or (2) the
intentional misconduct of such person which such person knew, or reasonably
should have known, would violate the law or any policy of the Corporation or
(3) the knowing fraud or deliberately dishonest actions of such person.
(c) SUCCESSFUL DEFENSE. To the extent that a director, officer or employee has
been successful on the merits in defense of any proceeding referred to in
paragraph (a) or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
(d) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification provided by this
Article shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, by-law, agreement, vote of shareholders or
disinterested directors, or otherwise.
ARTICLE VII
CERTIFICATE OF STOCK
Certificates for shares of the capital stock of the Corporation shall be of such
form as the Board may prescribe and shall be signed by the President or a Vice
President and the Secretary or an Assistant Secretary, or be authenticated by
facsimiles of the signatures of the President and the Secretary, or by a
facsimile of the signature of the President and the written signature of the
Secretary or an Assistant Secretary. Every certificate authenticated by a
facsimile of a signature must be countersigned by a transfer agent or transfer
clerk, and be registered by an incorporated bank or trust company as registrar
of transfers, before issuance.
8
<PAGE>
ARTICLE VIII
TRANSFER OF STOCK
SECTION 1. Shares of the capital stock of the Corporation may be transferred by
the holders thereof, or by attorney legally constituted, or by their legal
representatives, by endorsement on the certificates of stock, but no such
transfer shall be valid until the certificate is surrendered and acknowledgment
made on the books of the Corporation.
SECTION 2. No new certificates shall be issued for the surrendered certificates
unless the surrendered certificates have been duly canceled. If a certificate
shall be lost or destroyed, the Board or the Executive Committee may order a new
certificate in lieu thereof issued upon such guaranty or indemnity of the person
claiming the same as the Board or the Executive Committee may deem proper and
satisfactory.
SECTION 3. The Board may fix a time in the future as a record date for the
determination of the shareholders entitled to notice of and to vote at any
meeting of shareholders or entitled to receive any dividend or distribution, or
any allotment of rights, or to exercise rights in respect to any change,
conversion, or exchange of shares. The record date so fixed shall be not more
than sixty (60) nor less than ten (10) days prior to the date of the meeting or
event for the purposes of which it is fixed. When a record date is so fixed,
only shareholders of record on that date are entitled to notice of and to vote
at the meeting or to receive the dividend, distribution, or allotment of rights,
or to exercise the rights, as the case may be, notwithstanding any transfer of
any shares on the books of the Corporation after the record date. At any
meeting of shareholders as to which the Board has not fixed a record date for
the determination of the shareholders entitled to notice of and to vote at such
meeting, only shareholders of record at the close of business on the business
day next preceding the day on which notice is given or, if notice is waived, at
the close of business on the business day next preceding the day on which the
meeting is held shall be entitled to vote thereat.
ARTICLE IX
DEPOSITS
SECTION 1. All deposits made by the shareholders shall be entitled to the same
rights, privileges and benefits as those of other depositors.
ARTICLE X
SEAL
SECTION 1. The seal of the Corporation shall be in such form as the Board may
prescribe. In the execution on behalf of this Corporation of any instrument,
document, writing, notice or paper it shall not be necessary to affix the
corporate seal of this Corporation thereon, and any such instrument, document,
writing, notice or paper when executed without said seal affixed thereon shall
be of the same force and effect and as binding on this Corporation as if said
corporate seal had been affixed
9
<PAGE>
thereon in each instance. Said seal, if required, may be affixed, imprinted or
reproduced by facsimile on any instrument or document, including certificates
for shares of the stock of this Corporation.
ARTICLE XI
AMENDMENT TO BY-LAWS
SECTION 1. Subject to the right of shareholders to adopt, amend or repeal
By-Laws, as provided in Section 211 of the Corporations Code of California,
By-Laws may be adopted, amended or repealed by the Board, except that a By-Law
or amendment thereof changing the authorized number of directors may be adopted,
amended or repealed by the Board only pursuant to Section 212 of said
Corporations Code.
I, Carl Boyd, Assistant Vice President of FIRST INTERSTATE BANK OF CALIFORNIA, a
California corporation, hereby certify that the foregoing ten (10) pages
represent a full, true and correct copy of the Code of By-Laws of First
Interstate Bank of California as amended, and that the same is in full force and
effect as of April 26, 1994.
WITNESS my hand and the seal of said Corporation this 28th day of September,
1995.
/s/ Carl Boyd
-------------
Assistant Vice President
of
FIRST INTERSTATE BANK OF CALIFORNIA
BYLAWS
10
<PAGE>
EXHIBIT 7
<TABLE>
<CAPTION>
<S> <C> <C> <C>
First Interstate Bank of California Call Date: 06/30/95 ST-BK: 66-6 FFIEC: 031
1200 W. 7th St. Page RC-1
Los Angeles, CA 90017 Vendor ID: D Cert: 01226
11
Transit Number: 12200021
</TABLE>
Consolidated Report of Condition for Insured Commercial and State-Chartered
Savings Banks for June 30, 1995
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - Balance Sheet
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Assets RCFD
1. Cash and balances due from depository institutions (from Schedule RC-A): ----
a. Noninterest-bearing balances and currency and coin(1). 0081 2,708,614 1.a
b. Interest-bearing balances(2). 0071 24,175 1.b
2. Securities
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 5,121,363 2.a
b. Available-for-sale securities(from Schedule RC-B, column D) 1773 43,129 2.b
3. Federal funds sold and securities purchased under agreements to resell in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's:
a. Federal funds sold 0276 1,726,000 3.a
b. Securities purchased under agreements to resell 0277 0 3.b
4. Loans and Lease financing receivables: RCFD
a. Loans and Leases, net of unearned income ----
(from Schedule RC-C) 2122 14,851,669 4.a
b. LESS: Allowance for Loans and Lease losses 3123 413,782 4.b
c. LESS: Allocated transfer risk reserve 3128 0 4.c
d. Loans and Leases, net of unearned income,
allowance, and reserve(Item 4.a minus 4.b and 4.c) 2125 14,437,887 4.d
5. Trading Assets (from Schedule RC-D) 3545 0 5.
6. Premises and fixed assets (including capitalized leases) 2145 405,538 6.
7. Other real estate owned (from Schedule RC-M) 2150 51,955 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) 2130 19,023 8.
9. Customers' liability to this bank on acceptances outstanding 2155 17,253 9.
10. Intangible assets (from Schedule RC-M) 2143 354,663 10.
11. Other assets (from Schedule RC-F) 2160 526,719 11.
12. Total assets (sum of items 1 through 11) 2170 25,436,319 12.
</TABLE>
__________________________
(1)Includes cash items in process of collection and unposted debits.
(2)Includes time certificates of deposit not held in trading accounts.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
First Interstate Bank of California Call Date: 06/30/95 ST-BK: 66-6 FFIEC: 031
1200 W. 7th St. Page RC-2
Los Angeles, CA 90017 Vendor ID: D Cert: 01226
12
Transit Number: 12200021
</TABLE>
Schedule RC - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits: RCON
----
a. In domestic offices (sum of totals of columns A and C
from Schedule RC-E, Part I) 2200 20,846,886 13.a
(1) Noninterest-bearing(1) 6631 8,454,813 13.a.1
(2) Interest-bearing 6636 12,392,073 13.a.2
RCFN
----
b. In foreign offices, Edge and Agreement subsidiaries, and
IBFs (from Schedule RC-E, part II) 2200 467,115 13.b
(1) Noninterest-bearing 6631 0 13.b.1
(2) Interest-bearing 6636 467,115 13.b.2
14. Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its Edge
and Agreement subsidiaries, and in IBFs: RCFD
----
a. Federal funds purchased 0278 791,575 14.a
b. Securities sold under agreements to repurchase 0279 363,318 14.b
RCON
15. a. Demand notes issued to the ----
U.S. Treasury 2840 0 15.a
RCFD
----
b. Trading Liabilities 3548 0 15.b
16. Other borrowed money:
a. With original maturity of one year or less 2332 472,099 16.a
b. With original maturity of more than one year 2333 0 16.b
17. Mortgage indebtedness and obligations under capitalized
Leases 2910 87,967 17.
18. Bank's Liability on acceptances executed and outstanding 2920 17,253 18.
19. Subordinated notes and debentures 3200 75,000 19.
20. Other Liabilities (from Schedule RC-G) 2930 315,495 20.
21. Total Liabilities (sum of items 13 through 20) 2948 23,436,708 21.
22. Limited-Life preferred stock and related surplus 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus 3838 0 23.
24. Common stock 3230 428,182 24.
25. Surplus (excluded all surplus related to preferred stock) 3839 664,694 25.
26. a. Undivided profits and capital reserve 3632 906,472 26.a
b. Net unrealized holding gains (losses) on available-for-sale
securities 8434 263 26.b
27. Cumulative foreign currency translation adjustments 3284 0 27.
28. Total equity capital (sum of items 23 through 27) 3210 1,999,611 28.
29. Total Liabilities, Limited-Life preferred stock, and equity
capital (sum of items 21, 22, and 28) 3300 25,436,319 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
RFCD
----
1. Indicate in the box at the right the number of the
statement below that best describes the most
comprehensive level of auditing work performed for the bank NUMBER
by Independent external auditors as of any date during 1994 6724 N/A M.1
1=Independent audit of the bank conducted in accordance 4=Director's examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2=Independent audit of the bank's parent holding company 5=Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accountant firm which
submits a report on the consolidated holding company (but 6=Compilation of the bank's financial statements by
not on the bank separately) external auditors
3=Directors' examination of the bank conducted in accordance 7=Other audit procedures (excluding tax preparation work)
with generally accepted auditing standards by a certified
public accounting firm (may be required by state charter- 8=No External audit work
ing authority)
_____________
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
</TABLE>
